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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): December 23, 2004
STEVEN MADDEN, LTD.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 0-23702 13-3588231
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
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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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 8.01 Other Events.
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On December 23, 2004, Steven Madden, Ltd. (the "Company") issued a press release
to announce that the Outside Directors of the Company had sent a letter dated
December 23, 2004 to Barington Capital Group, L.P. ("Barington") in response to
a letter dated December 13, 2004 that was sent to the Company from Barington and
was filed with the Securities and Exchange Commission as Exhibit 99.4 to
Amendment No. 3 to the Schedule 13D filed by Barington with respect to the
Company. The press release includes the full text of the letter sent on December
23, 2004 by the Outside Directors of the Company to Barington. A copy of the
December 23, 2004 press release is attached as Exhibit 99.1 to this report and
is incorporated herein by reference.
Item 9.01(c) Financial Statements and Exhibits.
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99.1 Press Release dated December 23, 2004 regarding the letter
sent to Barrington from the Outside Directors of the Company
on December 23, 2004 and including the full text of that
letter.
-2-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STEVEN MADDEN, LTD.
By: /s/ JAMIESON KARSON
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Name: Jamieson Karson
Title: Chairman and Chief Executive
Officer
Date: December 23, 2004
-3-
Exhibit 99.1
Contacts: Matthew Sherman / Joele Frank
Joele Frank, Wilkinson Brimmer Katcher
(212) 355-4449
Cara O'Brien / Lila Sharifian
Financial Dynamics
(212) 850-5600
FOR IMMEDIATE RELEASE
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STEVEN MADDEN, LTD. RESPONDS TO BARINGTON CAPITAL
LONG ISLAND CITY, N.Y., December 23, 2004 - Steven Madden, Ltd. (Nasdaq: SHOO),
a leading designer, wholesaler and marketer of fashion footwear for women, men
and children, today announced that its Outside Directors have sent Barington
Capital Group LP the following letter, in response to Barington Capital's letter
dated December 13, 2004.
Attached is the full text of the letter sent from Steven Madden, Ltd.'s Outside
Directors to James A. Mitarotonda on December 23, 2004:
December 23, 2004
Barington Capital Group
888 Seventh Avenue
New York, New York 10019
Attention: Mr. James A. Mitarotonda
Dear Sir:
The Board of Directors of Steven Madden Ltd. has read, considered and
discussed your letter of December 13, 2004.
You have quite a number of comments, criticisms and complaints about the
Company, its business, its performance, its management and, at least by
implication, its Board. You also complain about the way you have been treated in
the past few months, which you assign as the reason for writing to the "Outside
Directors" of the Company. We are responding.
In an effort to be constructive, we will address business issues first and
certain procedural matters thereafter.
We appreciate your laudatory public comments about our election of Hal Kahn
to the Board. Obviously, our judgment coincided with your statements that he is
"one of the most respected leaders in the retail and merchandising sector" and
that "his track record and experience are outstanding." We also agree with your
statement that "the Steve Madden brand remains strong and the Company has the
potential to once again become a growing and highly profitable enterprise."
Finally, we are confident the Company can successfully leverage off of its
strengths and can implement strategic initiatives that together will complete
our navigation of the difficult market environment of recent experience and
reposition us for solid growth.
At the same time, we are also mindful - as you should be - how far we have
progressed since the July 2001, when we had a leadership change. Since the Fall
of 2001, footwear companies, such as Steven Madden, Ltd., have faced daunting
challenges driven by fast-changing industry trends. In sum, our Company has
successfully weathered a difficult and challenging environment over the past
three years. In this context, we think it has achieved a record of solid
performance, although we recognize its performance can and should be improved.
It will be. However, contrary to the picture of doom and gloom you paint, the
Company also has enjoyed significant achievements:
o Since the Fall of 2001, our stock price has climbed steadily from a
low of $9.00 per share (closing price 10/22/01) hitting a high of
$23.65 on December 2, 2003. Recently, it has traded within a range of
$16.00 - $20.00 per share, and yesterday it closed at $18.90.
o In this period our stock price has increased 107% vs. a comparable
average of 92% for other footwear wholesalers (i.e., Kenneth Cole,
Stride Rite and Skechers), and a comparable average of 61% for other
footwear retailers (e.g., Brown Shoe, Genesco and Payless). The S&P
500 rose only 11% in the same period.
o Our Company's two-year top-line sales growth over the period 2001 to
2003 is 33%. Only one competitor in the sector even achieved
double-digit sales growth above 20% (Kenneth Cole at 21%) and the
remainder trail far behind.
o Our Company's current LTM P/E multiple of 18.7x (as of 12/22/04) is
competitive in comparison with the sector median of 17.1.
o Our Company's balance sheet remains one of the strongest in the
industry.
Turning to your specific comments about Steven Madden Ltd., its business,
its performance and its management, we will address them essentially as
presented.
Reduce Operating Expenses
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In general, operating expense reduction is a universal objective to which
we and virtually every other company aspire. Overall, management has done a
commendable job in the face of difficult conditions, in particular retaining
several key personnel, while at the same time keeping operating expenses in line
with the competition (e.g., Kenneth Cole, Payless, Skechers, Stride Rite,
Timberland, Wolverine, Genesco, Deckers and Brown Shoe). Moreover, we have
implemented measures intended to achieve maximum efficiency in this area.
In addition, in its core business our Company has largely succeeded in
increasing market share without sacrificing balance sheet strength. To be sure,
there is and will continue to be corresponding pressure on gross margin. In
addition, operating income for the entire Company has been adversely affected by
the downturn in business in the L.E.I. and Madden Men's divisions. This is
fundamentally the reason for what you characterize as the Company's decline in
"operating income margin." Management is addressing the problems in those
divisions with specific remedial measures, notably the addition and realignment
of certain personnel and the elimination of others. Your implication that the
Company's operating expenses - that is, expenses not included in cost of goods
sold - have been increasing relative to sales is simply incorrect; management
has consistently held the line on SG&A expenses, especially in light of growth
factors such as the addition of new stores and the introduction of new
divisions. That said, every opportunity for expense reduction, including
compensation and headcount, are under review to insure that we are operating as
efficiently as possible. We note parenthetically that nearly 87% of the
Company's headcount is in the retail division.
"Pay for Performance" Compensation Structure
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The most senior levels of the Company's sales staff - which are its
lifeblood - are almost exclusively compensated on an incentive/commission basis.
Other senior level managers are subject to compensation incentives which are
heavily weighted toward achieving operating objectives, such as increases in
EBITDA. These compensation plans have been in place for some time and were
instituted with expert assistance. In certain cases, particularly in the sales
area, incentives were needed to keep valuable key personnel in the face of
aggressive competitive attempts to lure them away from the Company at the time
our leadership change in 2001.
You criticize the ad hoc exchange in 2003 by our CEO and certain other
senior executives of option grants, to which they were contractually entitled,
for cash. Those exchanges were intended to, and did, facilitate the Company's
overall objective to maintain a cap on its option grants per year at a level of
5% of shares outstanding. Significantly, the value of the options surrendered
exceeded the cash consideration paid for such surrender as determined by the
customary Black-Scholes method. Finally, we note those transactions occurred in
2003, and were disclosed in the 2004 proxy statement, long before you filed your
Schedule 13D filing announcing your acquisition of shares of our Company. You
also fail to note two other occasions disclosed in our proxy statements - one
occurring in 2002 and a second in 2003 - when Mr. Karson voluntarily
relinquished shares subject to his own option to make them available for another
key employee. But the main question we have is, if you found these exchanges
inappropriate or disturbing, and if you found Mr. Karson's stewardship to be
inadequate, as you now assert, why you would make what you term an "investment",
amounting to $18.7 million in the company and not instead turn elsewhere to
invest the funds for which you have fiduciary responsibilities of trust and
confidence to your investors?
Licensing
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We infer from your letter a general suggestion that the Company is
overlooking licensing as a "cure-all" for everything that ails our business. We
recognize licensing our own valuable brands can represent an opportunity for
profitable growth, but the wrong partner can quickly become a source of brand
dilution and attendant adverse consequences. With the Board's direction,
management is working diligently on a variety of attractive initiatives and
would hope to be able to announce one or more licensing or other similar
arrangements in the near future. We emphasize, however, these types of
relationships can only be developed deliberately, prudently and in harmony with
an overall strategy of maximizing brand awareness and thereby sales revenues. It
should not be done on an ad hoc, one-off basis.
Systems and Logistics Infrastructure
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The Steven Madden Ltd. system portfolio consists entirely of industry
leading integrated business system applications that have enabled the Company to
grow from $30 million to $350 million annually in the past seven years. All our
systems are integrated into a single back office financial system. The same
system architecture will support growth well into the future with little or no
increase in operational and capital expenditures, and our systems are being
imitated and utilized by other top of the line competitors.
Our retail back office and point of sale systems are completely integrated
with one another and with our back office financial system. Our point of sale
system is used by numerous other retailers who operate in our space and in
related spaces. Our current retail system will support over 300% growth and is
capable of reporting daily sales and receipts for every store every morning 99%
of the time, something most other retailers cannot match. This system is run by
two employees in our headquarters office.
Your comments about inventory management and 3rd quarter growth have
nothing to do with our systems or our capability to monitor, track or manage
quarter-end inventory levels. Our systems give us complete inventory visibility
at all times.
Corporate Governance
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We fully understand the enhanced sensitivities, as well as new legal
requirements, associated with business relationships with our directors. These
are subject to continual and diligent attention and review. These relationships
are legal, fully disclosed and, in our view, entirely appropriate and beneficial
to the interests of all our stockholders, which must always be the final
touchstone. We find it presumptuous on your part - with your record of
regulatory sanctions and other difficulties - to acquire our stock with full
knowledge of facts such as these and then disingenuously to write us a public
letter sanctimoniously criticizing our corporate governance.
We are confident, and we are competently advised, that our approach to
matters such as the identity of the roles of Chairman and CEO, the terms of our
change-in-control termination agreements which you pejoratively refer to as
"golden parachutes" and the fact that the Company has a stockholder rights plan
are all well within the standards observed by many other reputable, successful,
well-managed and profitable public companies, large and small. That said, we
will continue our own careful attention with the expert advice of our outside
advisors to current concerns you purport to represent. If, as and when any
changes are appropriate or necessary, we will make them on our own initiative -
whether or not you suggest them.
Use of Corporate Cash
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Due, in part, to the volatility of the sector, many profitable footwear
companies maintain large cash reserves, and Steven Madden, Ltd. is no exception.
Nevertheless, in pursuit of the interests of shareholders, the Company has been
engaged in a share repurchase plan, which was amended effective as of January 1,
2004. The plan currently provides for share purchases in the aggregate amount of
$20 million. To date, the Company has repurchased a total of 545,100 shares for
an aggregate of $9.7 million in the current fiscal year ending December 31.
We are studying the question whether any additional portion of the
Company's cash ought to be dedicated to accelerating this repurchase program,
implementing a self-tender offer (by Dutch auction or otherwise) or instituting
a cash dividend on the common shares (or some combination of those initiatives).
Naturally, we will need to take account of the Company's anticipated capital
needs, its plans for growth in the retail area, projected operating cash needs,
projected short- and long-term interest rates, trends in the capital markets and
other contingencies before reaching any decision to dedicate additional cash to
share repurchases or dividends, including assurance that any such expenditure of
corporate resources would not disproportionately advantage any single
shareholder or shareholder group. We expect to complete our review in the near
term.
In this context, we are bound to observe in numerous cases where you have
unilaterally involved yourself in the affairs of a public company without the
board's invitation, you have proposed distributing company cash to shareholders
in some fashion. We see a pattern. We therefore ask whether your suggestion in
our own case is merely a favorite gambit in your arsenal of activist tactics or
is a product of careful analysis of all factors we must consider in deciding
whether corporate cash really should be used for such a program. Indeed, while
your letter claims the Company shares you hold "are not for sale" at this time,
you do not deny you have let it be known you would ransom those shares to the
Company for a sufficiently high price. We are especially concerned about this
issue since the public record reveals you participated in a sale of shares to
the issuer Thistle Group Holdings, Co. in October 2002 for a premium price to
the prevailing market, plus an additional payment of $.75 per share, in exchange
for a five-year standstill agreement.
Stock Option Grants
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We think your approach to this issue is both misguided and
mis-apprehending. First, the options outstanding at last year's end that were
then exercisable were less than 15% of the total number of shares outstanding.
Second, and more important, the number of options granted in each of the past
three years has decreased both in absolute terms and as a percentage of the
total number of share outstanding at the end of the preceding year. Grants in
the years 2002 - 2004 were 696,000 shares, 403,000 shares and 380,000 shares,
respectively. These represented 5.7%, 3.2% and 2.9% of the shares outstanding at
the end of the preceding year, respectively. From the end of 2002 to the end of
2003 the total number of options outstanding, both currently exercisable and
unexercisable, decreased from 2,345,000 shares to 2,274,000. While the number of
outstanding options (vs. options granted which decreased) has increased somewhat
this year, that is because there is a large number outstanding with exercise
prices at, above or close to the current market price, as a result of which
there have been fewer recent exercises. Finally, the grant of 380,000 options in
2004 was more than offset by the acquisition of 545,100 treasury shares in 2004
pursuant to the Company's repurchase program. In sum, our option program already
is moderating, without any suggestions from Barington.
Attack on the Company's CEO
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We decline your transparent attempt to transform the business issues facing
our Company into a personalized attack on Mr. Karson's leadership. Mr. Karson
has been the CEO of the Company since 2001, and we have supported him and will
continue to support him in that endeavor. He deserves the credit for the
successes we have achieved and he has the capability to lead the Company forward
to improved performance as we have described above. We have reviewed your
criticism specifically with Mr. Kahn whose judgment you value so highly and Mr.
Cooper who was formerly associated with you - and they profoundly disagree with
your criticism and believe he deserves the Board's continued support. We
unanimously support Mr. Karson and believe your personal attacks on him to
achieve your agenda only diminish you and your campaign.
Procedural Matters
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You say Mr. Karson's refusal to meet with you is the reason you wrote your
letter, and you express disappointment "that the Company has chosen to attack
[you] rather than being receptive to [your] offer of assistance." In fact our
Audit Committee merely requested resolution of several preliminary issues as a
predicate to our willingness to engage in any substantive discussion with you
regarding the Company's future. Accusing the Company of "using diversions and
smokescreens" to avoid a meeting with you is absolutely incorrect and does not
address our concerns. There has been, and continues to be, a quick and simple
mechanism through which you can address the concerns we have previously raised:
provide the requested information, pure and simple. While you have been quick to
deny any improprieties and equally quick to criticize the Company, you are not
so quick to allow sunshine or illumination to test your own statements. We
believe there is ample basis for the concerns expressed and the Board remains
resolved to take whatever action is needed to protect the Company.
Very truly yours,
MARC COOPER HAROLD D. KAHN
/s/ MARC COOPER /s/ HAROLD D. KAHN
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Marc Cooper Harold D. Kahn
PETER MIGLIORINI THOMAS H. SCHWARTZ
/s/ PETER MIGLIORINI /s/ THOMAS H. SCHWARTZ
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Peter Migliorini Thomas H. Schwartz
AWADHESH SINHA
/s/ AWADHESH SINHA
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Awadhesh Sinha
Steven Madden, Ltd. designs and markets fashion-forward footwear for women, men
and children. The shoes are sold through Steve Madden retail stores, department
stores, apparel and footwear specialty stores, and on-line at
http://www.stevemadden.com . The Company has several licenses for the Steve
Madden and Stevies brands, including eyewear, hosiery, and belts, owns and
operates one retail store under its Steven brand, and is the licensee for l.e.i
Footwear, Candie's Footwear and UNIONBAY Men's Footwear.
Statements in this press release 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 and forward-looking. 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.
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