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 September 30, 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 November 3, 2004, the latest practicable date, there were 13,053,505
shares of common stock, $.0001 par value, outstanding.
STEVEN MADDEN, LTD.
FORM 10-Q
QUARTERLY REPORT
September 30, 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.......................... 11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk... 25
ITEM 4. Controls and Procedures...................................... 25
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 26
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.. 27
ITEM 6. Exhibits and Reports on Form 8-K............................. 27
Signature.................................................... 28
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
September 30, December 31, September 30,
2004 2003 2003
------------- ------------- -------------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 18,128 $ 53,073 $ 34,180
Accounts receivable, net of allowances of $688, $452 and $452 3,223 4,281 6,747
Due from factor, net of allowances of $1,973, $1,926 and $1,909 45,370 28,748 32,256
Inventories 30,441 23,858 22,983
Marketable securities - available for sale 10,183 3,229 7,969
Prepaid expenses and other current assets 2,403 2,844 3,776
Prepaid taxes 405 4,270
Deferred taxes 2,292 1,692 1,633
------------- ------------- -------------
Total current assets 112,445 121,995 109,544
Property and equipment, net 20,372 18,391 18,403
Deferred taxes 5,618 5,618 3,699
Deposits and other 428 370 366
Marketable securities - available for sale 40,225 29,430 36,440
Cost in excess of fair value of net assets acquired 2,066 2,066 2,066
------------- ------------- -------------
$ 181,154 $ 177,870 $ 170,518
============= ============= =============
LIABILITIES
Current liabilities:
Current portion of capital lease obligations $ 1 $ 3
Accounts payable $ 7,571 11,087 8,524
Accrued expenses 4,401 5,300 5,928
Accrued incentive compensation 292 467 951
------------- ------------- -------------
Total current liabilities 12,264 16,855 15,406
Deferred rent 2,141 1,828 1,714
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14,405 18,683 17,120
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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 - $.0001 par value, 60,000 shares authorized, 14,582,
14,459 and 14,355 shares issued, 13,054, 13,214 and
13,110 outstanding 1 1 1
Additional paid-in capital 79,395 79,136 76,359
Retained earnings 103,078 91,176 88,624
Unearned compensation (1,663) (3,008) (3,690)
Other comprehensive gain:
Unrealized gain (loss) on marketable securities (829) (127) 95
Treasury stock - 1,528, 1,245 and 1,245 shares at cost (13,233) (7,991) (7,991)
------------- ------------- -------------
166,749 159,187 153,398
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$ 181,154 $ 177,870 $ 170,518
============= ============= =============
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 Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2004 2003 2004 2003
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Net sales:
Wholesale $ 64,851 $ 65,601 $ 179,722 $ 186,528
Retail 23,759 23,062 73,890 66,577
---------- ---------- ---------- ----------
88,610 88,663 253,612 253,105
---------- ---------- ---------- ----------
Cost of sales:
Wholesale 45,629 42,252 122,472 123,023
Retail 11,531 10,815 35,706 31,213
---------- ---------- ---------- ----------
57,160 53,067 158,178 154,236
---------- ---------- ---------- ----------
Gross profit:
Wholesale 19,222 23,349 57,250 63,505
Retail 12,228 12,247 38,184 35,364
---------- ---------- ---------- ----------
31,450 35,596 95,434 98,869
Commission and licensing fee income 1,702 2,205 4,929 6,040
Operating expenses (27,285) (26,094) (81,340) (75,324)
---------- ---------- ---------- ----------
Income from operations 5,867 11,707 19,023 29,585
Interest and other income, net 488 426 1,497 1,218
---------- ---------- ---------- ----------
Income before provision for income taxes 6,355 12,133 20,520 30,803
Provision for income taxes 2,669 5,060 8,618 12,901
---------- ---------- ---------- ----------
Net income $ 3,686 $ 7,073 $ 11,902 $ 17,902
========== ========== ========== ==========
Basic income per share $ 0.28 $ 0.54 $ 0.90 $ 1.38
========== ========== ========== ==========
Diluted income per share $ 0.26 $ 0.50 $ 0.83 $ 1.27
========== ========== ========== ==========
Basic weighted average common shares outstanding 13,177 13,073 13,243 12,930
Effect of dilutive securities - options/warrants/restricted stock 1,043 1,194 1,085 1,131
---------- ---------- ---------- ----------
Diluted weighted average common shares outstanding 14,220 14,267 14,328 14,061
========== ========== ========== ==========
See accompanying notes to consolidated financial statements - unaudited 4
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended
September 30,
------------------------
2004 2003
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Cash flows from operating activities:
Net income $ 11,902 $ 17,902
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 3,654 3,666
Noncash compensation 1,479 2,195
Provision for bad debts 283 146
Deferred rent expense 313 182
Realized loss (gain) on marketable securities (70) (56)
Changes in:
Accounts receivable 822 (3,663)
Due from factor (16,669) (10,074)
Inventories (6,583) (3,538)
Prepaid expenses, prepaid taxes, deposits and other assets 4,248 (2,193)
Accounts payable and other accrued expenses (4,687) (3,476)
---------- ----------
Net cash used in operating activities (5,308) 1,091
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (5,635) (4,996)
Purchase of marketable securities (26,132) (41,840)
Sale/redemption of marketable securities 7,150 19,956
---------- ----------
Net cash used in investing activities (24,617) (26,880)
---------- ----------
Cash flows from financing activities:
Proceeds from options and warrants exercised 223 3,267
Purchase of treasury stock (5,242)
Repayment of lease obligations (1) (11)
---------- ----------
Net cash (used in) provided by financing activities (5,020) 3,256
---------- ----------
Net decrease in cash and cash equivalents (34,945) (22,533)
Cash and cash equivalents - beginning of period 53,073 56,713
---------- ----------
Cash and cash equivalents - end of period $ 18,128 $ 34,180
========== ==========
See accompanying notes to consolidated financial statements - unaudited 5
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Unaudited
September 30, 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 nine and
three-month period ended September 30, 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
The Company recognizes revenue on wholesale sales when products are shipped
pursuant to our standard terms which are f.o.b. warehouse. Allowances for
anticipated discounts and allowances are recognized when sales are recorded.
Customers retain the right to replacement of product for poor quality or
improper or short shipments, which have historically been immaterial. Retail
sales are recognized when the payment is received from customers and are
recorded net of returns. The Company earns commission income as a buying agent
through its Adesso-Madden Division by arranging to produce private label shoes
to the specifications of its clients. Commission revenue is recognized as earned
when title of product transfers from the manufacturer to the customer and is
recorded on a net basis.
The Company licenses its Steve Madden trademark for use in connection with the
manufacturing, marketing and sale of outerwear, handbags, belts, sunglasses,
eyewear and hosiery. Each license agreement requires the licensee to pay to the
Company a royalty based on net sales, a minimum royalty in the event that
specified net sales targets are not achieved and a percentage of sales for
advertising of the Steve Madden brand. Licensing revenue is recognized on the
basis of net sales reported by the licensees or, if greater, minimum guaranteed
royalties when received and earned. In substantially all of our license
agreements, the minimum guaranteed royalty is earned and payable (due in advance
on the first day of the quarter) on a quarterly basis.
NOTE E - SALES DEDUCTIONS
The Company supports retailers' initiatives to maximize the sales of the
Company's products on the retail floor by subsidizing the coop advertising
programs of such retailers, providing such retailers with inventory markdown
allowances and participating in various other marketing initiatives of such
retailers. Such expenses are reflected in the financial statements as deductions
to net sales. For the three and nine month period ended September 30, 2004, the
total deduction to net sales for these expenses was $8,158,000 and $22,782,000
as compared to $7,124,000 and $20,597,000 for the comparable periods in 2003.
6
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Unaudited
September 30, 2004
NOTE F - COST OF SALES
All costs incurred to bring finished products to our warehouse are included in
the cost of sales line item of the Company's Consolidated Statement of
Operations. These include purchase commissions, letter of credit fees, f.o.b.
costs, sample expenses, custom duty, inbound freight, labels and product
packaging. All warehouse and distribution costs are included in the operating
expenses line item of the Company's Consolidated Statement of Operations. The
Company classifies all shipping costs to customers as operating expenses. The
Company's gross margins may not be comparable to other companies in the industry
because some companies may include warehouse and distribution costs as a
component of cost of sales, while other companies may include them in operating
expenses.
NOTE G - 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
that the Company has agreed to issue to certain employee and independent
contractors in the future if certain conditions are met which have a dilutive
effect. For the three months and nine months ended September 30, 2004,
approximately 1,210,000 and 135,000 stock options, respectively, have been
excluded from the calculation because inclusion of such shares would be
antidilutive, as compared to approximately 70,000 and 559,000 stock options,
respectively, for the three and nine months ended September 30, 2003.
NOTE H - 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
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 Nine Months Ended
September 30, September 30,
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2004 2003 2004 2003
------------ ------------ ------------ ------------
Reported net income $ 3,686 $ 7,073 $ 11,902 $ 17,902
Stock-based employee compensation included in
reported net income, net of tax 102 149 299 314
Stock-based employee compensation determined
under the fair value based method, net of tax (968) (748) (2,486) (2,002)
------------ ------------ ------------ ------------
Pro forma net income $ 2,820 $ 6,474 $ 9,715 $ 16,214
============ ============ ============ ============
Basic income per share:
As reported $ 0.28 $ 0.54 $ 0.90 $ 1.38
Pro forma $ 0.21 $ 0.50 $ 0.73 $ 1.25
Diluted income per share:
As reported $ 0.26 $ 0.50 $ 0.83 $ 1.27
Pro forma $ 0.20 $ 0.45 $ 0.68 $ 1.15
7
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Unaudited
September 30, 2004
NOTE I - COMPREHENSIVE INCOME
Comprehensive income for the three and nine month periods ended September 30,
2004, after considering other comprehensive income including unrealized gain
(loss) on marketable securities of $200 and $(702) was $3,886 and $11,200
respectively. For the comparable periods ended September 30, 2003, after
considering other comprehensive (loss) on marketable securities of $(202) and
$(41), comprehensive income was $6,871 and $17,861 respectively.
NOTE J - COMMITMENTS, CONTINGENCIES AND OTHER
[1] Indictment:
On June 20, 2000, Steven Madden, the Company's former Chairman and Chief
Executive Officer, was indicted in the United States District Courts for
the Southern District and Eastern District of New York. The indictments
alleged that Mr. Madden engaged in securities fraud and money laundering
activities. In addition, the Securities and Exchange Commission filed a
complaint in the United States District Court for the Eastern District of
New York alleging that Mr. Madden violated Section 17(a) of the
Securities Exchange Act of 1934, as amended. On May 21, 2001, Steven
Madden entered into a plea agreement with the U.S. Attorney's Office,
pursuant to which he pled guilty to four of the federal charges filed
against him. In addition, Mr. Madden reached a separate settlement
agreement with the Securities and Exchange Commission regarding the
allegations contained in its complaint. As a result, Mr. Madden resigned
as the Company's Chief Executive Officer and as a member of the Company's
Board of Directors effective July 1, 2001. Mr. Madden has agreed to serve
as the Company's Creative and Design Chief, a non-executive position. On
April 4, 2002, Mr. Madden was sentenced in the United States District
Court for the Southern District of New York to forty-one (41) months'
imprisonment in connection with two of the federal charges to which he
pled guilty.
On May 3, 2002, Mr. Madden was sentenced in the United States District
Court for the Eastern District of New York to forty-one (41) months'
imprisonment in connection with the remaining two charges to which he
pled guilty. The sentences will run concurrently. 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 alleged 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. It is the Company's policy
not to recognize any expected insurance recoveries until received.
[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 was reached and, on May 25, 2004, the Court
entered a Final Order and Judgment pursuant to which the Court dismissed
these actions in accordance with the settlement agreement. The settlement
amounts did not have a material effect on the Company's financial
position.
[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. The
Company is named as a nominal defendant in the action. A settlement of
these actions was reached and,
8
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Unaudited
September 30, 2004
NOTE J - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
[3] Shareholder derivative actions: (continued)
on June 1, 2004, the Court entered an Amended Order and Final Judgment of
Derivative Action pursuant to which the Court dismissed these actions in
accordance with the settlement agreement. The settlement amounts did not
have a material effect on the Company's financial position.
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. The Company and certain of the
Company's present and/or former directors were named as defendants in
this action. A settlement of these actions was reached and, on June 1,
2004, the Court entered an Amended Order and Final Judgment of Derivative
Action pursuant to which the Court dismissed these actions in accordance
with the settlement agreement. The settlement amounts did not have a
material effect on the Company's financial position.
[4] Other actions:
(a) The Company and certain of the Company's present and/or former
directors have been named in an action commenced in the United
States District Court for the Eastern District of New York by the
Safeco Surplus Lines Insurance Company captioned Safeco Surplus
Lines Ins. Co. v. Steven Madden Ltd., et al., 02 CV 1151 (JG). The
complaint principally seeks rescission of the excess insurance
policy issued by Safeco to the Company for the February 4, 2000 to
June 13, 2001 period and an order declaring that Safeco does not
owe any indemnity obligation to the Company or any of its officers
and directors in connection with the putative shareholder class
action and derivative cases described in the Form 10Q filed by the
Company for the quarter ended March 31, 2002. The parties agreed
to resolve Safeco's claims without any payment to Safeco and the
case was dismissed, with prejudice and without costs to any of the
parties, by stipulation, which stipulation was so ordered by the
Court.
(b) 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. On
April 13, 2004 the parties agreed to a settlement of this action.
The settlement amount did not 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 April 15, 2004, the
Court dismissed this action.
(c) 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 punitive damages. The Company
filed an answer denying any liability with respect to the
counterclaim. This action is in the pretrial discovery stage. The
Company believes that it has substantial defenses to the
counterclaim asserted by LaRue. The Company believes that this
action will not have a material effect on the Company's financial
position.
(d) On or about July 9, 2004, an action was filed in the United States
District Court for the Southern District of New York against the
Company by Robert Marc for trademark infringement, captioned
Robert Marc v. Steve Madden, Ltd. Case No. 04 CV 5354 (JGK). In
the action Robert Marc claims trademark infringement in connection
with a "bar and dot" design on the sides of certain eyewear. The
alleged infringing eyeglasses are manufactured and sold by the
Company's licensee for eyewear, Colors in Optics, which is also a
defendant in the action. Colors in Optics has assumed
responsibility for the defense of this action. The Company
believes that this action will not have a material effect on the
Company's financial position.
9
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Unaudited
September 30, 2004
(e) 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. It is the policy of management to disclose the amount
or range of reasonably possible losses in excess of recorded
amounts.
[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 has responded to this request.
10
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", "projects" 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.
Financial Overview:
- ------------------
The third quarter of 2004 was a challenging quarter for the Company. Less than
expected consumer demand, unstable weather conditions, and higher inventory
markdowns adversely impacted third quarter profitability which resulted net
sales to remain flat at $88.6 million compared to last year. Gross profit as
percentage of sales decreased to 35.5% from 40.1% the year before. The Company's
overall margins were negatively impacted by increases in cost of sales due to
higher inventory costs associated with the utilization of product sourcing that
provided shorter delivery times combined with pricing pressure from our
wholesale customers. Additionally, sales deductions for the quarter increased by
1.4% over the year before. The Company projects continued markdown as well as
gross margin pressure in both the wholesale and retail businesses for the
balance of the year. The Company's inventory turn decreased to 7.6 times
compared to 9.7 times last year, reflecting an increase in inventory levels to
$30.4 million this year compared with $23 million last year. The increased
inventory level is partially due to the Company intentionally receiving its
product early in order to avoid anticipated shipping delays in importing goods
through the port of Long Beach. Additionally, inventory levels in the Steven
Wholesale Division increased to support the substantial sales growth in that
division over last year. Inventory requirements for the new Candie's Wholesale
Division also contributed to the increased inventory level. Finally, inventory
levels in the Steve Madden Retail Division increased due to slower than expected
third quarter sales levels and the extra inventory required for the eight
additional stores opened since last year. The Company's accounts receivable
average collection days increased to 69 from 50 a year ago. The slow down in
receivables collection was due in part to higher sales to customers that require
longer payment terms than the Company's normal channels. In our retail stores,
comparative store sales (sales of stores that were in operation throughout all
of the third quarters of 2004 and 2003) remained flat while our sales per square
foot decreased to $635 from $653 last year.
As of September 30, 2004, the Company had a strong balance sheet with
approximately $68.5 million in cash, cash equivalents and investment securities,
no short or long term debt, and total stockholders equity of $166.7 million.
Working capital increased from $94 million last year to $100 million this year.
The Company repurchased 197,700 shares of common stock this quarter at an
average price of $18.42. During the nine month period ending September 30, 2004,
the Company repurchased a total of 282,900 shares, reflecting management's
continued confidence in the Company's long-term prospects and its commitment to
enhance shareholder value.
The Company anticipates that the fourth quarter of this year will continue to be
difficult. Anticipated soft consumer demand for the l.e.i., Stevies, and
Unionbay brands will cause the recent trend to continue. The continued higher
markdown and allowance environment combined with the higher inventory costs and
sales allowances caused by pressures from retailers will keep gross margins at
historically low levels.
11
The following tables set forth information on operations for the periods
indicated:
Selected Financial Information
------------------------------
Nine Months Ended
-----------------
September 30
------------
($ in thousands)
2004 2003
------------------- -------------------
Consolidated:
- ------------
Net Sales $253,612 100% $253,105 100%
Cost of Sales 158,178 62 154,236 61
Gross Profit 95,434 38 98,869 39
Other Operating Income 4,929 2 6,040 3
Operating Expenses 81,340 32 75,324 30
Income from Operations 19,023 8 29,585 12
Interest and Other Income Net 1,497 0 1,218 0
Income Before Income Taxes 20,520 8 30,803 12
Net Income 11,902 5 17,902 7
By Segment
WHOLESALE DIVISIONS:
- --------------------
Steven Madden, Ltd.
- -------------------
Madden Womens:
- --------------
Net Sales $ 89,005 100% $ 91,449 100%
Cost of Sales 61,008 69 62,631 68
Gross Profit 27,997 31 28,818 32
Other Operating Income 1,748 2 2,024 2
Operating Expenses 21,736 24 22,271 24
Income from Operations 8,009 9 8,571 10
l.e.i. Footwear:
- ----------------
Net Sales $ 31,086 100% $ 49,371 100%
Cost of sales 21,621 70 30,638 62
Gross Profit 9,465 30 18,733 38
Operating Expenses 7,957 25 10,428 21
Income from Operations 1,508 5 8,305 17
Madden Mens:
- ------------
Net Sales $ 20,350 100% $ 28,065 100%
Cost of sales 14,045 69 18,206 65
Gross Profit 6,305 31 9,859 35
Operating Expenses 5,829 29 6,205 22
Income from Operations 476 2 3,654 13
Candie's Footwear:
- ------------------
Net Sales $ 12,315 100% -- --
Cost of sales 8,602 70 -- --
Gross Profit 3,713 30 -- --
Operating Expenses 3,245 26 -- --
Income from Operations 468 4 -- --
12
Selected Financial Information
------------------------------
Nine Months Ended
-----------------
September 30
------------
($ in thousands)
2004 2003
------------------- -------------------
By Segment (Continued)
WHOLESALE DIVISIONS:
- --------------------
Diva Acquisition Corp. (Steven):
- --------------------------------
Net Sales $ 17,931 100% $ 8,695 100%
Cost of sales 10,929 61 5,735 66
Gross Profit 7,002 39 2,960 34
Operating Expenses 3,894 22 2,185 25
Income from Operations 3,108 17 775 9
Stevies Inc.:
- -------------
Net Sales $ 8,715 100% $ 8,656 100%
Cost of sales 5,947 68 5,626 65
Gross Profit 2,768 32 3,030 35
Other Operating Income -- -- 11 0
Operating Expenses 2,026 23 1,814 21
Income from Operations 742 9 1,227 14
Unionbay Men's Footwear:
- ------------------------
Net Sales $ 320 100% $ 292 100%
Cost of Sales 320 100 187 64
Gross Profit (Loss) 0 0 105 36
Operating Expenses 497 155 325 111
Loss from Operations (497) (155) (220) (75)
RETAIL DIVISION:
- ----------------
Steven Madden Retail Inc.:
- --------------------------
Net Sales $ 73,890 100% $ 66,577 100%
Cost of Sales 35,706 48 31,213 47
Gross Profit 38,184 52 35,364 53
Operating Expenses 34,452 47 30,371 46
Income from Operations 3,732 5 4,993 7
Number of Stores 90 82
ADESSO MADDEN INC.:
- -------------------
(FIRST COST)
Other Operating Revenue $ 3,181 100% $ 4,005 100%
Operating Expenses 1,704 54 1,725 43
Income from Operations 1,477 46 2,280 57
13
Selected Financial Information
------------------------------
Three Months Ended
------------------
September 30
------------
($ in thousands)
2004 2003
------------------- -------------------
Consolidated:
- ------------
Net Sales $ 88,610 100% $ 88,663 100%
Cost of Sales 57,160 65 53,067 60
Gross Profit 31,450 35 35,596 40
Other Operating Income 1,702 2 2,205 2
Operating Expenses 27,285 31 26,094 29
Income from Operations 5,867 6 11,707 13
Interest and Other Income Net 488 1 426 1
Income Before Income Taxes 6,355 7 12,133 14
Net Income 3,686 4 7,073 8
By Segment
WHOLESALE DIVISIONS:
- --------------------
Steven Madden, Ltd.
- -------------------
Madden Womens:
- --------------
Net Sales $ 32,507 100% $ 32,243 100%
Cost of Sales 22,925 71 21,655 67
Gross Profit 9,582 29 10,588 33
Other Operating Income 508 2 772 3
Operating Expenses 7,424 23 7,942 25
Income from Operations 2,666 8 3,418 11
l.e.i. Footwear:
- ----------------
Net Sales $ 9,358 100% $ 17,550 100%
Cost of sales 7,038 75 10,690 61
Gross Profit 2,320 25 6,860 39
Operating Expenses 1,968 21 3,545 20
Income from Operations 352 4 3,315 19
Madden Mens:
- ------------
Net Sales $ 7,329 100% $ 8,249 100%
Cost of sales 4,948 68 5,316 64
Gross Profit 2,381 32 2,933 36
Operating Expenses 2,239 30 1,822 22
Income from Operations 142 2 1,111 14
Candie's Footwear:
- ------------------
Net Sales $ 5,364 100% -- --
Cost of sales 3,885 72 -- --
Gross Profit 1,479 28 -- --
Operating Expenses 1,356 25 -- --
Income from Operations 123 3 -- --
14
Selected Financial Information
------------------------------
Three Months Ended
------------------
September 30
------------
($ in thousands)
2004 2003
-------------------- --------------------
By Segment (Continued)
Diva Acquisition Corp. (Steven):
- --------------------------------
Net Sales $ 6,840 100% $ 4,365 100%
Cost of sales 4,468 65 2,577 59
Gross Profit 2,372 35 1,788 41
Operating Expenses 1,431 21 961 22
Income from Operations 941 14 827 19
Stevies Inc.:
- -------------
Net Sales $ 3,227 100% $ 2,902 100%
Cost of sales 2,196 68 1,827 63
Gross Profit 1,031 32 1,075 37
Other Operating Income -- -- 2 0
Operating Expenses 640 20 674 23
Income from Operations 391 12 403 14
Unionbay Men's Footwear:
- ------------------------
Net Sales $ 226 100% $ 292 100%
Cost of Sales 169 75 187 64
Gross Profit 57 25 105 36
Operating Expenses 159 70 325 111
Loss from Operations (102) (45) (220) (75)
RETAIL DIVISION:
- ----------------
Steven Madden Retail Inc.:
- --------------------------
Net Sales $ 23,759 100% $ 23,062 100%
Cost of Sales 11,531 49 10,815 47
Gross Profit 12,228 51 12,247 53
Operating Expenses 11,541 48 10,290 45
Income from Operations 687 3 1,957 8
Number of Stores 90 82
ADESSO MADDEN INC.:
- -------------------
(FIRST COST)
Other Operating Revenue $ 1,194 100% $ 1,431 100%
Operating Expenses 527 44 535 37
Income from Operations 667 56 896 63
15
RESULTS OF OPERATIONS
($ in thousands)
Nine Months Ended September 30, 2004 vs. Nine Months Ended September 30, 2003
Consolidated:
- -------------
Total net sales for the nine-month period ended September 30, 2004 remained
virtually unchanged ($253,612 in 2004 as compared to $253,105 in 2003). Sales
increases from the Retail Division, the Steven Wholesale Division and
contribution from the new Candie's Wholesale Division were offset by declines in
the Madden Mens and Womens, as well as the l.e.i. Wholesale Divisions.
Gross profit as a percentage of sales decreased to 38% in 2004 from 39% in 2003,
primarily due to an increase in cost of sales due to higher inventory costs
associated with the utilization of product sourcing that provided shorter
delivery times combined with pricing pressure from our wholesale customers.
Additionally, the l.e.i. Wholesale Division continued to face greater than
expected pressure due to a decline in sales combined with higher markdowns and
allowances at retail which resulted in a substantial increase in sales
deductions in 2004 compared to 2003.
Operating expenses increased to $81,340 in 2004 from $75,324 in 2003. This
increase resulted from increased professional fees incurred by the Company in
complying with the rules and regulations adopted pursuant to the Sarbanes-Oxley
Act of 2002, higher occupancy expenses associated with the operation of eight
additional retail stores in the current period, a reclassification of warehouse
expenses and the costs associated with the launch of the Candie's and Unionbay
Wholesale Divisions.
Income from operations was $19,023 in 2004 compared to $29,585 in 2003. Net
income was $11,902 in 2004 compared to $17,902 in 2003. The decrease in income
was primarily due to the lower margins and increased expenses described in the
previous paragraphs.
Wholesale Divisions:
- --------------------
Steven Madden, Ltd. (Madden Womens, l.e.i. Footwear , Madden Mens and Candie's
Footwear):
Sales from the Madden Womens Wholesale Division ("Madden Womens") accounted for
$89,005 or 35%, and $91,449 or 36%, of total sales in 2004 and 2003,
respectively. This decrease in sales was the result of more conservative spring
buying patterns among the Company's wholesale customers during the first quarter
of 2004. Gross profit as a percentage of sales decreased to 31% in 2004 from 32%
in 2003, primarily due to price pressures in the third quarter combined with an
increase in markdowns and allowances caused by higher levels of promotional
activities at retail. Operating expenses decreased to $21,736 in 2004 from
$22,271 in 2003 due to decreases in selling and related expenses. Income from
operations for Madden Womens was $8,009 in 2004 compared to $8,571 in 2003.
Sales from the l.e.i. Footwear Wholesale Division ("l.e.i.") accounted for
$31,086 or 12%, and $49,371 or 20%, of total sales in 2004 and 2003,
respectively. This decrease in sales resulted from a reduction in the casual
business combined with a disappointing performance at retail. Gross profit as a
percentage of sales decreased to 30% in 2004 from 38% in 2003 primarily due to
higher inventory markdowns and clearance at retail. Operating expenses decreased
to $7,957 in 2004 from $10,428 in 2003 due to decreases in selling and related
expenses. Income from operations for l.e.i. was $1,508 in 2004 compared to
$8,305 in 2003.
Sales from the Madden Mens Wholesale Division ("Madden Mens") accounted for
$20,350 or 8%, and $28,065 or 11%, of total sales in 2004 and 2003,
respectively. This sales decrease was the result of a downturn in the Men's
casual fashion footwear segment and price reductions on slow moving styles.
Gross profit as a percentage of sales decreased to 31% in 2004 from 35% in 2003
primarily due to an increase in markdowns and allowances caused by higher levels
of promotional activities at retail. Operating expenses decreased to $5,829 in
2004 from $6,205 in 2003, due to decreases in selling and related expenses.
Income from operations for Madden Mens was $476 in 2004 compared to $3,654 in
2003.
The Candie's Footwear Wholesale Division (Candie's) which was launched in the
fourth quarter of 2003, generated net sales of $12,315 or 5% of total sales in
the first nine months of 2004. Gross profit as a percentage of sales was
16
30% and income from operations was $468. Candie'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.
Diva Acquisition Corp. ("Steven"):
Sales from Steven accounted for $17,931 or 7%, and $8,695 or 3%, of total sales
in 2004 and 2003, respectively. This 106% increase in sales was principally due
to the success of key styles including woods, jeweled sandals and dress mocs.
Also, Steven added new retail doors, including Dillards, Macy's West and
Parisians, and initiated a replenishment program during the first quarter of
2004, enabling retailers to generate weekly reorders with improved turn and
profitability. Gross profit as a percentage of sales increased to 39% in 2004
from 34% in 2003, primarily the result of cost effective sourcing, and a
reduction in close-out inventory. Operating expenses increased to $3,894 in 2004
from $2,185 in 2003 due to increases in selling, designing, marketing and
advertising expenses. Income from operations for Steven was $3,108 in 2004
compared to $775 in 2003.
Stevies Inc. ("Stevies"):
Sales from Stevies accounted for $8,715 or 3%, and $8,656 or 3%, of total sales
in 2004 and 2003, respectively. Management anticipates softer sales and gross
margins going forward based upon an expected weakness in wholesale and consumer
demand. Gross profit as a percentage of sales decreased to 32% in 2004 from 35%
in 2003, primarily due to pricing pressures. Operating expenses increased to
$2,026 in 2004 from $1,814 in 2003 due to increases in payroll and payroll
related expenses. Income from operations for Stevies was $742 in 2004 compared
to $1,227 in 2003.
Unionbay Men's Footwear ("Unionbay"):
Unionbay, which launched in the fall of 2003, generated net sales of $320 for
the first nine months of 2004. The consumer acceptance of the fall 2003 line was
less than anticipated. As a result, the Company changed product direction and
changed the division's management in the fourth quarter of 2003, which caused
the Company to forgo shipments of spring 2004 Unionbay products. In the third
quarter of 2004, the Company diversified its product distribution to mid-tier
customers.
Retail Division:
- ----------------
Sales from the Retail Division accounted for $73,890 or 29% and $66,577 or 26%
of total sales in 2004 and 2003, respectively. As of September 30, 2004, there
were 90 retail stores compared to 82 retail stores as of September 30, 2003.
Comparable store sales (sales of those stores that were open for all of 2003 and
2004) for the nine-month period ended September 30, 2004 increased 8% over the
same period of 2003. This increase was achieved through management's immediate
reaction to at-once demand for boots early in the first quarter of 2004.
Additionally the increase was the result of a combination of higher unit sales
and higher average selling prices, particularly in the Company's core women's
footwear category. Gross profit as a percentage of sales decreased to 52% in
2004 from 53% in 2003, primarily due to an increase in promotional activity in
2004. Operating expenses for the Retail Division were $34,452 in 2004 and
$30,371 in 2003. This increase was primarily due to increased payroll and
payroll related expenses, higher occupancy expenses associated with the
operation of eight additional stores in the current period and higher
advertising expenditures. Despite increases in sales, income from operations for
the Retail Division decreased to $3,732 in 2004 compared to $4,993 in 2003 due
to the lower margins and the Company's investment in the brand through higher
advertising costs.
Adesso-Madden Division:
- -----------------------
Adesso-Madden, Inc. generated commission revenues of $3,181 in 2004, compared to
$4,005 in 2003. This decrease was the result of a major customer sharply
reducing its purchases in order to reduce inventory levels in its stores. Income
from operations for Adesso-Madden was $1,477 in 2004 compared to $2,280 in 2003.
17
Three Months Ended September 30, 2004 vs. Three Months Ended September 30, 2003
Consolidated:
- -------------
Total net sales for the three-month period ended September 30, 2004 remained
virtually unchanged ($88,610 in 2004 as compared to $88,663 in 2003). Sales
increases from the Retail Division, the Steven Wholesale Division and
contribution from the new Candie's Wholesale Division were offset by declines in
the l.e.i. and Madden Mens Wholesale Divisions.
Gross profit as a percentage of sales decreased to 35% in 2004 from 40% in 2003,
primarily due to an increase in cost of sales due to higher inventory costs
associated with the utilization of product sourcing that provided shorter
delivery times combined with pricing pressure from our wholesale customers.
Additionally, the l.e.i. Wholesale Division continued to face greater than
expected pressure due to a decline in sales combined with higher markdowns and
allowances at retail which resulted in a substantial increase in sales
deductions in 2004 compared to 2003.
Operating expenses increased to $27,285 in 2004 from $26,094 in 2003. This
increase resulted from increased professional fees incurred by the Company in
complying with the rules and regulations adopted pursuant to the Sarbanes-Oxley
Act of 2002, higher occupancy expenses associated with the operation of eight
additional retail stores in the current period, a reclassification of warehouse
expenses and the costs associated with the launch of the Candie's and Unionbay
Wholesale Divisions.
Income from operations was $5,867 in 2004 compared to $11,707 in 2003. Net
income was $3,686 in 2004 compared to $7,073 in 2003. This decrease in income
was primarily due to the lower margins and increased expenses described in the
previous paragraphs.
Wholesale Divisions:
- --------------------
Steven Madden, Ltd. (Madden Womens, l.e.i. Footwear, Madden Mens and Candie's
Footwear):
Sales from Madden Womens accounted for $32,507 or 37%, and $32,243 or 36%, of
total sales in 2004 and 2003, respectively. Disappointing sell-through on boots
and fashion colors were offset by successes in the dress classification. Gross
profit as a percentage of sales decreased to 29% in 2004 from 33% in 2003,
primarily due to an increase in cost of sales resulting from higher inventory
costs associated with the utilization of product sourcing that provided shorter
delivery times combined with pricing pressure from our wholesale customers.
Operating expenses decreased to $7,424 in 2004 from $7,942 in 2003 due to
decreases in payroll and payroll related expenses. Income from operations for
Madden Womens was $2,666 in 2004 compared to $3,418 in 2003.
Sales from l.e.i. accounted for $9,358 or 11%, and $17,550 or 20%, of total
sales in 2004 and 2003, respectively. This decrease in sales resulted from our
largest customers reducing their casual junior footwear plans. Additionally,
management attempts to position l.e.i. as a sizeable dress shoe resource met
with stiff wholesale customer resistance. The Company significantly increased
markdowns and allowances in order to assist the Company's largest customers in
clearing out slow moving inventory. This resulted in disappointing margins
(gross profit as a percentage of sales decreased to 25% in 2004 from 39% in
2003). Operating expenses decreased to $1,968 in 2004 from $3,545 in 2003 due to
decreases in selling and related expenses. Income from operations for l.e.i. was
$352 in 2004 compared to $3,315 in 2003.
Sales from Madden Mens accounted for $7,329 or 8%, and $8,249 or 9%, of total
sales in 2004 and 2003, respectively. The Company expected this sales decline
after it received the reduced fall receipt plans of its major customers. Gross
profit as a percentage of sales decreased to 32% in 2004 from 36% in 2003
primarily due to increased markdowns and allowances incurred by the Company to
assist its customers in clearing out obsolete inventory. Operating expenses
increased to $2,239 in 2004 from $1,822 in 2003, due to increase in payroll and
related expenses. Income from operations for Madden Mens was $142 in 2004
compared to $1,111 in 2003.
Candie's began shipping product in the fourth quarter of 2003. Candie's
generated net sales of $5,364 in the third quarter of 2004. Gross profit
percentage of sales was 28% and income from operation was $123 in 2004.
18
Diva Acquisition Corp. ("Steven"):
Sales from Steven accounted for $6,840 or 8%, and $4,365 or 5%, of total sales
in 2004 and 2003, respectively. This 57% increase in sales was principally due
to the success of detailed dress shoes. Gross profit as a percentage of sales
decreased to 35% in 2004 from 41% in 2003, primarily due to the clearance of
slow moving inventory. Operating expenses increased to $1,431 in 2004 from $961
in 2003 due to increased incentive compensation and selling related expenses
associated with increased sales. Income from operations for Steven was $941 in
2004 compared to $827 in 2003.
Stevies Inc. ("Stevies"):
Sales from Stevies accounted for $3,227 or 4%, and $2,902 or 3%, of total sales
in 2004 and 2003, respectively. Gross profit as a percentage of sales decreased
to 32% in 2004 from 37% in 2003, primarily due to price pressures at retail.
Operating expenses remained virtually unchanged at $640 in 2004 compared to $674
in 2003. Income from operations for Stevies was $391 in 2004 compared to $403 in
2003.
Unionbay Men's Footwear ("Unionbay"):
Unionbay generated net sales of $226 in 2004 compared to $292 in 2003. In the
third quarter of 2004 the Company diversified its product distribution to
mid-tier customers.
Retail Division:
- ----------------
Sales from the Retail Division accounted for $23,759 or 27% and $23,062 or 26%
of total sales in 2004 and 2003, respectively. As of September 30, 2004, there
were 90 retail stores compared to 82 retail stores as of September 30, 2003.
Comparable store sales for the three-month period ended September 30, 2004
remained flat over the same period of 2003. These flat sales were a result of
lower than expected early boot selling during the back to school selling season,
which was partially offset by increases in the sale of dress shoes.
Additionally, the back to school selling season had a late start, particularly
in the northeast and was negatively impacted by the hurricanes in the southeast.
Gross profit as a percentage of sales decreased to 51% in 2004 from 53% in 2003
primarily due to increased promotional activity. Operating expenses for the
Retail Division were $11,541 in 2004 and $10,290 in 2003. This increase was
primarily due to increased payroll and payroll related expenses, higher
occupancy expenses associated with the operation of eight additional retail
stores in the current period and higher advertising expenditures. Income from
operations for the Retail Division was $687 in 2004 compared to $1,957 in 2003.
Adesso-Madden Division:
- -----------------------
Adesso-Madden, Inc. generated commission revenues of $1,194 in 2004, compared to
$1,431 in 2003. This decrease reflects reduced plans in junior casual shoes
among the Adesso-Madden Division's mass-market discount customers. Income from
operations for Adesso-Madden was $667 in 2004 compared to $896 in 2003.
LICENSE AGREEMENTS
Revenue generated from licensing was $1,748 in the first nine months of 2004
compared to $2,035 in the same period of 2003. This decrease resulted from the
termination by the Company of its handbag license agreement with La Rue
Distributors, Inc. As of September 30, 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 $100,181 at September 30, 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
one point below the Prime Rate (as defined in such agreement). The agreement
with Capital Factors expires December 31, 2004. The Company is currently
negotiating an extension to
19
this agreement which management believes will be executed prior to the current
expiration date. Capital Factors maintains a lien on all of the Company's
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. As of
September 30, 2004 the Company did not use any portion of the credit line.
As of September 30, 2004 the Company had invested $50,408 in marketable
securities consisting of corporate bonds, U.S. Treasury notes, government
asset-backed securities and equities.
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 nine-month period ended September 30, 2004, net cash used by
operating activities was $5,308. Uses of cash was caused primarily by the
following; an increase in factored accounts receivable of $16,669 primarily
caused by a sales increase to mid-tier customers who typically have longer
payment terms; an increase in inventories of $6,583 partially due to the
operation of eight additional retail stores during the period and the early
receipt of fall inventory; and a decrease in accounts payable and other accrued
expenses of $4,687. Sources of cash were provided principally by net income of
$11,902 and a decrease in prepaid expenses, prepaid taxes, deposits and other
assets of $4,248.
Future minimum annual lease payments under (for leases of office, showroom and
retail facilities) non-cancelable operating leases consist of the following at
September 30:
2004 $ 9,931
2005 10,848
2006 11,118
2007 10,713
2008 9,260
Thereafter 29,095
-------------
$ 80,965
=============
At September 30, 2004, the Company had un-negotiated open letters of credit for
the purchase of imported merchandise of approximately $10,040.
The Company has an employment agreement with Steve Madden, its Creative and
Design Chief, which provides for an annual base salary of $700 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-six percent (96%) of its purchases in U.S. dollars.
20
INVESTING ACTIVITIES
During the nine-month period ended September 30, 2004, the Company invested
$26,132 in marketable securities and received $7,150 from maturities and sales
of securities. In addition, the Company incurred capital expenditures of $5,635
principally for leasehold improvements for the eight additional retail stores
that were operated during the period and computer systems upgrades.
FINANCING ACTIVITIES
During the nine-month period ended September 30, 2004, the Company repurchased
282,900 shares of the Company's common stock at a total cost of $5,242.
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.
CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our unaudited consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, sales and expenses, and related disclosure of contingent assets and
liabilities. Estimates by their nature are based on judgments and available
information. The estimates that we make are based upon historical factors,
current circumstances and the experience and judgment of our management. We
evaluate our assumptions and estimates on an ongoing basis and may employ
outside experts to assist in our evaluations. Therefore, actual results could
materially differ from those estimates under different assumptions and
conditions. We believe the following critical accounting estimates are affected
by more significant judgments used in the preparation of our consolidated
financial statements: sales and accounts receivable valuation allowances,
inventory reserves, valuation of intangible assets, and litigation reserves.
Allowances for bad debts, returns, and customer chargebacks. We provide reserves
against our trade accounts receivables for future customer chargebacks, coop
advertising allowances, discounts, returns and other miscellaneous deductions
that relate to the current period. The reserve against our non-factored trade
receivables also includes estimated losses that may result from our customers'
inability to pay. We determine the amount of the reserve by analyzing our aged
receivables, current economic conditions, the prevailing retail environment and
historical dilution levels for customers. Failure to correctly estimate the
amount of the reserve could materially impact our results of operation and
financial position.
Inventory reserves. Inventories are stated at lower of cost or market, on a FIFO
basis. We review our inventory on a regular basis for excess and slow moving
inventory. Our review is based on an analysis of inventory on hand, prior sales,
and our expected net realizable value through future sales. Our analysis
includes a review of inventory quantities on hand at period-end in relation to
year-to-date sales and projections for sales in the foreseeable future. We
consider quantities on hand in excess of estimated future sales to be at risk
for market impairment. The net realizable value, or market value, is determined
based on our estimate of sales prices of such inventory through off-price or
discount store channels. The likelihood of any material inventory write-down is
dependent primarily on our expectation of future consumer demand for our
product. A misinterpretation or misunderstanding of future consumer demand for
our product or the economy, or other failure to estimate correctly, could result
in inventory valuation changes, either favorably or unfavorably, compared to the
valuation determined to be appropriate as of the balance sheet date.
Valuation of intangible assets. SFAS No. 142, which was adopted by the Company
on January 1, 2002, requires that goodwill and intangible assets with indefinite
lives no longer be amortized, but rather be tested for impairment at least
annually. This pronouncement also requires that intangible assets with finite
lives be amortized over their respective lives to their estimated residual
values, and reviewed for impairment in accordance with SFAS No. 144. In
accordance with SFAS No. 144, long-lived assets, such as property, equipment,
leasehold improvements and goodwill subject to amortization, are reviewed for
impairment annually or whenever events or changes in
21
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset.
Litigation reserves. Estimated amounts for litigation claims that are probable
and can be reasonably estimated are recorded as liabilities in our consolidated
balance sheets. The likelihood of a material change in these estimated reserves
would be dependent on new claims as they may arise and the favorable or
unfavorable events of the particular litigation. As additional information
becomes available, we will assess the potential liability related to our pending
litigation and revise our estimates. Such revisions in our estimates of the
contingent liability could materially impact our results of operation and
financial position.
All costs incurred to bring finished products to our warehouse are included in
the cost of sales line item of the Company's Consolidated Statement of
Operations. These include purchase commissions, letter of credit fees, f.o.b.
costs, sample expenses, custom duty, inbound freight, labels and product
packaging. All warehouse and distribution costs are included in the operating
expenses line item of the Company's Consolidated Statement of Operations. The
Company classifies all shipping costs to customers as operating expenses. The
Company's gross margins may not be comparable to other companies in the industry
because some companies may include warehouse and distribution costs as a
component of cost of sales, while other companies may include them in operating
expenses.
OTHER CONSIDERATIONS
Fashion Industry Risks: The success of the Company will depend in significant
part upon its ability to anticipate and respond to product and fashion trends as
well as to anticipate, gauge and react to changing consumer demands in a timely
manner. There can be no assurance that the Company's products will correspond to
the changes in taste and demand or that the Company will be able to successfully
market products 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
22
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
nine-month period ended September 30, 2004, approximately 88% of the Company's
products were purchased from sources outside the United States, primarily from
China, Brazil, Italy and Spain.
Risks inherent in foreign operations include work stoppages, transportation
delays and interruptions, changes in social, political and economic conditions
which could result in the disruption of trade from the countries in which the
Company's manufacturers or suppliers are located, the imposition of additional
regulations relating to imports, the imposition of additional duties, taxes and
other charges on imports, significant fluctuations of the value of the dollar
against foreign currencies, or restrictions on the transfer of funds, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not believe that any such
economic or political condition will materially affect the Company's ability to
purchase products, since a variety of materials and alternative sources are
available. The Company cannot be certain, however, that it will be able to
identify such alternative sources without delay (if ever) or without greater
cost to the Company. The Company's inability to identify and secure alternative
sources of supply in this situation would 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.
23
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 the first nine months of 2004 the Company
opened nine (9) Steve Madden retail stores and has plans to open approximately
one to two (1-2) 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.
24
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 makes approximately ninety-six
percent (96%) of its purchases 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 November 3, 2004 there were outstanding options to
purchase an aggregate of approximately 2,549,475 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.
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 September 30, 2004, the Company had investments in marketable securities
valued at $50,408, which consist principally of federal and state obligations
that 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 quarter covered by this
quarterly report that have materially affected, or are reasonably likely to
25
materially affect, the Company's internal control over financial reporting.
Based on that evaluation, there has been no such change during the quarter
covered by this quarterly report.
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 included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003; Part I, Item 3, of the
Company's Annual Report on Form 10-K for the year ended December 31, 2003; and
Part II, Item 1, of the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2004 and June 30, 2004. 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.
Actions
The Company and certain of the Company's present and/or former directors have
been named in an action commenced in the United States District Court for the
Eastern District of New York by the Safeco Surplus Lines Insurance Company
captioned Safeco Surplus Lines Ins. Co. v. Steven Madden Ltd., et al., 02 CV
1151 (JG). The complaint principally seeks rescission of the excess insurance
policy issued by Safeco to the Company for the February 4, 2000 to June 13, 2001
period and an order declaring that Safeco does not owe any indemnity obligation
to the Company or any of its officers and directors in connection with the
putative shareholder class action and derivative cases described in the Form 10Q
filed by the Company for the quarter ended March 31, 2002. The parties agreed to
resolve Safeco's claims without any payment to Safeco and the case was
dismissed, with prejudice and without costs to any of the parties, by
stipulation, which stipulation was so ordered by the 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
punitive damages. The Company filed an answer denying any liability with respect
to the counterclaim. This action is in the pretrial discovery stage. The Company
believes that it has substantial defenses to the counterclaim asserted by LaRue.
The Company believes that this action will not have a material effect on the
Company's financial position.
On or about July 9, 2004, an action was filed in the United States District
Court for the Southern District of New York against the Company by Robert Marc
for trademark infringement, captioned Robert Marc v. Steve Madden, Ltd. Case No.
04 CV 5354 (JGK). In the action Robert Marc claims trademark infringement in
connection with a "bar and dot" design on the sides of certain eyewear. The
alleged infringing eyeglasses are manufactured and sold by the Company's
licensee for eyewear, Colors in Optics, which is also a defendant in the action.
Colors in Optics has assumed responsibility for the defense of this action. The
Company believes that this action will not have a material effect on the
Company's financial position.
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 has responded to this request.
26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:
The following table provides information as of September 30, 2004 with respect
to the shares of common stock repurchased by the Company during the third
quarter of fiscal 2004:
---------------------------------------------------------------------------------------------------
Period Total Average Total Number of Maximum dollar amount of
Number of Price Paid Shares Purchased as Shares that May Yet Be
Shares per Share Part of Publicly Purchased Under the Plans
Purchased Announced Plans or or Programs (1)
Programs (1)
---------------------------------------------------------------------------------------------------
7/1/04 - 7/31/04 9,800 $18.02 9,800 $18,222,452
---------------------------------------------------------------------------------------------------
8/1/04 - 8/31/04 114,200 18.63 114,200 $16,094,706
---------------------------------------------------------------------------------------------------
9/1/04 - 9/30/04 73,700 18.14 73,700 $14,757,571
---------------------------------------------------------------------------------------------------
Total 197,700 18.42 197,700 $14,757,571
---------------------------------------------------------------------------------------------------
(1) The Board of Directors of the Company amended the Company's previously
announced share repurchase program. The amended share repurchase
program, which is effective as of January 1, 2004, provides for share
repurchases in the aggregate amount of $20 million and has no set
expiration or termination date.
ITEM 6. 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.
27
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: November 9, 2004
STEVEN MADDEN, LTD.
/s/ JAMIESON A. KARSON
------------------------------------
Jamieson A. Karson
Chairman and Chief Executive Officer
/s/ ARVIND DHARIA
------------------------------------
Arvind Dharia
Chief Financial Officer
28
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.
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 weaknesses 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: November 9, 2004
By: /s/ JAMIESON A. KARSON
------------------------------------
Jamieson A. Karson
Chairman and 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 weaknesses 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: November 9, 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 September 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Jamieson A. Karson, Chairman and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ JAMIESON A. KARSON
- ------------------------------------
Jamieson A. Karson
Chairman and Chief Executive Officer
November 9, 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-Q for the quarter ended September 30, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Arvind
Dharia, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ ARVIND DHARIA
- -----------------------
Arvind Dharia
Chief Financial Officer
November 9, 2004