UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 7, 2006
STEVEN MADDEN, LTD.
(Exact name of registrant as specified in its charter)
Delaware 000-23702 13-3588231
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(State or other jurisdiction (Registration Number) (IRS Employer
of incorporation) Identification No.)
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
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
On February 7, 2006, Steven Madden, Ltd. (the "Company") entered into a
Securities Purchase Agreement (the "Securities Purchase Agreement"), between the
Company and Daniel M. Friedman. Pursuant to the Securities Purchase Agreement,
the Company acquired all of the issued and outstanding shares of capital stock
of each of Daniel M. Friedman & Associates, Inc. and DMF International, Ltd.
(together, the "DMF Companies"). On February 13, 2006, the Company filed a
Current Report on Form 8-K (the "Initial 8-K") to report this acquisition. The
Company stated in the Initial 8-K that the financial statements required by Item
9.01 would be filed no later than 71 days after the date that the Initial 8-K
was required to be filed. The Company is hereby amending the Initial 8-K by
filing certain financial information relating to the DMF Companies (see Item
9.01(c) below) as required by Rule 3-05(b) and Article 11 of Regulation S-X. The
information previously reported under Items 1.01 and 2.01 of the Initial 8-K is
hereby incorporated by reference into this Current Report on Form 8-K/A.
(a) Financial Statements of Business Acquired
Attached as Exhibit 99.1 are the audited combined financial statements
of the DMF Companies for the year ended December 31, 2005.
(b) Pro Forma Financial Statements
Attached as Exhibit 99.2 are the unaudited pro forma condensed
consolidated financial data as of December 31, 2005 and for the year
then ended.
(c) Exhibits
99.1 Combined Financial Statements of Daniel M. Friedman &
Associates, Inc. and DMF International, Ltd. for the year
ended December 31, 2005.
99.2 Pro Forma Condensed Consolidated Financial Data as of December
31, 2005 and for the year then ended.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Steven Madden, Ltd. has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
STEVEN MADDEN, LTD.
By: /s/ JAMIESON A. KARSON
---------------------------------
Name: Jamieson A. Karson
Title: Chief Executive Officer
Date: April 24, 2006
EXHIBIT INDEX
DOC. NO. DOCUMENT DESCRIPTION
Exhibits:
99.1 Combined Financial Statements of Daniel M. Friedman &
Associates, Inc. and DMF International, Ltd. for the year
ended December 31, 2005.
99.2 Pro Forma Condensed Consolidated Financial Data as of December
31, 2005 and for the year then ended.
EXHIBIT 99.1
DANIEL M. FRIEDMAN & ASSOCIATES, INC. AND D.M.F. INTERNATIONAL LIMITED
Contents
Page
----
Combined Financial Statements
Report of Independent Registered Public Accounting Firm 2
Balance sheet as of December 31, 2005 3
Statement of income for the year ended December 31, 2005 4
Statement of changes in stockholders' equity for the year ended
December 31, 2005 5
Statement of cash flows for the year ended December 31, 2005 6
Notes to combined financial statements 7
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Daniel M. Friedman & Associates, Inc. and D.M.F. International Limited
We have audited the accompanying combined balance sheet of Daniel M. Friedman &
Associates, Inc. and D.M.F. International Limited (the "Company") as of December
31, 2005, and the related combined statements of income, changes in
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We did not audit the financial statements of D.M.F. International
Limited, which statements reflect total assets and net sales constituting 16.5%
and 12.8%, respectively, of the related combined totals. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for D.M.F. International
Limited, is based solely on the report of the other auditors.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of Daniel M. Friedman & Associates,
Inc. and D.M.F. International Limited as of December 31, 2005, and the combined
results of their operations and cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.
Eisner LLP
New York, New York
April 6, 2006
2
Daniel M. Friedman & Associates, Inc. and D.M.F International Limited
Combined Balance Sheet
December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents $ 186,769
Accounts receivable - net of allowances of $261,249 1,344,221
Due from factor - net of allowances of $672,820 3,546,744
Inventories 3,153,104
Prepaid expenses 41,340
Deferred charges 242,022
------------
Total current assets 8,514,200
Property and equipment, net 293,436
Deposits 61,647
------------
$ 8,869,283
============
LIABILITIES
Current liabilities:
Accounts payable $ 4,040,443
Accrued expenses 2,320,059
Taxes payable 30,291
------------
Total current liabilities 6,390,793
Deferred rent 510,777
------------
6,901,570
------------
Commitments, contingencies and other matters (Note F)
STOCKHOLDERS' EQUITY
Common stock - no par value, 200 shares authorized, 100 shares issued
and outstanding 400,000
Retained earnings 1,567,713
------------
1,967,713
------------
$ 8,869,283
============
See notes to combined financial statements
3
Daniel M. Friedman & Associates, Inc. and D.M.F International Limited
Combined Statement of Income
Year Ended December 31, 2005
Net sales $ 41,512,923
Cost of sales 27,185,689
------------
Gross profit 14,327,234
Commission - net 30,652
Operating expenses (13,341,737)
------------
Income before provision for income taxes 1,016,149
Provision for income taxes 111,977
------------
Net income $ 904,172
============
Pro forma (unaudited) - Note E
Income before taxes as shown above $ 1,016,149
Provision for federal and state income taxes assuming
Company were taxable as a C-corporation 433,063
------------
Pro forma net income $ 583,086
============
See notes to combined financial statements
4
Daniel M. Friedman & Associates, Inc. and D.M.F International Limited
Combined Statement of Changes in Stockholders' Equity
Year Ended December 31, 2005
Common Stock
--------------------------- Retained
Shares Amount Earnings
------------ ------------ ------------
Balance - December 31, 2004 200 $ 400,000 $ 724,064
Distribution to shareholder (60,523)
Net income 904,172
------------ ------------ ------------
Balance - December 31, 2005 200 $ 400,000 $ 1,567,713
============ ============ ============
See notes to combined financial statements
5
Daniel M. Friedman & Associates, Inc. and D.M.F International Limited
Combined Statement of Cash Flows
Year ended December 31, 2005
Cash flows from operating activities:
Net income $ 904,172
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 160,108
Deferred rent expense 211,298
Changes in:
Accounts receivable (701,666)
Due from factor (2,749,798)
Inventories (1,296,002)
Due from affiliate (222,882)
Prepaid expenses 38,769
Security Deposits 2,849
Accounts payable and accrued expenses 3,837,402
Accrued incentive compensation 30,291
------------
Net cash provided by operating activities 214,541
------------
Cash flows from investing activities:
Purchase of property and equipment (110,321)
------------
Net cash used in investing activities (110,321)
------------
Cash flows from financing activities:
Distribution to shareholder (60,523)
------------
Net cash used in financing activities (60,523)
------------
Net increase in cash and cash equivalents 43,697
Cash and cash equivalents - beginning of year 143,072
------------
Cash and cash equivalents - end of year $ 186,769
============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 286,997
Income taxes $ 63,390
See notes to combined financial statements
6
DANIEL M. FRIEDMAN & ASSOCIATES AND D.M.F INTERNATIONAL LIMITED
Notes to Combined Financial Statements
December 31, 2005
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Basis of Presentation:
The combined financial statements include the accounts of Daniel M.
Friedman & Associates, Inc. ("Daniel M. Friedman") and D.M.F.
International Limited ("D.M.F") (combined referred to as the
"Company"), which are affiliated through common ownership. Because of
their different fiscal year ends, the financial statements of Daniel M.
Friedman as of December 31, 2005 and for the year then ended, have been
combined with the financial statements of D.M.F as of January 31, 2006
and for the year then ended. Daniel M Friedman provides operational and
administrative services to D.M.F. for which it charges a commission
fee. In addition, Daniel M. Friedman provides financial support to
D.M.F. via cash advances and payments to third party factories. All
significant intercompany balances and transactions have been
eliminated, however, the different year-ends of the Companies resulted
in "deferred charges" of $242,022 on the accompanying Combined Balance
Sheet.
[2] Organization:
Daniel M. Friedman & Associates, Inc. is incorporated in the state of
New York and is engaged in the business of importing and selling
women's belts, handbags, and other accessories to retail stores
throughout the United States. D.M.F. International Limited is
incorporated in Hong Kong.
[3] Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
[4] Inventories:
Inventories, which consist of finished goods on hand and in transit,
are stated at the lower of cost (first-in, first-out method) or market.
[5] Property and equipment:
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is computed utilizing the straight-line
and accelerated methods based on estimated useful lives. Leasehold
improvements are amortized utilizing the straight-line method over the
shorter of their estimated useful lives or the remaining lease term.
Impairment losses are recognized for long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
not sufficient to recover the assets' carrying amount. Impairment
losses are measured by comparing the fair value of the assets to their
carrying amount. No impairment losses have occurred for the year
presented.
[6] Advertising costs:
The Company expenses costs of print, radio and billboard advertisements
as of the first date the advertisements take place. Advertising expense
was not material in 2005.
7
DANIEL M. FRIEDMAN & ASSOCIATES AND D.M.F INTERNATIONAL LIMITED
Notes to Combined Financial Statements
December 31, 2005
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] Revenue recognition:
The Company recognizes revenue when products are shipped pursuant to
the Company's standard terms which are freight on board (FOB) warehouse
or when products are delivered to the consolidators as per the terms of
the customer's purchase order. Sales reductions for anticipated
discounts, allowances and other deductions are recognized when sales
are recorded. Customers retain the right to replacement of the product
for poor quality or improper or short shipments, which have
historically been immaterial. D.M.F. International product is shipped
directly from third party manufacturers, located primarily in China, to
the customer's designated freight forwarder overseas. D.M.F. records
revenue when title of the product transfers from the manufacturer to
the customer.
[8] Sales reductions:
The Company supports retailers' initiatives to maximize sales of the
Company's products on the retail floor by subsidizing the co-op
advertising programs of such retailers, providing them with inventory
markdown allowances and participating in various other marketing
initiatives of its major customers. Such expenses are reflected in the
financial statements as reductions to net sales. For the year ended
December 31, 2005, the total reductions to net sales for these expenses
was $3,412,227.
[9] Cost of sales:
All costs incurred to bring finished products to the Company's
distribution center are included in the cost of sales line item on the
Combined Statement of Income. These include purchase commissions,
letter of credit fees, brokerage fees, FOB costs, custom duty, inbound
freight, royalty fees, labels and product packaging. All warehouse and
distribution costs are included in the operating expenses line item of
the Company's Combined Statement of Income. The Company classifies all
shipping costs to customers as operating expenses.
[10] Warehouse and shipping costs:
The Company includes all warehouse and distribution costs in the
Operating Expenses line on the Combined Statements of Income. For the
year ended December 31, 2005, the total Warehouse and Distribution
Costs included in Operating Expenses was $902,205. The Company's
standard terms of sales are "FOB warehouse" and thus the Company's
wholesale customers absorb most shipping costs.
[11] 401(k) Plan:
The Company maintains a tax-qualified, 401(k) plan which is available
to each of the Company's eligible employees who elect to participate
after meeting certain length-of-service requirements. The Company makes
discretionary matching contributions of 25% of employees' contributions
up to a maximum of 4% of employees' compensation, which vest to the
employees over a period of time. Total matching contributions to the
plan for 2005 was approximately $11,000.
[12] Recently issued accounting standards:
In November of 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 151,
"Inventory Costs," which amends the guidance in Accounting Research
Bulletin ("ARB") No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage). This statement requires
that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal" as stated in ARB No.
43. Additionally, SFAS 151 requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of
the production facilities. The Company is required to adopt the
provision of SFAS No. 151 in the first quarter of 2006. The Company
does not expect SFAS 151 to have a material impact on its consolidated
results of operations or financial condition.
8
DANIEL M. FRIEDMAN & ASSOCIATES AND D.M.F INTERNATIONAL LIMITED
Notes to Combined Financial Statements
December 31, 2005
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[12] Recently issued accounting standards:
In November of 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 151,
"Inventory Costs," which amends the guidance in Accounting Research
Bulletin ("ARB") No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight,
handling costs and wasted material (spoilage). This statement requires
that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal" as stated in ARB No.
43. Additionally, SFAS 151 requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of
the production facilities. The Company is required to adopt the
provision of SFAS No. 151 in the first quarter of 2006. The Company
does not expect SFAS 151 to have a material impact on its consolidated
results of operation or financial condition.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections - A Replacement of APB Opinion No. 20 and FASB
Statement No. 3" ("SFAS 154"). SFAS 154 applies to all voluntary
changes in accounting principle and to changes required by an
accounting pronouncement that does not include a specific transition
provision. This statement requires retrospective application to prior
periods' financial statements of changes in accounting principle,
unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. This statement is
effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005.
NOTE B - PROPERTY AND EQUIPMENT
The major classes of assets and accumulated depreciation and amortization are as
follows:
Leasehold improvements $ 314,724
Machinery and equipment 130,397
Computer equipment 120,787
------------
565,908
Less accumulated depreciation and amortization (272,472)
------------
Property and equipment - net $ 293,436
============
NOTE C - DUE FROM FACTOR
Under the terms of its factoring agreement, the Company may request advances
from the factor up to 85% of aggregate receivables purchased by the factor at an
interest rate equal to the prime rate (as defined in the agreement). The Company
also pays a fee equal to 0.65% of the gross invoice amount of each receivable
purchased. In March 2006, the fee was reduced to 0.45%. The Company sells and
assigns a substantial portion of its receivables, principally without recourse,
to the factor. The factor maintains a lien on all of the Company's receivables
and inventory and assumes the credit risk for all assigned accounts approved by
them with certain restrictions.
A "factored" sale (whether "with" or "without" recourse) is substantially the
same as a non-factored sale and the Company accounts for its factored
sales/receivables in the same manner as its non-factored sales/receivables. The
factor services the collection of the Company's accounts receivable. Funds
collected by the factor are applied against advances owed to the factor (if
any), and the balance is due and payable to the Company, net of any fees. The
allowance against "due from factor" is an estimated provision for markdowns,
allowances, discounts, advertising and other deductions that customers may
deduct against their payments.
9
DANIEL M. FRIEDMAN & ASSOCIATES AND D.M.F INTERNATIONAL LIMITED
Notes to Combined Financial Statements
December 31, 2005
NOTE D - OPERATING LEASES
In January 2004, the Company entered into a 10 year lease agreement and
relocated its offices to a new premises. The Company was obligated to the terms
under the lease of its former location which expired on November 30, 2005.
Future minimum annual lease payments under its new lease consist of the
following at December 31:
2006 $338,900
2007 347,400
2008 356,100
2009 365,000
2010 394,000
Thereafter 1,694,000
----------
$3,495,400
==========
Rent expense for the year ended December 31, 2005 was approximately $510,365.
Rent expense is calculated by amortizing total rental payments (net of any
rental abatements, construction allowances and other rental concessions), on a
straight-line basis, over the lease term. Accordingly, rent expense charged to
operations differs from rent paid resulting in the Company recording of deferred
rent.
NOTE E - INCOME TAXES
The Company has elected to be treated as an "S" Corporation for federal and
state income tax purposes and accordingly, other than the New York City and
Pennsylvania corporate income taxes, no provision for such taxes are included in
the financial statements. Pro forma net income is presented on the accompanying
combined statement of income as if the Company was taxable as a C-corporation
and provided for federal and state income taxes.
NOTE F - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
[1] Royalty agreements:
The Company has entered into several license agreements under which the
Company has the right to use the various licensors trademarks in
connection with the sale and marketing of women's belts, handbags and
other accessories throughout the United States. These agreements, which
expire at various times through December 31, 2007, require the Company
to pay a royalty equal to a percentage of net sales and a minimum
royalty in the event that specified net sales targets are not achieved.
Royalty expenses are included in the "operating expenses" section of
the Company's combined statement of income. Aggregate minimum future
royalties under these agreements are as follows:
Year Ending
December 31,
---------------------
2006 $ 948,750
2007 260,000
----------
$1,208,750
==========
10
DANIEL M. FRIEDMAN & ASSOCIATES AND D.M.F INTERNATIONAL LIMITED
Notes to Combined Financial Statements
December 31, 2005
NOTE F - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
[2] Concentrations:
The Company maintains cash and cash equivalents with various major
financial institutions which at times are in excess of the amount
insured.
During the year ended December 31, 2005, the Company purchased
approximately 75% of its inventory from China.
Sales to one customer accounted for 18% of total net sales for the year
ended December 31, 2005.
NOTE G - FOREIGN OPERATIONS
Assets and liabilities of the affiliate located in Hong Kong as of January 31,
2006 included in the Combined Financial Statements as of December 31, 2005 are
as follows:
Current assets / Total assets $ 1,466,566
============
Liabilities $ 317,753
============
Amount due to an affiliated company $ 1,021,553
============
Equity $ 127,260
============
Net Sales $ 5,301,769
============
Net Income $ 86,740
============
NOTE H - SUBSEQUENT EVENT
On February 7, 2006, Steven Madden, Ltd. ("Madden") acquired all of the equity
interest of the Company. The acquisition was completed for $18 million in cash
and includes certain earn out provisions based on financial performance through
2010. In October of 1998, the Company entered into a license agreement with
Madden for the design, manufacture and distribution of women's belts in the
United States and Canada. This agreement expired on June 30, 2005. On July 14,
2005, the Company entered into a new license agreement with Madden for the
design, manufacture and distribution of handbags, women's belts, wallets and
other small leather goods. This agreement was cancelled on February 7, 2006, in
connection with the Madden acquisition.
Pursuant to the sale of the Company's stock, the Company entered into employment
agreements with several key executives which expire between December 31, 2008
and December 31, 2010. The agreements provide for annual bonuses based upon the
Company achieving certain financial goals. Base salary commitments for these
executives are as follows:
2006 $ 1,433,423
2007 1,612,000
2008 1,632,000
2009 950,000
2010 950,000
-----------
$ 6,577,423
===========
11
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The term "acquisition" refers to Steven Madden Ltd.'s ("Madden") acquisition all
of the equity interest of privately held Daniel M. Friedman and Associates, Inc.
and D.M.F. International Limited (together "Daniel M. Friedman") on February 7,
2006. Founded in 1995, Daniel M. Friedman is a manufacturer and distributor of
name fashion handbags and accessories. The acquisition was completed for
consideration of $18,148,000 including transaction costs, subject to adjustment
including certain earn out provisions based on financial performance through
2010.
The following unaudited pro forma condensed consolidated balance sheets and
statements of income as of and for the year ended December 31, 2005 give effect
to the acquisition of Daniel M. Friedman after giving effect to the pro forma
adjustments. The unaudited pro forma condensed consolidated balance sheet has
been derived from the audited balance sheets of Madden and Daniel M. Friedman as
of December 31, 2005 as adjusted to give effect to the acquisition as if it
occurred on December 31, 2005. The unaudited condensed consolidated pro forma
statement of income has been derived from the December 31, 2005 audited
statements of income of Madden and Daniel M. Friedman, and gives effect to the
consummation of the acquisition as if it had occurred on January 1, 2005.
The pro forma adjustments are based upon available information and certain
assumptions that we consider reasonable. The pro forma results of operations are
not necessarily indicative of the results of operations that we would have
achieved had the acquisition reflected had been consummated on the date
indicated or that we will achieve in the future. The unaudited pro forma
condensed consolidated balance sheets and statements of income are based on
preliminary estimates and assumptions set forth in the accompanying notes. Pro
forma adjustments are to reflect the estimated purchase price allocated to the
assets and liabilities of Daniel M. Friedman based on preliminary estimated fair
values. Pro forma adjustments also reflect amortization expense related to
allocated intangibles, the elimination of inter-company transactions, and the
taxation of Daniel M. Friedman income as a result of the acquisition.
The pro forma adjustments and allocation of the purchase price are preliminary
and are based on our estimates of the fair value of the assets acquired and
liabilities assumed. The final purchase price allocation will be completed after
asset and liability valuations are finalized. This final valuation will be based
on the actual assets and liabilities of Daniel M. Friedman that exist as of the
date of the completion of the acquisition. Any final adjustments may materially
change the allocation of the purchase price, which could affect the fair value
assigned to the assets and liabilities and could result in a significant change
to the unaudited pro forma condensed consolidated financial data. Additionally,
the purchase agreement for Daniel M. Friedman provides for annual contingent
payments through December 31, 2010, based on the performance of the Daniel M.
Friedman. The contingent payments, if earned, will be accounted for as
additional purchase price and classified as goodwill. The following pro forma
financial statements do not include any adjustments for any of these potential
contingent payments. In the opinion of management of Madden, all other
adjustments necessary to present fairly the following pro forma financial
statements have been made.
These pro forma condensed financial statements should be read in conjunction
with the notes thereto and the separate historical financial statements and
notes thereto of (i) of Daniel M. Friedman, included in this current report on
Form 8-K/A and (ii) Madden, included in the 10-K for the year ended December 31,
2005, incorporated by reference herein.
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
As of December 31, 2005
(in thousands) Steven Daniel
Madden M. Pro forma Pro forma
Ltd. Friedman adjustments consolidated
------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 52,842 $ 187 $ (15,500) (a) $ 37,529
Accounts receivable - net of allowances 3,294 1,344 4,638
Due from factor - net of allowances 31,785 3,547 35,332
Inventories 28,412 3,153 31,565
Marketable securities - available for sale 14,092 -- 14,092
Prepaid expenses and other current assets 2,435 283 1,300 (b) 4,018
Prepaid taxes 2,512 -- 2,512
Deferred taxes 5,600 -- 5,600
------------ ------------ ------------ ------------
Total current assets 140,972 8,514 (14,200) 135,286
Property and equipment, net 20,898 293 21,191
Deferred taxes 5,568 -- 5,568
Deposits and other 586 62 648
Marketable securities - available for sale 42,157 -- 42,157
Goodwill - net 1,547 -- 3,832 (c) 5,379
Intangibles - net -- -- 8,400 (d) 8,400
------------ ------------ ------------ ------------
$ 211,728 $ 8,869 $ (1,968) $ 218,629
============ ============ ============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 15,579 $ 4,040 $ 19,619
Accrued expenses 7,998 2,350 10,348
Accrued incentive compensation 3,329 -- 3,329
------------ ------------ ------------ ------------
Total current liabilities 26,906 6,390 33,296
Deferred rent 2,757 511 3,268
------------ ------------ ------------ ------------
29,663 6,901 36,564
------------ ------------ ------------ ------------
STOCKHOLDERS' EQUITY 182,065 1,968 (1,968) 182,065
------------ ------------ ------------ ------------
$ 211,728 $ 8,869 $ (1,968) $ 218,629
============ ============ ============ ============
Pro Forma Condensed Consolidated Statements of Income (Unaudited)
For the year ended December 31, 2005
(in thousands, except per share data)
Steven Daniel
Madden M. Pro forma Pro forma
Ltd. Friedman adjustments consolidated
------------ ------------ ------------ ------------
Net sales: $ 375,786 $ 41,513 $ 417,299
Cost of sales: 233,286 27,186 (374) (e) 260,098
------------ ------------ ------------ ------------
Gross profit 142,500 14,327 374 157,201
Commission and licensing fee income - net 7,119 31 (374) (e) 6,776
Operating expenses (117,530) (13,342) (1,370) (f) (132,242)
Impairment of goodwill (519) -- (519)
------------ ------------ ------------ ------------
Income before other income (expenses) and
provision for income taxes 31,570 1,016 (1,370) 31,216
Other income (expenses):
Interest income 2,554 -- 2,554
Interest expense (164) -- (164)
Gain (loss) on sale of marketable
securities (500) -- (500)
------------ ------------ ------------ ------------
Income before provision for income taxes 33,460 1,016 (1,370) 33,106
Provision for income taxes 14,260 112 (254) (g) 14,118
------------ ------------ ------------ ------------
Net income $ 19,200 $ 904 $ (1,116) $ 18,988
============ ============ ============ ============
Basic income per share $ 1.43 $ 1.46
============ ============
Diluted income per share $ 1.38 $ 1.36
============ ============
Basic weighted average common shares
outstanding 13,408 13,408
Effect of dilutive securities - options 537 537
------------ ------------
Diluted weighted average common shares
outstanding 13,945 13,945
============ ============
(a) The pro forma adjustment to cash was determined as follows:
Gross purchase price $ 18,000
Transaction costs 500
Working Capital reserve (3,000)
------------
$ 15,500
============
(b) The pro forma adjustment to prepaid assets and other current assets:
Estimated acquisition price adjustment due from shareholder of Daniel M.
Friedman $ 1,300
============
(c) Goodwill:
Cash paid for the equity of Daniel M. Friedman $ 15,500
Estimated acquisition price adjustment (1,300)
------------
Net cash paid 14,200
------------
Assets acquired:
Current assets 8,514
Other assets 355
Intangibles 8,400
Liabilities assumed (6,901)
------------
Net assets acquired 10,368
------------
Goodwill $ 3,832
============
(d) Intangibles - net:
Estimated trade name $ 200
Estimated customer relationships 2,600
Estimated license agreements 5,600
------------
$ 8,400
============
(e) Cost of sales, commission and licensing fee:
Eliminate inter-company licensing transactions $ 374
============
(f) Operating expenses:
Estimated amortization of acquired intangibles. An estimated term of 6
years was used for the trade name, 10 years for customer relationships,
and a weighted average of 5 years for license agreements $ 1,370
============
(g) Provision for income taxes (1):
Daniel M Friedman income before provision for income taxes $ 1,016
Estimated amortization of acquired intangibles (1,370)
------------
Adjusted income before provision for income taxes (354)
Income tax provision assuming Daniel M Friedman was taxed at
Madden's effective tax rate (142)
Income tax provided on Daniel M Friedman's statement 112
------------
Adjustment assuming consolidated Company was taxed at Madden's
effective tax rate $ (254)
============
(1) Historically, Daniel M. Friedman has elected to be treated as an "S"
Corporation for federal and state income tax purposes and accordingly, other
than the New York City and Pennsylvania corporate income taxes, no provision for
such taxes are included in the financial statements. Following the acquisition,
Daniel M. Friedman will be subject to taxation as part of the Steven Madden Ltd.
consolidated tax returns. The pro forma adjustment reflects the estimated
incremental U.S. federal and state income tax provision as if the acquired
companies had been subject to taxation under subchapter C of the Internal
Revenue Code for the full fiscal year.