UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 2003
- --------------------------------------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to _______________________
Commission File Number 0-23702
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STEVEN MADDEN, LTD.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3588231
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
52-16 Barnett Avenue, Long Island City, New York 11104
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 446-1800
- --------------------------------------------------------------------------------
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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ].
As of May 9, 2003, the latest practicable date, there were 12,890,705 shares of
common stock, $.0001 par value, outstanding.
1
STEVEN MADDEN, LTD.
FORM 10-Q
QUARTERLY REPORT
March 31, 2003
TABLE OF CONTENTS
PART I- FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements:
Consolidated Balance Sheets.................................... 3
Consolidated Statements of Operations.......................... 4
Consolidated Statements of Cash Flows.......................... 5
Notes to condensed Consolidated Financial Statements........... 6
ITEM 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations............... 10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk..... 20
ITEM 4. Controls and Procedures........................................ 20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................. 22
ITEM 5. Other Information.............................................. 22
ITEM 6. Exhibits and Reports on Form 8K................................ 23
Signature...................................................... 24
Certifications under the Sarbanes-Oxley Act of 2002............ 25
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
March 31, December 31, March 31,
2003 2002 2002
------------ ------------ ------------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 44,614 $ 56,713 $ 33,186
Accounts receivable, net of allowances of $402, $497 and $291 3,616 3,039 2,588
Due from factor, net of allowances of $1,903, 1,718 and $1,443 32,525 22,373 36,287
Inventories 24,051 19,445 15,608
Marketable securities - available for sale 6,088 500 511
Prepaid expenses and other current assets 2,412 1,651 6,484
Deferred taxes 1,633 1,633 1,223
------------ ------------ ------------
Total current assets 114,939 105,354 95,887
Property and equipment, net 17,360 17,073 15,616
Deferred taxes 3,699 3,699 3,019
Deposits and other 296 298 302
Marketable securities - available for sale 20,701 22,010 5,703
Cost in excess of fair value of net assets acquired, net of
accumulated amortization of $714 2,066 2,066 2,066
------------ ------------ ------------
$ 159,061 $ 150,500 $ 122,593
============ ============ ============
LIABILITIES
Current liabilities:
Current portion of capital lease obligations $ 9 $ 14 $ 42
Accounts payable 9,575 9,044 7,543
Accrued expenses 9,961 7,134 4,230
Accrued incentive compensation 1,340 2,701 674
------------ ------------ ------------
Total current liabilities 20,885 18,893 12,489
Deferred rent 1,635 1,532 1,353
------------ ------------ ------------
22,520 20,425 13,842
------------ ------------ ------------
Commitments, contingencies and other
STOCKHOLDERS' EQUITY
Preferred stock - $.0001 par value, 5,000 shares authorized;
none issued; Series A Junior Participating preferred stock -
$.0001 par value, 60 shares authorized; none issued
Common stock - $.0001 par value, 60,000 shares authorized, 14,104,
14,016 and 13,653 shares issued, 12,859, 12,771 and
12,408 outstanding 1 1 1
Additional paid-in capital 73,194 70,683 62,806
Retained earnings 75,771 70,722 54,975
Unearned compensation (4,561) (3,476) (1,040)
Other comprehensive gain:
Unrealized gain on marketable securities 127 136
Treasury stock - 1,245 shares at cost (7,991) (7,991) (7,991)
------------ ------------ ------------
136,541 130,075 108,751
------------ ------------ ------------
$ 159,061 $ 150,500 $ 122,593
============ ============ ============
See notes to financial statements F-3
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
Three Months Ended
March 31,
---------------------
2003 2002
-------- --------
Net sales:
Wholesale $ 57,592 $ 47,835
Retail 21,106 18,776
-------- --------
78,698 66,611
-------- --------
Cost of sales:
Wholesale 37,836 31,529
Retail 9,897 8,541
-------- --------
47,733 40,070
-------- --------
Gross profit:
Wholesale 19,756 16,306
Retail 11,209 10,235
-------- --------
30,965 26,541
Commission and licensing fee income 1,690 1,244
Operating expenses (24,392) (20,932)
-------- --------
Income from operations 8,263 6,853
Interest income, net 442 204
-------- --------
Income before provision for income taxes 8,705 7,057
Provision for income taxes 3,656 2,964
-------- --------
Net income $ 5,049 $ 4,093
======== ========
Basic income per share $ .39 $ .33
======== ========
Diluted income per share $ .36 $ .30
======== ========
Basic weighted average common shares outstanding 12,789 12,352
Effect of dilutive securities - options 1,083 1,188
-------- --------
Diluted weighted average common shares outstanding 13,872 13,540
======== ========
See notes to financial statements F-4
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
March 31,
--------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net income $ 5,049 $ 4,093
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 1,343 802
Non-cash compensation 774 462
Provision for bad debts 90 90
Deferred rent expense 103 54
Realized gain on marketable securities (9)
Changes in:
Accounts receivable (482) (550)
Due from factor (10,337) (13,560)
Inventories (4,606) 210
Prepaid expenses and other assets (759) 2,213
Accounts payable and other accrued expenses 1,997 (5,702)
-------- --------
Net cash used in operating activities (6,837) (11,888)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (1,630) (711)
Purchase of marketable securities (10,942) (6,214)
Sale/redemption of marketable securities 6,663
-------- --------
Net cash used in investing activities (5,909) (6,925)
-------- --------
Cash flows from financing activities:
Proceeds from options and warrants exercised 652 1,835
Repayment of lease obligations (5) (15)
-------- --------
Net cash provided by financing activities 647 1,820
-------- --------
Net decrease in cash and cash equivalents (12,099) (16,993)
Cash and cash equivalents - beginning of period 56,713 50,179
-------- --------
Cash and cash equivalents - end of period $ 44,614 $ 33,186
======== ========
See notes to financial statements F-5
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Financial Statements - Unaudited
March 31, 2003
NOTE A - BASIS OF REPORTING
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, such statements include all
adjustments (consisting only of normal recurring items) which are considered
necessary for a fair presentation of the financial position of Steven Madden,
Ltd. and subsidiaries (the "Company") as of March 31, 2003, and the results of
its operations and cash flows for the three-month period then ended. The results
of its operations for the three-month period ended March 31, 2003 are not
necessarily indicative of the operating results for the full year. It is
suggested that these financial statements be read in conjunction with the
financial statements and related disclosures for the year ended December 31,
2002 included in the Annual Report of Steven Madden, Ltd. on Form 10-K.
NOTE B - MARKETABLE SECURITIES
Marketable securities consist primarily of corporate bonds which have strong
credit ratings and maturities greater than three months and up to five years at
the time of purchase. These securities, which are classified as
available-for-sale, are carried at fair value, with unrealized gains and losses,
net of any tax effect, reported in shareholders' equity as accumulated other
comprehensive income (loss). Amortization of premiums and discounts are included
in interest income and are not material. The values of these securities may
fluctuate as a result of changes in market interest rates and credit risk.
NOTE C - INVENTORIES
Inventories, which consist of finished goods, are stated at the lower of cost
(first-in, first-out method) or market.
NOTE D - REVENUE RECOGNITION
Wholesale revenue is recognized upon shipment. Allowances for estimated
discounts and allowances are recognized when sales are recorded. Commission
revenue is recognized when title of product transfers to the customer. Retail
sales are recognized when the payment is received from customers and are
recorded net of returns. Licensing revenue is recognized on the basis of net
sales reported by the licensee.
NOTE E - NET INCOME PER SHARE OF COMMON STOCK
Basic income per share is based on the weighted average number of common shares
outstanding during the period. Diluted income per share reflects the potential
dilution assuming common shares were issued upon the exercise of outstanding
options and the proceeds thereof were used to purchase outstanding common
shares. Diluted income per share also reflects the vested portion of shares,
granted to employees, which have not yet been issued.
F-6
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Financial Statements - Unaudited
March 31, 2003
NOTE F - STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" encourages the use of the fair value based method of
accounting for stock-based employee compensation. Alternatively, SFAS No. 123
allows entities to continue to apply the intrinsic value method prescribed by
Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations and provide pro forma disclosures of net
income (loss) and earnings (loss) per share, as if the fair value based method
of accounting had been applied to employee awards. The Company has elected to
continue to apply the provisions of APB Opinion 25 and provide the disclosures
required by SFAS No. 123 and SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which was released in December 2002
as an amendment of SFAS No. 123. The following table illustrates the effect on
net income and earnings per share if the fair value based method had been
applied to all awards.
Three Months Ended March 31,
------------------------------
2003 2002
------------- -------------
Reported net income $ 5,049 $ 4,093
Stock-based employee compensation included in
reported net income, net of tax 83 249
Stock-based employee compensation determined
under the fair value based method, net of tax (564) (392)
------------- -------------
Pro forma net income $ 4,568 $ 3,950
============= =============
Basic income per share:
As reported $ 0.39 $ 0.33
Pro forma $ 0.36 $ 0.32
Diluted income per share:
As reported $ 0.36 $ 0.30
Pro forma $ 0.33 $ 0.29
NOTE G - COMMITMENTS, CONTINGENCIES AND OTHER
[1] Indictment:
On June 20, 2000, Steven Madden, the Company's former Chairman and Chief
Executive Officer, was indicted in the United States District Courts for
the Southern District and Eastern District of New York. The indictments
alleged that Mr. Madden engaged in securities fraud and money laundering
activities. In addition, the Securities and Exchange Commission filed a
complaint in the United States District Court for the Eastern District of
New York alleging that Mr. Madden violated Section 17(a) of the
Securities Exchange Act of 1934, as amended. On May 21, 2001, Steven
Madden entered into a plea agreement with the U.S. Attorney's Office,
pursuant to which he pled guilty to four of the federal charges filed
against him. In addition, Mr. Madden reached a separate settlement
agreement with the Securities and Exchange Commission regarding the
allegations contained in its complaint. As a result, Mr. Madden resigned
as the Company's Chief Executive Officer and as a member of the Company's
Board of Directors effective July 1, 2001. Mr. Madden has agreed to serve
as the Company's Creative and Design Chief, a non-executive position. On
April 4, 2002, Mr. Madden was sentenced in the United States District
Court for the Southern District of New York to forty one (41) months'
imprisonment in connection with two of the federal charges to which he
pled guilty. On May 3, 2002, Mr. Madden was sentenced in the United
States District court for the Eastern District of New York to forty one
(41) months' imprisonment in connection with the remaining two charges to
which he pled guilty. The sentences will run concurrently.
F-7
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Financial Statements - Unaudited
March 31, 2003
NOTE G - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
[1] Indictment: (continued)
Under the settlement agreement with the SEC, Mr. Madden has agreed to not
serve as an officer or director of a publicly traded company for 7 years.
Neither the indictments nor the SEC complaint allege any wrongdoing by
the Company or its other officers and directors. Mr. Madden began serving
his sentence in September of 2002.
In December 2001, the Company purchased a loss mitigation policy to cover
costs in connection with the class action litigation and shareholder
derivative actions described below. The policy covers the Company's
anticipated damages and legal costs in connection with such lawsuits. The
Company is obligated to pay for damages and costs in excess of the policy
limits. The cost of the policy was $6,950,000.
[2] Class action litigation:
Between June and August 2000 several class action lawsuits were commenced
in the United States District Court for the Eastern District of New York
against the Company, Steven Madden personally, and, in some of the
actions, the Company's then President and its Chief Financial Officer.
A settlement in principle of these actions has been reached, subject to
execution of definitive settlement documentation, notices to class
members, a hearing and approval by the District Court. The tentative
settlement is within the limits of insurance coverage described above.
[3] Shareholder derivative actions:
On or about September 26, 2000, a shareholder derivative action was
commenced in the United States District Court for the Eastern District of
New York, captioned, Herrera v. Steven Madden and Steven Madden, Ltd. An
agreement in principle has been reached to resolve all claims in this
action, subject to execution of definitive documentation, such notice to
the Company's shareholders (if any) as may be required by the District
Court, and approval by the District Court. The Company believes, after
consultation with counsel, that its defense costs and certain attorneys'
fees in connection with this action will be subject to coverage by the
Company's insurance as supplemented by the loss mitigation policy
described above.
On or about November 28, 2001, a shareholder derivative complaint was
filed in the United States District Court for the Eastern District of New
York, captioned Herrera v. Karson, et al. Named as defendants therein are
the Company and certain of the Company's present and/or former directors.
An agreement in principle has been reached to resolve all claims in this
action, subject to execution of definitive documentation, such notice to
the Company's shareholders (if any) as may be required by the District
Court, and approval by the District Court. The Company believes, after
consultation with counsel, that its defense costs and certain attorneys'
fees in connection with this action will be subject to coverage by the
Company's insurance as supplemented by the loss mitigation policy
described above.
The Company and certain of the Company's present and/or former directors
have been named in an action commenced in the United States District
Court for the Eastern District of New York by the Safeco Surplus Lines
Insurance Company captioned, Safeco Surplus Lines Ins. Co. v. Steven
Madden Ltd., et al. The complaint principally seeks rescission of the
excess insurance policy issued by Safeco to the Company for the February
4, 2000 to June 13, 2001 period and an order declaring that Safeco does
not owe any indemnity obligation to the Company or any of its officers
and directors in connection with the shareholder class action and
derivative cases referred to above. The ultimate outcome of this matter
cannot presently be determined.
F-8
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Financial Statements - Unaudited
March 31, 2003
NOTE G - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
[4] SEC investigation:
In March 2001, the Company became aware that the SEC issued a formal
order of investigation with respect to trading in the Company's
securities. The SEC is investigating possible securities law violations.
Certain current and former officers and directors of the Company sold
shares of the Company's common stock prior to Mr. Madden's indictment in
June 2000, as previously disclosed on Form 4s filed with the SEC. The
ultimate effects of this matter, if any, cannot reasonably be determined
at this time.
[5] Other actions:
(a) On or about January 22, 2002, an action was commenced against the
Company in the United States District Court for the District of
Oregon, captioned Adidas America, Inc. and Adidas Salomon AG v.
Steven Madden, Ltd. and Steven Madden Retail, Inc. The complaint
seeks injunctive relief and unspecified monetary damages for
trademark infringement, trademark dilution, unfair competition and
deceptive trade practices arising from the Company's use of four
stripes as a design element on footwear. On or about September 3,
2002, Adidas commenced a second action against the Company in the
United States District Court for the District of Oregon, captioned
Adidas America, Inc. and Adidas Salomon AG v. Steven Madden, Ltd.
and Steven Madden Retail, Inc. The second complaint seeks the same
injunctive relief and unspecified monetary damages for various
trademark infringement claims arising from the Company's use of
two stripes as a design element on footwear. The Company believes
it has substantial defenses to the claims asserted in both
lawsuits and has filed answers denying the allegations of
infringement in both cases. Both cases were consolidated before a
single judge. Discovery is continuing and trial is scheduled to
begin in July 2003. Court-ordered non-binding mediation is
scheduled for May 2003. The ultimate outcome of this matter cannot
be presently determined.
(b) On October 4, 2002, Skechers U.S.A., Inc. and Skechers U.S.A.,
Inc. II ("Skechers") filed suit against Steven Madden Ltd. and
R.S.V. Sport, Inc. in the United States District Court for the
Central District of California. Skechers alleges claims for patent
infringement, federal unfair competition, federal antidilution
violation, California unfair competition, California antidilution
violation, and common law unfair competition. Skechers seeks
unspecified monetary damages. The Company has not yet answered or
otherwise responded to the complaint, but believes that it has
substantial defenses to the claims asserted in the lawsuit. The
ultimate outcome of this matter cannot presently be determined.
(c) On September 6, 2002, Ron Owen filed an action against Steven
Madden Retail, Inc., which action is pending in the United States
District Court for the Northern District of Texas - Dallas
Division. The plaintiff alleges a cause of action for breach of
contract and seeks unspecified monetary damages. On October 10,
2002, the Company answered the complaint. The Company has also
asserted a counterclaim against Mr. Owen. The Company believes
that it has substantial defenses to the claims asserted in the
lawsuit. The ultimate outcome of this matter cannot presently be
determined.
In connection with the above litigations, the Company has accrued
$1,200,000. Management, based on the advice of counsel, believes such
provision is adequate in the circumstances.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
----------------------------------------------------------------------
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this document and the Company's Report on Form
10-K for 2002.
Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this document as well as statements
made in press releases and oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf
that are not statements of historical or current fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other unknown factors that could cause the
actual results of the Company to be materially different from the historical
results or from any future results expressed or implied by such forward-looking
statements. In addition to statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled with the terms
"believes", "belief", "expects", "intends", "anticipates" or "plans" to be
uncertain forward-looking statements. The forward-looking statements contained
herein are also subject generally to other risks and uncertainties that are
described from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission.
The following table sets forth information on operations for the periods
indicated:
Selected Financial Information
------------------------------
Three Months Ended
------------------
March 31
--------
($ in thousands)
2003 2002
-------------- --------------
Consolidated:
- ------------
Net Sales $78,698 100% $66,611 100%
Cost of Sales 47,733 61 40,070 60
Gross Profit 30,965 39 26,541 40
Other Operating Income 1,690 2 1,244 2
Operating Expenses 24,392 31 20,932 32
Income from Operations 8,263 10 6,853 10
Interest and Other Income Net 442 1 204 0
Income Before Income Taxes 8,705 11 7,057 10
Net Income 5,049 6 4,093 6
10
Selected Financial Information
------------------------------
Three Months Ended
------------------
March 31
--------
($ in thousands)
2003 2002
----------------- -----------------
By Segment
WHOLESALE DIVISIONS:
- --------------------
Steven Madden, Ltd. (Madden Women's)
- ------------------------------------
Net Sales $28,895 100% $22,881 100%
Cost of Sales 19,080 66 15,545 68
Gross Profit 9,815 34 7,336 32
Other Operating Income 563 2 321 1
Operating Expenses 6,843 24 6,003 26
Income from Operations 3,535 12 1,654 7
l.e.i. Footwear:
- ----------------
Net Sales $14,865 100% $11,575 100%
Cost of sales 9,520 64 7,501 65
Gross Profit 5,345 36 4,074 35
Operating Expenses 3,543 24 2,778 24
Income from Operations 1,802 12 1,296 11
Madden Men's:
- -------------
Net Sales $ 8,341 100% 7,449 100%
Cost of sales 5,573 67 4,703 63
Gross Profit 2,768 33 2,746 37
Operating Expenses 2,084 25 1,401 19
Income from Operations 684 8 1,345 18
Diva Acquisition Corp:
- ----------------------
Net Sales $ 2,456 100% $ 2,485 100%
Cost of sales 1,714 70 1,646 66
Gross Profit 742 30 839 34
Operating Expenses 661 27 535 22
Income from Operations 81 3 304 12
Stevies Inc.:
- -------------
Net Sales $ 3,035 100% $ 3,445 100%
Cost of sales 1,949 64 2,134 62
Gross Profit 1,086 36 1,311 38
Other Operating Income 9 0 9 0
Operating Expenses 628 21 745 21
Income from Operations 467 15 575 17
RETAIL DIVISION:
- ----------------
Steven Madden Retail Inc.:
- --------------------------
Net Sales $21,106 100% $18,776 100%
Cost of Sales 9,897 47 8,541 45
Gross Profit 11,209 53 10,235 55
Operating Expenses 10,045 47 8,942 48
Income from Operations 1,164 6 1,293 7
Number of Stores 82 73
11
Selected Financial Information
------------------------------
Three Months Ended
------------------
March 31
--------
($ in thousands)
---------------
2003 2002
-------------- --------------
By Segment (Continued)
ADESSO MADDEN INC.:
- -------------------
(FIRST COST)
Other Operating Revenue $1,118 100% $ 914 100%
Operating Expenses 588 53 528 58
Income from Operations 530 47 386 42
RESULTS OF OPERATIONS
($ in thousands)
Three months Ended March 31, 2003 vs. Three Months Ended March 31, 2002
Consolidated:
- -------------
Total net sales for the three-month period ended March 31 2003 increased by
$12,087 or 18% to $78,698 as compared to $66,611 from the comparable period of
2002. The increase in sales was partially due to a $6,014 or 26% increase in
sales from the Madden Women's Wholesale Division ("Madden Women's"), as well as
double-digit percentage gains in the Company's Steve Madden Men's and l.e.i.
Wholesale Divisions and sales gains of 12% ($2,330) in the Retail Division.
Sales gains were attributable to greater acceptance of the Company's product
offerings and to an increase in the Company's brand recognition as well as
addition of two retail stores during the quarter ended March 31, 2003.
Total gross profit as a percentage of sales decreased to 39% in 2003 from 40% in
2002. The decrease was primarily due to greater promotional activities required
to clear fall inventories at retail and due to the change in product mix in the
Wholesale Division in 2003 compared to 2002.
Operating expenses increased to $24,392 in 2003 from $20,932 in 2002. Total
operating expenses when expressed as a percentage of sales decreased to 31% in
2003 compared to 32% in 2002. The increase in dollars resulted from costs
associated with growth in overall business as well as provision for management
incentives. Advertising and marketing related expenses increased to $1,233 in
2003 from $1,100 in 2002 because of the Company's increased focus in this area.
Selling, designing and licensing expenses also increased to $3,150 in 2003 from
$2,770 in 2002 because the of overall growth in sales and the Company's
increased concentration in its design and licensing areas. Additionally, other
operating expenses increased to $6,560 in 2003 from $4,795 in 2002 partially
because the Company opened 2 additional retail stores during the first quarter
of 2003 and because of the growth in the Company's wholesale
12
segments. Also, total legal expenses in 2003 increased to $702 from $187 in 2002
because of incremental legal and defense costs.
Income from operations for 2003 was $8,263, an increase of $1,410 or 21% from
$6,853 in 2002. Net income increased by 23% to $5,049 in 2003 from $4,093 in
2002. The increase in income resulted principally from a growth in sales.
Wholesale Divisions:
- --------------------
Steven Madden Ltd. (Madden Women's, l.e.i. Footwear and Madden Men's):
Sales from Madden Women's Wholesale Division ("Madden Women's") accounted for
$28,895 or 37%, and $22,881 or 34%, of total sales in 2003 and 2002,
respectively. The increase in sales was driven by the sales of key styles
including the Hi-Jo boot and wood bottom sandals. Gross profit as a percentage
of sales increased to 34% in 2003 from 32% in 2002 primarily due to changes in
product mix and balanced sourcing. Operating expenses increased to $9,815 in
2003 from $7,336 in 2002 due to higher costs associated with the growth in
Madden Women's as well as the increase in management incentives. Income from
operations for Madden Women's increased 114% to $3,535 in 2003 from $1,654 in
2002.
Sales from l.e.i. Footwear Wholesale Division ("l.e.i.") accounted for $14,865
or 19%, and $11,575 or 17%, of total sales in 2003 and 2002, respectively. The
increase in sales was principally due to additional doors with existing accounts
such as Kohl's, Sears and Goody's. Gross profit as a percentage of sales
increased to 36% in 2003 from 35% in 2002 primarily due to changes in product
mix and improved inventory management. Operating expenses increased to $3,543 in
2003 from $2,778 in 2002 due to increased sales commission, licensing costs and
employee performance incentives. Income from operations for l.e.i. was $1,802 in
2003 compared to $1,296 in 2002.
Sales from Madden Men's Wholesale Division ("Madden Men's") accounted for $8,341
or 11%, and $7,449 or 11%, of total sales in 2003 and 2002, respectively. The
sales increase resulted from an increase in the number of Madden Men's doors and
deeper penetration of Madden Men's products through department store
distribution channels. Gross profit as a percentage of sales decreased to 33% in
2003 from 37% in 2002 primarily due to an increase in markdown allowances caused
by higher levels of promotional activities and general softness in the economy
in the first quarter of 2003. Operating expenses increased to $2,084 in 2003
from $1,401 in 2002 due to increases in payroll and other payroll-related
expenses. These increased payroll related expenses were principally due to the
hiring of additional management personnel in the second half of last year, which
facilitated the 330% increase in Madden Men's net sales in 2002. Income from
operations for Madden Men's was $684 in 2003 compared to $1,345 in 2002.
Diva Acquisition Corp. ("Diva"):
Sales from Diva, including the Steven brand that was introduced in the third
quarter of 2002 (which had net sales of $183 for the first quarter of 2003)
accounted for $2,456 or 3%, and $2,485 or 4%, of total sales in 2003 and 2002,
respectively. The Company's management is presently re-positioning this business
under the Steven brand, which will allow the Company to utilize its marketing
leverage as a Steve Madden division. Gross profit as a percentage of sales
decreased to 30% in 2003 from 34% in 2002, primarily due to an increase in
markdown
13
allowances, resulting from higher levels of promotional activities in response
to the general softness in the economy in 2003. Operating expenses increased to
$661 in 2003 from $535 in 2002 due to higher selling expenses resulting from an
increase in the sales force, which was necessary to expand the Steven brand.
Income from operations for Diva was $81 in 2003 compared to $304 in 2002.
Stevies Inc. ("Stevies"):
Sales from Stevies accounted for $3,035 or 4%, and $3,445 or 5%, of total sales
in 2003 and 2002, respectively. The decrease in sales was partly anticipated
when Meldisco, the lease operator of the Federated Department Store children's
departments and a division of Footstar, experienced temporary credit issues
relating to it's K-Mart business. This led to shipping delays and some
cancellations. Gross profit as a percentage of sales decreased to 36% in 2003
from 38% in 2002, primarily due to an increase in markdown allowances, resulting
from higher levels of promotional activities in response to the general softness
in the economy in 2003. Operating expenses decreased to $628 in 2003 from $745
in 2002 due to decreases in selling and related expenses. Income from operations
for Stevies was $467 in 2003 compared to $575 in 2002.
Retail Division:
- ----------------
Sales from the Retail Division accounted for $21,106 or 27% and $18,776 or 28%
of total sales in 2003 and 2002, respectively. This increase in sales was due to
the increase in the number of Steve Madden retail stores as well as an increase
in comparable store sales. During the first quarter of 2003, the Company opened
two (2) new retail stores. As of March 31, 2003, there were 82 retail stores
compared to 73 retail stores as of March 31, 2002. Comparable store sales for
the three-month period ended March 31, 2003 increased 4% over the same period of
2002. This increase was achieved through the Company leveraging its
market-leading position with the popular Hi-Jo bootie as well as early delivery
of new products to the Company's retail stores and the on time replenishment of
basic inventory in season. Gross profit as a percentage of sales decreased to
53% in 2003 from 55% in 2002, primarily due to higher levels of promotional
activities by the Company in response to the general softness in the economy in
2003. Operating expenses for the Retail Division were $10,045 in 2003 and $8,942
in 2002. Income from operations for the Retail Division was $1,164 in 2003
compared to $1,293 in 2002.
Adesso-Madden Division:
- -----------------------
Adesso-Madden, Inc. ("Adesso-Madden") generated commission revenues of $1,118
for the three-month period ended March 31, 2003, which represents a 22% increase
over commission revenues of $914 for the same period in 2002. This increase was
primarily due to the growth in accounts such as Wal-Mart, Target, JC Penney and
Mervyn's and the addition of children's products to the assortment mix.
Operating expenses increased to $588 in 2003 from $528 in 2002 due to increases
in payroll and other payroll-related expenses. Income from operations for
Adesso-Madden was $530 in 2003 compared to $386 in 2002.
LICENSE AGREEMENTS
Revenues from licensing increased to $572 in 2003 from $330 in 2002. As of March
31, 2003, the Company had six license partners covering six product categories
of its Steve Madden brand
14
and one license partner covering its Stevies brand. The product categories
include handbags, hosiery, sunglasses, eyewear, belts and outerwear.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $94,054 at March 31, 2003 compared to $86,461
of working capital at December 31, 2002, representing an increase of $7,593,
which was primarily due to the Company's net income. The Company believes that
based upon its current financial position and available cash and marketable
securities, it will meet all of its financial commitments and operating needs
for at least the next twelve months.
Under the terms of a factoring agreement with Capital Factors, Inc., the Company
is eligible to draw down 80% of its invoiced receivables at an interest rate of
two points below the Prime Rate (as defined in such agreement). The agreement
with Capital Factors was renewed for the period beginning June 30, 2002 through
December 31, 2004. Capital Factors maintains a lien on all of the Company's
inventory and receivables and assumes the credit risk for all assigned accounts
approved by them. Under the agreement, the Company has a credit line of $15,000.
The Company did not use any portion of credit line during first quarter of 2003.
The Company has invested approximately $26.8 million in marketable securities
consisting of corporate bonds, U.S. Treasury notes and government asset-backed
securities. The securities mature on various dates through 2007.
OPERATING ACTIVITIES
During the three-month period ended March 31, 2003, cash used from operating
activities was $6,837. Uses of cash arose principally from an increase in
factored accounts receivable of $10,337 and an increase in inventories of
$4,606. Sources of cash were provided principally by net income of $5,049, and
an increase in accounts payable and other accrued expenses of $1,997.
The Company leases office, showroom, warehouse and retail facilities under
non-cancelable operating leases with terms expiring at various times through
2013. Future minimum annual lease payments under non-cancelable operating leases
consist of the following at March 31:
2003 $ 8,793
2004 8,792
2005 8,484
2006 8,511
2007 7,974
Thereafter 21,117
-------------
$ 63,671
=============
At March 31, 2003, the Company had open letters of credit for the purchase of
imported merchandise of approximately $6,438.
The Company has an agreement with its Chairman of the Board and employment
agreements with three key executives and its Creative and Design Chief, which
provide for the payment of compensation aggregating approximately $1,845 as of
March 31, 2003. In addition, such employment agreements provide for incentive
compensation based on various performance criteria as well as other benefits.
15
Significant portions of the Company's products are produced at overseas
locations, the majority of which are located in Brazil, China, Italy and Spain.
The Company has not entered into any long-term manufacturing or supply contracts
with any of these foreign companies. The Company believes that a sufficient
number of alternative sources exist outside of the United States for the
manufacture of its products. In addition, the Company currently makes
approximately ninety-five percent (95%) of its purchases in U.S. dollars.
INVESTING ACTIVITIES
During the three-month period ended March 31, 2003, the Company invested $4,279
in marketable securities, net of maturities and sales of $6,663. In addition,
the Company incurred capital expenditures of $1,630 in leasehold improvements to
its corporate office space, the addition of two (2) new stores and upgrading its
computer system.
FINANCING ACTIVITIES
During the three-month period ended March 31, 2003, the Company received $652
from the exercise of stock options.
OTHER CONSIDERATIONS
Fashion Industry Risks: The success of the Company will depend in significant
part upon its ability to anticipate and respond to product and fashion trends as
well as to anticipate, gauge and react to changing consumer demands in a timely
manner. There can be no assurance that the Company's products will correspond to
the changes in taste and demand or that the Company will be able to successfully
market products, which respond to such trends. If the Company misjudges the
market for its products, it may be faced with significant excess inventories for
some products and missed opportunities with others. In addition, misjudgments in
merchandise selection could adversely affect the Company's image with its
customers resulting in lower sales and increased markdown allowances for
customers which could have a material adverse effect on the Company's business,
financial condition and results of operations.
The industry in which the Company operates is cyclical, with purchases tending
to decline during recessionary periods when disposable income is low. Purchases
of contemporary shoes and accessories tend to decline during recessionary
periods and also may decline at other times. While the Company has fared well in
recent years in a difficult retail environment, there can be no assurance that
the Company will be able to maintain its historical rate of growth in revenues
and earnings, or remain profitable in the future. A recession in the national or
regional economies or uncertainties regarding future economic prospects, among
other things, could affect consumer-spending habits and have a material adverse
effect on the Company's business, financial condition and results of operations.
In recent years, the retail industry has experienced consolidation and other
ownership changes. In the future, retailers in the United States and in foreign
markets may consolidate, undergo restructurings or reorganizations, or realign
their affiliations, any of which could decrease the number of stores that carry
the Company's products or increase the ownership concentration within the retail
industry. While such changes in the retail industry to date have not had a
material adverse effect on the Company's business or financial condition, there
can be no assurance as to the future effect of any such changes.
16
Inventory Management: The fashion-oriented nature of the Company's products and
the rapid changes in customer preferences leave the Company vulnerable to an
increased risk of inventory obsolescence. Thus, the Company's ability to manage
its inventories properly is an important factor in its operations. Inventory
shortages can adversely affect the timing of shipments to customers and diminish
brand loyalty. Conversely, excess inventories can result in lower gross margins
due to the excessive discounts and markdown. The inability of the Company to
effectively manage its inventory would have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence Upon Customers and Risks Related to Extending Credit to Customers:
The Company's customers consist principally of department stores and specialty
stores, including shoe boutiques. Certain of the Company's department store
customers, including some under common ownership, account for significant
portions of the Company's wholesale business.
The Company generally enters into a number of purchase order commitments with
its customers for each of its lines every season and does not enter into
long-term agreements with any of its customers. Therefore, a decision by a
significant customer of the Company, whether motivated by competitive
conditions, financial difficulties or otherwise, to decrease the amount of
merchandise purchased from the Company or to change its manner of doing business
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company sells its products primarily to
retail stores across the United States and extends credit based on an evaluation
of each customer's financial condition, usually without collateral. While
various retailers, including some of the Company's customers, have experienced
financial difficulties in the past few years which increased the risk of
extending credit to such retailers, the Company's losses due to bad debts have
been limited. Pursuant to the Factoring Agreement between Capital Factors and
the Company, Capital Factors currently assumes the credit risk related to
approximately 95% of the Company's accounts receivables. However, financial
difficulties of a customer could cause the Company to curtail business with such
customer or require the Company to assume more credit risk relating to such
customer's receivables.
Impact of Foreign Manufacturers: Substantial portions of the Company's products
are currently sourced outside the United States through arrangements with a
number of foreign manufacturers in four different countries. During the
three-month period ended March 31, 2003, approximately 80% of the Company's
products were purchased from sources outside the United States, primarily from
China, Brazil, Italy and Spain.
Risks inherent in foreign operations include work stoppages, transportation
delays and interruptions, changes in social, political and economic conditions
which could result in the disruption of trade from the countries in which the
Company's manufacturers or suppliers are located, the imposition of additional
regulations relating to imports, the imposition of additional duties, taxes and
other charges on imports, significant fluctuations of the value of the dollar
against foreign currencies, or restrictions on the transfer of funds, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not believe that any such
economic or political condition will materially affect the Company's ability to
purchase products, since a variety of materials and alternative sources are
available. The Company cannot be certain, however, that it will be able to
identify such alternative sources without delay (if ever) or without greater
cost to the Company. The Company's inability to identify and secure alternative
sources of supply in this situation would
17
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's imported products are also subject to United States customs
duties. The United States and the countries in which the Company's products are
produced or sold, from time to time, impose new quotas, duties, tariffs, or
other restrictions, or may adversely adjust prevailing quota, duty or tariff
levels, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Possible Adverse Impact of Unaffiliated Manufacturers' Inability to Manufacture
in a Timely Manner, Meet Quality Standards or to Use Acceptable Labor Practices:
As is common in the footwear industry, the Company contracts for the manufacture
of a majority of its products to its specifications through foreign
manufacturers. The Company does not own or operate any manufacturing facilities
and is therefore dependent upon independent third parties for the manufacture of
all of its products. The Company's products are manufactured to its
specifications by both domestic and international manufacturers. The inability
of a manufacturer to ship orders of the Company's products in a timely manner or
to meet the Company's quality standards could cause the Company to miss the
delivery date requirements of its customers for those items, which could result
in cancellation of orders, refusal to accept deliveries or a reduction in
purchase prices, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Although the Company enters into a number of purchase order commitments each
season specifying a time frame for delivery, method of payment, design and
quality specifications and other standard industry provisions, the Company does
not have long-term contracts with any manufacturer. As a consequence, any of
these manufacturing relationships may be terminated, by either party, at any
time. Although the Company believes that other facilities are available for the
manufacture of the Company's products, both within and outside of the United
States, there can be no assurance that such facilities would be available to the
Company on an immediate basis, if at all, or that the costs charged to the
Company by such manufacturers will not be greater than those presently paid.
The Company requires its licensing partners and independent manufacturers to
operate in compliance with applicable laws and regulations. While the Company
promotes ethical business practices and the Company's staff periodically visits
and monitors the operations of its independent manufacturers, the Company does
not control such manufacturers or their labor practices. The violation of labor
or other laws by an independent manufacturer of the Company or by one of the
Company's licensing partners, or the divergence of an independent manufacturer's
or licensing partner's labor practices from those generally accepted as ethical
in the United States, could have a material adverse effect on the Company's
business, financial condition and results of operations.
Intense Industry Competition: The fashion footwear industry is highly
competitive and barriers to entry are low. The Company's competitors include
specialty companies as well as companies with diversified product lines. The
recent market growth in the sales of fashionable footwear has encouraged the
entry of many new competitors and increased competition from established
companies. Most of these competitors, including Diesel, Kenneth Cole, Nine West,
DKNY, Skechers, Nike and Guess, may have significantly greater financial and
other resources than the Company and there can be no assurance that the Company
will be able to compete successfully
18
with other fashion footwear companies. Increased competition could result in
pricing pressures, increased marketing expenditures and loss of market share,
and could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company believes effective advertising
and marketing, fashionable styling, high quality and value are the most
important competitive factors and plans to continually employ these elements as
it develops its products. The Company's inability to effectively advertise and
market its products could have a material adverse effect on the Company's
business, financial condition and results of operations.
Expansion of Retail Business: The Company's continued growth depends to a
significant degree on further developing the Steve Madden(R), Stevies, Steven,
Steve Madden Men's and l.e.i.(R) brands, creating new product categories and
businesses and operating Company-owned stores on a profitable basis. During the
first quarter of 2003 the Company opened two (2) Steve Madden retail stores and
has plans to open approximately eight to ten (8-10) Steve Madden retail stores
during the balance of fiscal year 2003. The Company's recent and planned
expansion includes the opening of stores in new geographic markets as well as
strengthening existing markets. New markets have in the past presented, and will
continue to present, competitive and merchandising challenges that are different
from those faced by the Company in its existing markets. There can be no
assurance that the Company will be able to open new stores, and if opened, that
such new stores will be able to achieve sales and profitability levels
consistent with existing stores. The Company's retail expansion is dependent on
a number of factors, including the Company's ability to locate and obtain
favorable store sites, the performance of the Company's wholesale and retail
operations, and the ability of the Company to manage such expansion and hire and
train personnel. Past comparable store sales results may not be indicative of
future results, and there can be no assurance that the Company's comparable
store sales results will increase or not decrease in the future. In addition,
there can be no assurance that the Company's strategies to increase other
sources of revenue, which may include expansion of its licensing activities,
will be successful or that the Company's overall sales or profitability will
increase or not be adversely affected as a result of the implementation of such
retail strategies.
The Company's growth has increased and will continue to increase demand on the
Company's managerial, operational and administrative resources. The Company has
recently invested significant resources in, among other things, its management
information systems and hiring and training new personnel. However, in order to
manage currently anticipated levels of future demand, the Company may be
required to, among other things, expand its distribution facilities, establish
relationships with new manufacturers to produce its products, and continue to
expand and improve its financial, management and operating systems. There can be
no assurance that the Company will be able to manage future growth effectively
and a failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations.
Seasonal and Quarterly Fluctuations: The Company's results may fluctuate quarter
to quarter as a result of the timing of holidays, weather, the timing of larger
shipments of footwear, market acceptance of the Company's products, the mix,
pricing and presentation of the products offered and sold, the hiring and
training of additional personnel, the timing of inventory write downs, the cost
of materials, the mix between wholesale and licensing businesses, the incurrence
of other operating costs and factors beyond the Company's control, such as
general economic conditions and actions of competitors. In addition, the Company
expects that its sales and operating results may be significantly impacted by
the opening of new retail stores and the introduction of new
19
products. Accordingly, the results of operations in any quarter will not
necessarily be indicative of the results that may be achieved for a full fiscal
year or any future quarter.
Trademark and Service Mark Protection: The Company believes that its trademarks
and service marks and other proprietary rights are important to its success and
its competitive position. Accordingly, the Company devotes substantial resources
to the establishment and protection of its trademarks on a worldwide basis.
Nevertheless, there can be no assurance that the actions taken by the Company to
establish and protect its trademarks and other proprietary rights will be
adequate to prevent imitation of its products by others or to prevent others
from seeking to block sales of the Company's products on the basis that they
violate the trademarks and proprietary rights of others. Moreover, no assurance
can be given that others will not assert rights in, or ownership of, trademarks
and other proprietary rights of the Company or that the Company will be able to
successfully resolve such conflicts. In addition, the laws of certain foreign
countries may not protect proprietary rights to the same extent as do the laws
of the United States. The failure of the Company to establish and then protect
such proprietary rights from unlawful and improper appropriation could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Foreign Currency Fluctuations: The Company generally purchases its products in
U.S. dollars. However, the Company sources substantially all of its products
overseas and, as such, the cost of these products may be affected by changes in
the value of the relevant currencies. Changes in currency exchange rates may
also affect the relative prices at which the Company and foreign competitors
sell their products in the same market. There can be no assurance that foreign
currency fluctuations will not have a material adverse effect on the Company's
business, financial condition and results of operations.
Outstanding Options: As of May 9, 2003, the Company had outstanding options to
purchase an aggregate of approximately 2,235,000 shares of Common Stock. Holders
of such options are likely to exercise them when, in all likelihood, the Company
could obtain additional capital on terms more favorable than those provided by
the options. Further, while its options are outstanding, they may adversely
affect the terms in which the Company could obtain additional capital.
Economic and Political Risks: The present economic condition in the United
States and concern about uncertainties could significantly reduce the disposable
income available to the Company's customers, which purchase our products. In
addition, current unstable political conditions including, the potential or
actual conflicts in Iraq, North Korea or elsewhere, or the continuation or
escalation of terrorism, could have an adverse effect on the Company's business,
financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in the trading of market risk sensitive instruments
in the normal course of business. Financing arrangements for the Company are
subject to variable interest rates primarily based on the prime rate. An
analysis of the Company's credit agreement with Capital Factors, Inc. can be
found in Note C. "Due From Factor" to the Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
20
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, the
Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures within 90 days of the filing date of this
quarterly report, and, based on their evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these disclosure controls and
procedures are effective. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
21
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
A description of the legal proceedings in which the Company is involved, both in
general and with respect to certain specific matters and types of matters, is
contained in the Company's Report on Form 10-K for 2002. The following is
limited to an update on significant developments in previously reported matters
and should be read with reference to the Company's Report on Form 10-K for 2002.
All previously reported matters remain pending.
On or about January 22, 2002, an action was commenced against the Company in the
United States District Court for the District of Oregon, captioned Adidas
America, Inc. and Adidas Salomon AG v. Steve Madden, Ltd. and Steve Madden
Retail, Inc., CA No. CV02-0057 HU. The Complaint seeks injunctive relief and
unspecified monetary damages for trademark infringement, trademark dilution,
unfair competition and deceptive trade practices arising from the Company's use
of four stripes as a design element on footwear which Adidas alleges infringes
on its registered Three Stripe Trademark. On or about September 3, 2002, Adidas
commenced a second action against the Company in the United States District
Court for the District of Oregon, captioned Adidas America, Inc. and Adidas
Salomon AG v. Steve Madden, Ltd. and Steve Madden Retail, Inc., CA No. CV
02-1191 KI. The second Complaint seeks the same injunctive relief and
unspecified monetary damages as the first lawsuit for various trademark
infringement claims arising from the Company's use of two stripes as a design
element on footwear. The Company believes it has substantial defenses to the
claims asserted in both lawsuits based on pervasive use of two and four stripes
as a design element by numerous other footwear manufacturers over the past three
decades, current fashion trends using two and four stripe designs, and Adidas'
prior acquiescence in allowing other footwear manufacturers sell shoes with two
and four stripe designs. The Company filed answers denying the allegations of
infringement in both cases, which were consolidated before a single judge.
Discovery is continuing and trial is scheduled to begin July 21, 2003. Court
ordered non-binding mediation is scheduled for May 2003.
On September 6, 2002 Ron Owen filed an action against Steven Madden Retail,
Inc., which action is pending in the United States District Court for the
Northern District of Texas - Dallas Division, Civil Action No. 3-02 CV 2316-R.
Plaintiff alleges a cause of action for breach of contract and seeks unspecified
monetary damages. On October 10, 2002, the Company answered the complaint. The
Company has also asserted a counterclaim against Mr. Owen. The Company believes
that it has substantial defenses to the claims asserted in the lawsuit.
ITEM 5. OTHER INFORMATION.
On May 12, 2003 the Company entered into a license agreement with Candie's, Inc.
to design, manufacture, and distribute Candie's branded footwear for women and
children. Under the long-term agreement, the Company has been granted the
exclusive right to distribute Candie's footwear worldwide.
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(10.17) Employment Agreement between Steven Madden, Ltd. and Robert
Schmertz
(99.1) Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(99.2) Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
23
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
DATE: May 13, 2003
STEVEN MADDEN, LTD.
/s/ JAMIESON A. KARSON
-----------------------------
Jamieson A. Karson
Chief Executive Officer
/s/ ARVIND DHARIA
-----------------------------
Arvind Dharia
Chief Financial Officer
24
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jamieson Karson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Steven Madden, Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: May 13, 2003
By: /s/ JAMIESON KARSON
---------------------------
Jamieson Karson
Chief Executive Officer
25
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Arvind Dharia, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Steven Madden, Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: May 13, 2003
By: /s/ ARVIND DHARIA
----------------------------
Arvind Dharia
Chief Financial Officer
26
STEVEN MADDEN, LTD.
FORM 10-Q
EXHIBIT INDEX
Exhibit No Description
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10.17 Employment Agreement between Steven Madden, Ltd.
and Robert Schmertz
99.1 Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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STEVEN MADDEN. LTD.
52-16 BARNETT AVENUE
LONG ISLAND CITY, NY 11104
T (718) 308-2292
F (718) 308-8992
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April 2, 2002
Mr. Robert Schmertz
Dear Robert:
Below are the terms of your employment with Steven Madden, Ltd.:
1. Term of Employment: 04/01/2002 to 06/30/2005
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Your position with the company is President of Steven Madden Wholesale
Womens Division and Brand Manager for the Steve Madden brand or any
position assigned by Corporate President or Chief Executive Officer.
2. Salary: $375,000.00 effective 4/1/02 thru 6/30/03
------ $412,500.00 effective 7/1/03 thru 6/30/04
$453,750.00 effective 7/1/04 thru 6/30/05
Less such deductions as shall be required to be withheld by applicable law
and regulations.
3. Options:
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(A) 100,000 options of common stock with a grant price based on the fair
market value on the date of the 2002 Annual Shareholders Meeting,
subject to shareholders approval. These options shall vest quarterly
beginning with 25,000 options vesting on 09/30/2002 and 25,000
options vesting on the last day of each quarter thereafter, and
vesting fully on June 30th, 2003.
(B) 100,000 options of common stock for calendar year 2002 performance,
with a grant price based on the fair market value on the date of the
2003 Annual Shareholders Meeting, subject to shareholders approval.
These options shall vest quarterly beginning with 25,000 options
vesting on 9/30/2003 and 25,000 options vesting on the last day of
each quarter thereafter and vesting fully on June 30th, 2004.
(C) 100,000 options of common stock for calendar year 2003 performance,
with a grant price based on the fair market value on the date of the
2004 Annual Shareholders Meeting, subject to shareholders approval.
These options shall vest quarterly beginning with 25,000 options
vesting on 9/30/2004 and 25,000 options vesting on the last day of
each quarter thereafter and vesting fully on June 30th, 2005.
(D) in addition to the above, subject to shareholder approval and
subject to your continuous employment by the Company from the
commencement date of this agreement through June 30, 2005, you shall
be entitled to receive 50,000 shares ("Cliff Vested Shares").
4. Change of Control: In the event there is a change of control, all unvested
options and common stock will accelerate and will immediately vest on the
date of the change of control, priced as of the date of transfer.
5. Key Man: In the event that Steven Madden is no longer employed by the
Company, you shall have the option of terminating this Agreement by
delivery of notice to the Company within ten (10) days following such
event.
6. Covenant Not to Compete: Executive recognizes that the services to be
performed by him hereunder are special and unique. In consideration of the
compensation granted herein, the Executive agrees that, in the event he
either terminates his employment of his own accord or is terminated by the
Company for cause prior to the expiration of this agreement, for a period
of 12 months following such termination, he shall not engage in or accept
employment with any competitive business for his special and unique
services.
7. Expenses: All reasonable and necessary business related expenses including
a cellular phone are to be paid by Employer.
8. Automobile: Employer shall pay to Employee $500.00 per month as a car
allowance.
9. Vacations: Vacations, sick days and personal days in accordance with
executive policy.
10. Miscellaneous: In the event the Executive breaches this agreement all
unearned and unvested options shall become null and void and executive
shall forfeit all rights to the "Cliff Vested Shares".
11. Signing Bonus: Executive shall receive a signing bonus of $150,000.00 upon
the execution of this Agreement.
Steven Madden, Ltd.
/s/ Robert Schmertz /s/ Jamieson A. Karson
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Robert Schmertz By: Jamieson A. Karson, CEO
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Steven Madden, Ltd. (the "Company")
on Form 10-Q for the quarter ended March 31, 2003, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Jamieson A.
Karson, Chief Executive Officer of the Company, certify, pursuant to Section 18
U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ JAMIESON A. KARSON
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Jamieson A. Karson
Chief Executive Officer
May 13, 2003
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Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Steven Madden, Ltd. (the "Company")
on Form 10-K for the quarter ended March 31, 2003, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Arvind Dharia,
Chief Financial Officer of the Company, certify, pursuant to Section 18 U.S.C.
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ ARVIND DHARIA
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Arvind Dharia
Chief Financial Officer
May 13, 2003
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