UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2004
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number 0-23702
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STEVEN MADDEN, LTD.
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(Exact name of Registrant as specified in its charter)
Delaware 13-3588231
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(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
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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 3, 2004, the latest practicable date, there were 13,333,905 shares of
common stock, $.0001 par value, outstanding.
STEVEN MADDEN, LTD.
FORM 10-Q
QUARTERLY REPORT
March 31, 2004
TABLE OF CONTENTS
PART I- FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets..................................... 3
Consolidated Statements of Operations........................... 4
Consolidated Statements of Cash Flows........................... 5
Notes to Unaudited 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...... 19
ITEM 4. Controls and Procedures......................................... 19
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... 20
ITEM 6. Exhibits and Reports on Form 8-K................................ 21
Signature....................................................... 22
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,
2004 2003 2003
------------ ------------ ------------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 22,302 $ 53,073 $ 44,614
Accounts receivable, net of allowances of $688, $452 and $402 7,790 4,281 3,616
Due from factor, net of allowances of $1,973, $1,926 and $1,903 39,565 28,748 32,525
Inventories 26,063 23,858 24,051
Marketable securities - available for sale 8,043 3,229 6,088
Prepaid expenses and other current assets 3,192 2,844 2,412
Prepaid taxes 2,588 4,270
Deferred taxes 1,796 1,692 1,633
------------ ------------ ------------
Total current assets 111,339 121,995 114,939
Property and equipment, net 19,303 18,391 17,360
Deferred taxes 5,618 5,618 3,699
Deposits and other 434 370 296
Marketable securities - available for sale 42,253 29,430 20,701
Cost in excess of fair value of net assets acquired 2,066 2,066 2,066
------------ ------------ ------------
$ 181,013 $ 177,870 $ 159,061
============ ============ ============
LIABILITIES
Current liabilities:
Current portion of capital lease obligations $ 1 $ 9
Accounts payable $ 11,291 11,087 9,575
Accrued expenses 3,852 5,767 11,301
------------ ------------ ------------
Total current liabilities 15,143 16,855 20,885
Deferred rent 1,917 1,828 1,635
------------ ------------ ------------
17,060 18,683 22,520
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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, 14,569,
14,459 and $14,104 shares issued, 13,324, 13,214 and
12,859 outstanding 1 1 1
Additional paid-in capital 79,407 79,136 73,194
Retained earnings 95,302 91,176 75,771
Stock subscription receivable (175) -- --
Unearned compensation (2,448) (3,008) (4,561)
Other comprehensive gain:
Unrealized gain on marketable securities (143) (127) 127
Treasury stock - 1,245 shares at cost (7,991) (7,991) (7,991)
------------ ------------ ------------
163,953 159,187 136,541
------------ ------------ ------------
$ 181,013 $ 177,870 $ 159,061
============ ============ ============
See accompanying notes to consolidated financial statements - unaudited 3
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
Three Months Ended
March 31,
------------------------
2004 2003
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Net sales:
Wholesale $ 55,067 $ 57,592
Retail 23,701 21,106
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78,768 78,698
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Cost of sales:
Wholesale 35,668 37,836
Retail 11,828 9,897
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47,496 47,733
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Gross profit:
Wholesale 19,399 19,756
Retail 11,873 11,209
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31,272 30,965
Commission and licensing fee income 1,416 1,690
Operating expenses (26,108) (24,392)
---------- ----------
Income from operations 6,580 8,263
Interest and other income, net 534 442
---------- ----------
Income before provision for income taxes 7,114 8,705
Provision for income taxes 2,988 3,656
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Net income $ 4,126 $ 5,049
========== ==========
Basic income per share $ 0.31 $ 0.39
========== ==========
Diluted income per share $ 0.29 $ 0.36
========== ==========
Basic weighted average common shares outstanding 13,254 12,789
Effect of dilutive securities - options/warrants/restricted stock 1,120 1,083
---------- ----------
Diluted weighted average common shares outstanding 14,374 13,872
========== ==========
See accompanying notes to consolidated financial statements - unaudited 4
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
March 31,
------------------------
2004 2003
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Cash flows from operating activities:
Net income $ 4,126 $ 5,049
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 1,106 1,343
Noncash compensation 656 774
Provision for bad debts 283 90
Deferred rent expense 89 103
Realized loss (gain) on marketable securities 3 (9)
Deferred taxes (104)
Changes in:
Accounts receivable (3,745) (482)
Due from factor (10,864) (10,337)
Inventories (2,205) (4,606)
Prepaid expenses, prepaid taxes, deposits and other assets 1,270 (759)
Accounts payable and other accrued expenses (1,711) 1,997
---------- ----------
Net cash used in operating activities (11,096) (6,837)
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Cash flows from investing activities:
Purchase of property and equipment (2,017) (1,630)
Purchase of marketable securities (20,707) (10,942)
Sale/redemption of marketable securities 3,050 6,663
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Net cash used in investing activities (19,674) (5,909)
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Cash flows from financing activities:
Proceeds from options and warrants exercised 652
Repayment of lease obligations (1) (5)
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Net cash (used in) provided by financing activities (1) 647
---------- ----------
Net decrease in cash and cash equivalents (30,771) (12,099)
Cash and cash equivalents - beginning of period 53,073 56,713
---------- ----------
Cash and cash equivalents - end of period $ 22,302 $ 44,614
========== ==========
See accompanying notes to consolidated financial statements - unaudited 5
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Unaudited
March 31, 2004
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") and the results of its operations and cash
flows for the periods presented. The results of its operations for the
three-month period ended March 31, 2004 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, 2003 included in the Annual Report
of Steven Madden, Ltd. on Form 10-K filed with the SEC on March 12, 2004.
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 unvested and unissued shares
promised to employees which have a dilutive effect. For the purposes of
calculating the diluted income per share for the three months ended March 31,
2004 and 2003, stock options representing approximately 100,000 and 751,000
shares, respectively, have been excluded because including the shares would be
anti-dilutive.
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 and earnings 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
6
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Unaudited
March 31, 2004
SFAS No. 123 and SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure", which was released in December 2003 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,
----------------------------
2004 2003
------------ ------------
Reported net income $ 4,126 $ 5,049
Stock-based employee compensation included in
reported net income, net of tax 83
Stock-based employee compensation determined
under the fair value based method, net of tax (820) (564)
------------ ------------
Pro forma net income $ 3,306 $ 4,568
============ ============
Basic income per share:
As reported $ 0.31 $ 0.39
Pro forma $ 0.25 $ 0.36
Diluted income per share:
As reported $ 0.29 $ 0.36
Pro forma $ 0.23 $ 0.33
NOTE G - COMPREHENSIVE INCOME
Comprehensive income for the three month periods ended March 31, 2004 and March
31, 2003, after considering other comprehensive income including unrealized gain
(loss) on marketable securities of $(143) and $127, was $3,983 and $5,176,
respectively.
NOTE H - 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.
7
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Unaudited
March 31, 2004
NOTE H - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
[1] Indictment: (continued)
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. Under the settlement
agreement with the Securities and Exchange Commission, 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 Securities and
Exchange Commission 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 arising out of lawsuits related to the June 2000 federal indictment
of Steven Madden described above. 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 of these actions has been reached, subject to notice to the
putative class members, a hearing and approval by the District Court. The
hearing on the settlement has been set for May 19, 2004. 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. A
settlement of these actions has been reached, subject to notice to the
Company's shareholders, a hearing and approval by the District Court. The
hearing on the settlement has been set for May 19, 2004. 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.
A settlement of these actions has been reached, subject to notice to the
Company's shareholders, a hearing and approval by the District Court. The
hearing on the settlement has been set for May 19, 2004. 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.
8
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Unaudited
March 31, 2004
NOTE H - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
[4] Other actions:
(a) In June 2003, an action was commenced in the United States
District Court for the Central District of California against the
Company captioned Global Brand Marketing, Inc. v. Steve Madden
Ltd. The complaint sought injunctive relief and unspecified
monetary damages for infringement of two separate patents. On
April 13, 2004, the Company settled this litigation. The amount of
settlement is not expected to have a material effect on the
Company's financial position or result of operations.
(b) On December 15, 2003, the Company commenced an action against
LaRue Distributors, Inc. ("LaRue") in the United States District
Court for the Southern District of New York. The Company seeks a
declaratory judgment that the Company properly terminated a
license agreement with LaRue and monetary damages for breaches of
the license agreement and trademark infringement by LaRue.
Subsequently, LaRue served an answer and counterclaim alleging
that the license agreement was improperly terminated by the
Company and sought compensatory and punitive damages. The Company
believes that it has substantial defenses to the counterclaim
asserted by LaRue.
(c) The Company has been named as a defendant in various other
lawsuits in the normal course of business. In the opinion of
management, after consulting with legal counsels, the liabilities,
if any, resulting from these matters should not have a material
effect on the Company's financial position or results of
operations.
[5] SEC request for information:
On April 26, 2004, the SEC sent the Company a letter requesting
information and documents relating to, among other things, Steven
Madden's employment with the Company. The Company intends to fully comply
with the SEC's request.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the unaudited Financial Statements
and Notes thereto appearing elsewhere in this document.
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 tables set forth information on operations for the periods
indicated:
Selected Financial Information
------------------------------
Three Months Ended
------------------
March 31
--------
($ in thousands)
2004 2003
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Consolidated:
- ------------
Net Sales $78,768 100% $78,698 100%
Cost of Sales 47,496 60 47,733 61
Gross Profit 31,272 40 30,965 39
Other Operating Income 1,416 2 1,690 2
Operating Expenses 26,108 34 24,392 31
Income from Operations 6,580 8 8,263 10
Interest and Other Income Net 534 1 442 1
Income Before Income Taxes 7,114 9 8,705 11
Net Income 4,126 5 5,049 6
10
Selected Financial Information
------------------------------
Three Months Ended
------------------
March 31
--------
($ in thousands)
2004 2003
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By Segment
WHOLESALE DIVISIONS:
- -------------------
Steven Madden, Ltd. (Madden Womens):
- ------------------------------------
Net Sales $25,534 100% $28,895 100%
Cost of Sales 16,703 65 19,080 66
Gross Profit 8,831 35 9,815 34
Other Operating Income 520 2 563 2
Operating Expenses 6,824 27 6,843 24
Income from Operations 2,527 10 3,535 12
l.e.i. Footwear:
- ----------------
Net Sales $11,125 100% $14,865 100%
Cost of sales 7,320 66 9,520 64
Gross Profit 3,805 34 5,345 36
Operating Expenses 2,910 26 3,543 24
Income from Operations 895 8 1,802 12
Madden Mens:
- ------------
Net Sales $ 6,569 100% $ 8,341 100%
Cost of sales 4,408 67 5,573 67
Gross Profit 2,161 33 2,768 33
Operating Expenses 1,834 28 2,084 25
Income from Operations 327 5 684 8
Candie's Footwear:
- ------------------
Net Sales $ 3,216 100% -- --
Cost of sales 2,108 66 -- --
Gross Profit 1,108 34 -- --
Operating Expenses 959 30 -- --
Income from Operations 149 4 -- --
Diva Acquisition Corp. (Steven):
- --------------------------------
Net Sales $ 5,249 100% $ 2,456 100%
Cost of sales 2,920 56 1,714 70
Gross Profit 2,329 44 742 30
Operating Expenses 1,049 20 661 27
Income from Operations 1,280 24 81 3
Stevies Inc.:
- -------------
Net Sales $ 3,325 100% $ 3,035 100%
Cost of sales 2,153 65 1,949 64
Gross Profit 1,172 35 1,086 36
Other Operating Income -- -- 9 0
Operating Expenses 683 21 628 21
Income from Operations 489 14 467 15
11
Selected Financial Information
------------------------------
Three Months Ended
------------------
March 31
--------
($ in thousands)
2004 2003
------------- -------------
By Segment (Continued)
WHOLESALE DIVISIONS (Continued)
- -------------------------------
Unionbay Men's Footwear:
- ------------------------
Net Sales $ 49 100% -- --
Cost of Sales 56 114 -- --
Gross Loss (7) (14) -- --
Operating Expenses 163 333 -- --
Loss from Operations (170) (347) -- --
RETAIL DIVISION:
- ----------------
Steven Madden Retail Inc.:
- --------------------------
Net Sales $23,701 100% $21,106 100%
Cost of Sales 11,828 50 9,897 47
Gross Profit 11,873 50 11,209 53
Operating Expenses 11,104 47 10,045 47
Income from Operations 769 3 1,164 6
Number of Stores 83 82
ADESSO MADDEN INC.:
- -------------------
(FIRST COST)
Other Operating Revenue $ 896 100% $ 1,118 100%
Operating Expenses 582 65 588 53
Income from Operations 314 35 530 47
RESULTS OF OPERATIONS
($ in thousands)
Three Months Ended March 31, 2004 vs. Three Months Ended March 31, 2003
Consolidated:
- -------------
Total net sales for the three-month period ended March 31, 2004 remained
virtually unchanged ($78,768 in 2004 as compared to $78,698 in 2003). The
Company maintained a substantial portion of the sales and market share gains
that it achieved in the prior year. During the first quarter of 2003, the
Company generated a 18% growth in total net sales over the previous year.
Gross profit as a percentage of sales increased to 40% in 2004 from 39% in 2003,
primarily due to cost effective sourcing in the Wholesale Division.
Additionally, the Retail Division, which has a higher gross margin percentage,
represented 30% of total net sales in 2004 compared to 27% in 2003.
Operating expenses increased to $26,108 in 2004 from $24,392 in 2003. The
increase resulted from the Company's increased advertising expenditures in
support of the brand, higher occupancy expenses, a reclassification of warehouse
expense and the costs associated with the addition of Candie's and Unionbay
Wholesale Divisions as well as increased licensing fees paid by the Company.
12
Income from operations was $6,580 in 2004 compared to $8,263 in 2003. Net income
was $4,126 in 2004 compared to $5,049 in 2003. The decrease in income primarily
resulted from the increases in operating expenses associated with the cost of
new wholesale divisions.
Wholesale Divisions:
- --------------------
Steven Madden Ltd. (Madden Womens, l.e.i., Madden Mens and Candie's Footwear):
Sales from the Madden Womens Wholesale Division ("Madden Womens") accounted for
$25,534 or 32%, and $28,895 or 37%, of total sales in 2004 and 2003,
respectively. This decrease in sales was primarily a result of more conservative
initial spring buying patterns among the Company's wholesale customers. Gross
profit as a percentage of sales increased to 35% in 2004 from 34% in 2003,
primarily due to cost effective sourcing and improved inventory management.
Operating expenses remained virtually unchanged at $6,824 in 2004 compared to
$6,843 in 2003. Income from operations for Madden Womens was $2,527 in 2004
compared to $3,535 in 2003.
Sales from the l.e.i. Footwear Wholesale Division ("l.e.i.") accounted for
$11,125 or 14%, and $14,865 or 19%, of total sales in 2004 and 2003,
respectively. The decrease in sales resulted from a reduction in the casual
business. Gross profit as a percentage of sales decreased to 34% in 2004 from
36% in 2003 primarily due to an increase in markdown allowances caused by higher
levels of promotional activities at retail. Operating expenses decreased to
$2,910 in 2004 from $3,543 in 2003 due to decreases in selling and related
expenses. Income from operations for l.e.i. was $895 in 2004 compared to $1,802
in 2003.
Sales from the Madden Mens Wholesale Division ("Madden Mens") accounted for
$6,569 or 8%, and $8,341 or 11%, of total sales in 2004 and 2003, respectively.
The sales decrease in the Men's business was the result of management's decision
to reduce the number of doors in order to focus on more productive doors. Gross
profit as a percentage of sales remained at 33% in 2004, the same as in 2003.
Operating expenses decreased to $1,834 in 2004 from $2,084 in 2003, due to
decreases in selling and related expenses. Income from operations for Madden
Mens was $327 in 2004 compared to $684 in 2003.
Candie's Footwear, (which began shipping in the fourth quarter of 2003)
generated net sales of $3,216 in the first quarter of 2004. It's customers are
comprised of major department and specialty stores, including Belk, Macy's West,
Rich's, Bon Marche, Robinson's, Filene's, Carson's and Nordstrom. The initial
Candie's line was well received by both retailers and consumers and the Company
anticipates that the brand will continue to gain market share during 2004.
Diva Acquisition Corp. ("Steven"):
Sales from Steven accounted for $5,249 or 7%, and $2,456 or 3%, of total sales
in 2004 and 2003, respectively. The increase in sales was principally due to the
addition of new retail doors, including Dillards, Macy's West and Parisians.
Additionally, Steven initiated an open stock program during the first quarter of
2004, enabling customers to generate weekly reorders with improved turn and
profitability. Gross profit as a percentage of sales increased to 44% in 2004
from 30% in 2003, primarily the result of cost effective sourcing and improved
inventory management. Operating expenses increased to $1,049 in 2004 from $661
in 2003 due to increases in selling, designing, marketing and advertising
expenses. Income from operations for Steven was $1,280 in 2004 compared to $81
in 2003.
Stevies Inc. ("Stevies"):
Sales from Stevies accounted for $3,325 or 4%, and $3,035 or 4%, of total sales
in 2004 and 2003, respectively. This increase was partly anticipated as the
shipment of Steve Madden kids to higher end department and better children's
independent stores commenced during the first quarter of 2004. Stevies added new
management teams in sales and the product development area to focus exclusively
on children's product. Gross profit as a percentage of sales decreased to 35% in
2004 from 36% in 2003, primarily due to an increase in promotional activity.
Operating expenses increased to $683 in 2004 from $628 in 2003 due to increases
in selling and selling related expenses. Income from operations for Stevies was
$489 in 2004 compared to $467 in 2003.
13
Unionbay Men's Footwear ("Unionbay"):
Unionbay, which launched in the fall of 2003, generated net sales of $49 in the
first quarter of 2004. The consumer acceptance of the fall line was less than
expected. As a result, the Company changed product direction and changed the
division's executive management team in the fourth quarter of 2003 which led the
Company to bypass shipments of spring Unionbay products. While prospects for the
fall of 2004 are somewhat improved, management is cautious in its outlook on
Unionbay's contribution during the remainder of 2004.
Retail Division:
- ----------------
Sales from the Retail Division accounted for $23,701 or 30% and $21,106 or 27%
of total sales in 2004 and 2003, respectively. As of March 31, 2004, there were
83 retail stores compared to 82 retail stores as of March 31, 2003. Comparable
store sales for the three-month period ended March 31, 2004 increased 8% over
the same period of 2003. The increase was achieved through management's
immediate reaction to at-once demand for boots late in the fourth quarter of
2003 and early into the first quarter of 2004. Gross profit as a percentage of
sales decreased to 50% in 2004 from 53% in 2003, primarily due to an increase in
promotional activity. Operating expenses for the Retail Division were $11,104 in
2004 and $10,045 in 2003. This increase was primarily due to increased incentive
compensation associated with increased sales, higher occupancy expenses and
higher advertising expenditures. Income from operations for the Retail Division
was $769 in 2004 compared to $1,164 in 2003.
Adesso-Madden Division:
- -----------------------
Adesso-Madden, Inc. generated commission revenues of $896 in 2004, compared to
commission revenues of $1,118 in 2003. This decrease was primarily the result of
a shift in receipts by private label customers into the second quarter of this
year and the migration of certain business from a direct-from-factory to a
landed purchasing format. Income from operations for Adesso-Madden was $314 in
2004 compared to $530 in 2003.
LICENSE AGREEMENTS
Revenue generated from licensing was $520 in 2004 compared to $572 in 2003. As
of March 31, 2004, the Company had five license partners covering five product
categories of its Steve Madden brand. The product categories include, hosiery,
sunglasses, eyewear, belts and outerwear.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $96,196 at March 31, 2004 compared to
$105,140 at December 31, 2003. The decrease was the result of management's
decision to move a portion of excess cash into long-term marketable securities.
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 expires 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 million dollars. As of March 31, 2004 the Company did not
use any portion of the credit line.
As of March 31, 2004 the Company had invested approximately $50,296 in
marketable securities consisting of corporate bonds, U.S. Treasury notes and
government asset-backed securities.
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.
OPERATING ACTIVITIES
During the three-month period ended March 31, 2004, net cash used by operating
activities was $11,096. Uses of cash was caused primarily by an increase in
non-factored accounts receivable of $3,745, an increase in factored accounts
receivable of $10,864, an increase in inventories of $2,205, and a decrease in
accounts payable and other accrued expenses of $1,711. Sources of cash were
14
provided principally by net income of $4,126 and decrease in prepaid expenses,
prepaid taxes, deposits and other assets of $1,270.
The following table represents the Company's contractual obligations at March
31, 2004, which are only for leases of office, showroom 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:
2004 $ 9,455
2005 9,170
2006 9,249
2007 8,818
2008 7,205
Thereafter 17,403
---------
$ 61,300
=========
At March 31, 2004, the Company had un-negotiated open letters of credit for the
purchase of imported merchandise of approximately $8,286.
The Company has an employment agreement with Steve Madden, its Creative and
Design Chief, which provides for an annual salary of $700,000 through June 30,
2011. Mr. Madden is entitled to receive base salary payments during periods that
he is not actively engaged in the duties of Creative and Design Chief. The
agreement also provides for an annual performance bonus, an annual option grant
at exercise prices equal to the market price on the date of grant and a
non-accountable expense allowance, however, the Company is not required to pay
the bonus for any fiscal year that Mr. Madden is not actively engaged in the
duties of Creative and Design Chief for at least six months, the Company is not
required to grant an annual option if Mr. Madden is not actively engaged in the
duties of Creative and Design Chief for at least six months out of the twelve
months immediately preceding the grant date for such annual option and the
Company is not required to pay the expense allowance for any month during which
Mr. Madden is not actively engaged in the duties of Creative and Design Chief.
The Company has employment agreements with certain executives, which provide for
the payment of compensation aggregating approximately $1,818 in 2004, $1,060 in
2005 and $234 in 2006. In addition, such employment agreements provide for
incentive compensation based on various performance criteria as well as other
benefits.
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-seven percent (97%) of its purchases in U.S. dollars.
INVESTING ACTIVITIES
During the three-month period ended March 31, 2004, the Company invested $20,707
in marketable securities and received $3,050 from maturities and sales of
securities. In addition, the Company incurred capital expenditures of $2,017
principally for leasehold improvements to its corporate office space and
computer systems upgrades.
INFLATION
The Company does not believe that the relatively low rates of inflation
experienced over the last few years in the United States, where it primarily
competes, have had a significant effect on sales, expenses or profitability.
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
15
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 that 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 return to 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.
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
sales and brand loyalty. Conversely, excess inventories can result in lower
gross margins due to the excessive discounts and markdowns that might be
necessary to reduce inventory levels. 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 account receivable.
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 year
ended December 31, 2003, approximately 85% 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
16
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 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 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, branding of the Steve
Madden name, 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 Mens, l.e.i.(R) , Unionbay(R) and Candie's(R) brands, creating new
product categories and businesses and operating Company-owned stores on a
profitable basis. During the first quarter of 2004 the Company did not open any
new Steve Madden retail stores but has plans to open approximately eight to ten
17
(8-10) additional stores during the remainder of 2004. 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 management's expectations. 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 can be maintained or will increase 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 operations have 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, inventory write downs, the cost of materials,
the product 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 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 utilization 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 3, 2004 the Company had outstanding options to
purchase an aggregate of approximately 2,174,425 shares of Common Stock. Holders
of such options are likely to exercise them when, in all likelihood, the market
price of the Company's stock is significantly higher than the exercise price of
the options. Further, while its options are outstanding, they may adversely
affect the terms on which the Company could obtain additional capital, if
required.
18
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 for the purchase of 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, 2003. On December 31, 2003 and December 31, 2002, there were no
direct borrowings outstanding under the credit agreement.
As of March 31, 2004, the Company had investments in marketable securities
valued at $50,296, which consists principally of federal and state obligations.
These obligations have various maturities through December 2008. These
investments are subject to interest rate risk and will decrease in value if
market interest rates increase. The Company currently has the ability to hold
these investments until maturity. Should there be a significant increase in
interest rates, the value of these investments would be negatively affected
unless they were held to maturity. In addition, any further decline in interest
rates would reduce the Company's interest income.
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of its disclosure controls and procedures as of the end of the fiscal quarter
covered by this quarterly report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act)
were effective as of the end of the fiscal quarter covered by this quarterly
report. As required by Rule 13a-15(d) under the Exchange Act, the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the Company's internal controls over financial reporting
to determine whether any changes occurred during the first quarter of 2004 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. Based on that evaluation,
there has been no such change during the first quarter of 2004.
19
Part II. OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS
Certain legal proceedings in which the Company is involved are discussed in Note
J to the consolidated financial statements in the Company's 2003 Annual Report
to Shareholders and Part I, Item 3, of the Company's Annual Report on Form 10-K
for the year ended December 31, 2003. The following discussion is limited to
recent developments concerning certain of the Company's legal proceedings and
should be read in conjunction with those earlier Reports. Unless otherwise
indicated, all proceedings discussed in those earlier Reports remain
outstanding.
Class Action
Between June and August 2000, eight putative securities fraud class action
lawsuits were commenced in the United States District Court for the Eastern
District of New York against the Company, Steven Madden and, in five of the
actions, Rhonda J. Brown (the former President and a former director of the
Company) and Arvind Dharia. These actions were captioned: Wilner v. Steven
Madden, Ltd., et al., 00 CV 3676 (filed June 21, 2000); Connor v. Steven Madden,
et al., 00 CV 3709 (filed June 22, 2000); Blumenthal v. Steven Madden, Ltd., et
al., 00 CV 3709 (filed June 23, 2000); Curry v. Steven Madden, Ltd., et al., 00
CV 3766 (filed June 26, 2000); Dempster v. Steven Madden Ltd., et al., 00 CV
3702 (filed June 30, 2000); Salafia v. Steven Madden, Ltd., et al., 00 CV 4289
(filed July 24, 2000); Fahey v. Steven Madden, Ltd., et al., 00 CV 4712 (filed
August 11, 2000); Process Engineering Services, Inc. v. Steven Madden, Ltd., et
al., 00 CV 5002 (filed August 22, 2000). By Order dated December 8, 2000, the
Court consolidated these eight actions, appointed Process Engineering, Inc.,
Michael Fasci and Mark and Libby Adams as lead plaintiffs and approved their
selection of lead counsel. A settlement of these actions has been reached,
subject to notice to the putative class members, a hearing and approval by the
District Court. The District Court has set May 19, 2004 as the date for the
hearing on the settlement. The tentative settlement is within the limits of the
Company's insurance coverage.
Shareholder Derivative Actions
On or about September 26, 2000, a putative shareholders 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., 00 CV 5803
(JG). The Company is named as a nominal defendant in the action. A settlement of
these actions has been reached, subject to notice to the Company's shareholders,
a hearing and approval by the District Court. The District Court has set May 19,
2004 as the date for the hearing on the settlement. 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.
On or about November 28, 2001, a purported shareholder derivative complaint was
filed in the United States District Court for the Eastern District of New York,
captioned Herrera v. Karson, et al., 00 CV 7868. Named as defendants therein are
the Company (as nominal defendant) and certain of the Company's present and/or
former directors. A settlement of these actions has been reached, subject to
notice to the Company's shareholders, a hearing and approval by the District
Court. The Court has set May 19, 2004 as the date for the hearing on the
settlement. 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.
Other Actions
On or about June 6, 2003, an action was commenced in the United States District
Court for the Central District of California, captioned Global Brand Marketing,
Inc. v. Steve Madden Ltd., Case Number 03-4029. On April 13, 2004 the parties
agreed to a settlement of this action. The settlement amount is not expected to
have a material effect on the Company's financial position or result of
operations. A stipulation of dismissal of this action has been executed by the
parties and filed with the District Court.
On December 15, 2003, the Company commenced an action against LaRue
Distributors, Inc. ("LaRue") in the United States District Court for the
Southern District of New York. The Company seeks a declaratory judgment that the
Company properly terminated a license agreement with LaRue and monetary damages
for breaches of the license agreement and trademark infringement by LaRue.
Subsequently, LaRue served an answer and counterclaim alleging that the license
agreement was improperly terminated by the Company and seeking compensatory and
20
punitive damages. The Company filed a reply denying any liability with respect
to the counterclaim. The Company believes that it has substantial defenses to
the counterclaim asserted by LaRue.
SEC Request for Information
On April 26, 2004, the Securities and Exchange Commission (the "SEC") sent the
Company a letter requesting information and documents relating to, among other
things, Steven Madden's employment with the Company. The Company intends to
fully comply with the SEC's request.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(31.1) Certification of Chief Executive Officer 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.
(31.2) Certification of Chief Financial Officer 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.
(32.1) 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
(32.2) 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
(b) Reports on Form 8-K
During the quarter, the Company filed the following Current Reports on
Form 8-K.
(i) A Current Report on Form 8-K dated January 22, 2004 and filed
on January 26, 2004 updating the Company's earnings
expectations for the fourth quarter and full year 2003.
(ii) A Current Report on Form 8-K dated February 26, 2004 and filed
on March 3, 2004 announcing the Company's financial results
for the fourth quarter and full year 2003.
(iii) A Current Report on Form 8-K dated March 23, 2004 and filed on
March 25, 2004 reporting that the Company had increased its
expected cash flow from operations for 2004
21
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 7, 2004
STEVEN MADDEN, LTD.
/s/ JAMIESON A. KARSON
--------------------------------
Jamieson A. Karson
Chief Executive Officer
/s/ ARVIND DHARIA
--------------------------------
Arvind Dharia
Chief Financial Officer
22
Exhibit No Description
---------- -----------
31.1 Certification of Chief Executive Officer 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.
31.2 Certification of Chief Financial Officer 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.
32.1 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
32.2 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
Exhibit 31.1
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 A. 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-15(e) and 15d-15(e)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
quarterly report based on such evaluation; and
c. disclosed in this quarterly report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a. all significant deficiencies and material weakness in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: May 7, 2004
By: /s/ JAMIESON A. KARSON
--------------------------
Jamieson A. Karson
Chief Executive Officer
Exhibit 31.2
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-15(e) and 15d-15(e)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
quarterly report based on such evaluation; and
c. disclosed in this quarterly report any change in the
registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over
financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a. all significant deficiencies and material weakness in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Dated: May 7, 2004
By: /s/ ARVIND DHARIA
---------------------------
Arvind Dharia
Chief Financial Officer
Exhibit 32.1
STEVEN MADDEN, LTD.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS 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, 2004 (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 the best of 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
- -----------------------------
Jamieson A. Karson
Chief Executive Officer
May 7, 2004
Exhibit 32.2
STEVEN MADDEN, LTD.
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, 2004 (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 the best of 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
- ------------------------------
Arvind Dharia
Chief Financial Officer
May 7, 2004