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, 2006
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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 _______________
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 (for such shorter period that the Registrant was
required to file such reports), 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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 3, 2006, the latest practicable date, there were 21,021,748
shares of common stock, $.0001 par value, outstanding.
STEVEN MADDEN, LTD.
FORM 10-Q
QUARTERLY REPORT
September 30, 2006
TABLE OF CONTENTS
PART I- FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets ............................ 1
Condensed Consolidated Statements of Operations .................. 2
Condensed Consolidated Statements of Cash Flows .................. 3
Notes to Unaudited Condensed Consolidated Financial Statements ... 4
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ................. 15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ....... 23
ITEM 4. Controls and Procedures .......................................... 23
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings ................................................ 24
ITEM 1A. Risk Factors ..................................................... 25
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds ...... 25
ITEM 6. Exhibits ......................................................... 25
Signatures ....................................................... 26
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31, September 30,
2006 2005 2005
------------ ------------ ------------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 43,356 $ 42,842 $ 55,081
Accounts receivable, net of allowances of $2,681, $813 and $703 6,539 3,294 2,129
Due from factor, net of allowances of $11,355, $7,587 and $4,298 52,652 31,785 46,136
Inventories 35,736 28,412 22,663
Marketable securities - available for sale 50,457 24,092 15,449
Prepaid expenses and other current assets 5,855 2,435 2,185
Prepaid taxes 2,457 2,512 349
Deferred taxes 5,509 5,600 2,566
------------ ------------ ------------
Total current assets 202,561 140,972 146,558
Property and equipment, net 22,656 20,898 20,855
Deferred taxes 5,321 5,568 5,943
Deposits and other 1,136 586 495
Marketable securities - available for sale 18,643 42,157 28,470
Goodwill - net 6,975 1,547 1,547
Intangibles - net 7,487 -- --
------------ ------------ ------------
Total Assets $ 264,779 $ 211,728 $ 203,868
============ ============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 18,196 15,579 $ 10,973
Accrued expenses 14,557 7,998 8,293
Accrued incentive compensation 7,231 3,329 1,938
------------ ------------ ------------
Total current liabilities 39,984 26,906 21,204
Deferred rent 3,535 2,757 2,373
------------ ------------ ------------
43,519 29,663 23,577
------------ ------------ ------------
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, 90,000 shares authorized, 24,721,
24,225 and 23,901 shares issued, 21,021, 20,874 and
20,550 outstanding 2 2 2
Additional paid-in capital 110,739 99,950 91,846
Retained earnings 145,041 108,838 115,212
Other comprehensive gain:
Unrealized gain (loss) on marketable securities (832) (1,299) (1,343)
Treasury stock - 3,700, 3,351 and 3,351 shares at cost (33,690) (25,426) (25,426)
------------ ------------ ------------
221,260 182,065 180,291
------------ ------------ ------------
Total Liabilities and Stockholders' Equity $ 264,779 $ 211,728 $ 203,868
============ ============ ============
See accompanying notes to condensed consolidated financial
statements - unaudited 1
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net sales:
Wholesale $ 91,751 $ 71,018 $ 270,927 $ 196,210
Retail 31,489 29,049 90,128 88,151
------------ ------------ ------------ ------------
123,240 100,067 361,055 284,361
------------ ------------ ------------ ------------
Cost of sales:
Wholesale 57,020 49,730 165,514 138,149
Retail 15,197 15,075 43,680 45,988
------------ ------------ ------------ ------------
72,217 64,805 209,194 184,137
------------ ------------ ------------ ------------
Gross profit:
Wholesale 34,731 21,288 105,413 58,061
Retail 16,292 13,974 46,448 42,163
------------ ------------ ------------ ------------
51,023 35,262 151,861 100,224
Commission and licensing fee income - net 3,850 2,217 10,437 5,241
Operating expenses (32,999) (28,478) (100,654) (86,067)
Impairment of goodwill -- -- -- (519)
------------ ------------ ------------ ------------
Income from operations 21,874 9,001 61,644 18,879
Interest and other income, net 715 504 1,628 1,398
------------ ------------ ------------ ------------
Income before provision for income taxes 22,589 9,505 63,272 20,277
Provision for income taxes 9,942 3,992 27,069 8,516
------------ ------------ ------------ ------------
Net income $ 12,647 $ 5,513 $ 36,203 $ 11,761
============ ============ ============ ============
Basic income per share $ 0.61 $ 0.27 $ 1.74 $ 0.59
============ ============ ============ ============
Diluted income per share $ 0.57 $ 0.26 $ 1.64 $ 0.57
============ ============ ============ ============
Basic weighted average common shares outstanding 20,880 20,255 20,850 19,908
Effect of dilutive securities - options/warrants/restricted stock 1,256 813 1,178 756
------------ ------------ ------------ ------------
Diluted weighted average common shares outstanding 22,136 21,068 22,028 20,664
============ ============ ============ ============
See accompanying notes to condensed consolidated financial
statements - unaudited 2
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
Nine Months Ended
September 30,
2006 2005
------------ ------------
Cash flows from operating activities:
Net income $ 36,203 $ 11,761
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,722 3,911
Loss on disposal of fixed assets 1,858 126
Impairment of goodwill -- 519
Non-cash compensation 1,452 677
Provision for bad debts 5,214 2,086
Deferred rent expense 268 285
Realized loss on marketable securities 825 182
Changes in:
Accounts receivable (3,168) 1,026
Due from factor (23,075) (14,344)
Inventories (1,441) 11,721
Prepaid expenses, prepaid taxes, deposits and other assets (2,126) 915
Accounts payable and other accrued expenses 4,100 1,527
------------ ------------
Net cash provided by operating activities 24,832 20,392
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (7,116) (4,144)
Purchase of marketable securities (19,867) (1,156)
Sale/redemption of marketable securities 16,996 5,629
Acquisition, net of cash acquired (15,404) --
------------ ------------
Net cash provided by (used in) investing activities (25,391) 329
------------ ------------
Cash flows from financing activities:
Proceeds from options exercised 5,781 13,009
Tax benefit from exercise of options 3,556 --
Cash in lieu of restricted stock -- (1,767)
Purchase of treasury stock (8,264) (7,735)
------------ ------------
Net cash provided by financing activities 1,073 3,507
------------ ------------
Net increase in cash and cash equivalents 514 24,228
Cash and cash equivalents - beginning of period 42,842 30,853
------------ ------------
Cash and cash equivalents - end of period $ 43,356 $ 55,081
============ ============
See accompanying notes to condensed consolidated financial
statements - unaudited 3
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE A - BASIS OF REPORTING
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") 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 GAAP for complete financial statements. In the opinion of
management, the accompanying statements include all adjustments (consisting only
of normal recurring items) that are considered necessary for a fair presentation
of the financial position of Steven Madden, Ltd. and subsidiaries (the
"Company") and the results of its operations and cash flows for the periods
presented. The results of its operations for the three- and nine-month periods
ended September 30, 2006 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, 2005 included in the Annual Report of Steven Madden, Ltd. on
Form 10-K filed with the SEC on March 14, 2006.
Stock Split
On April 27, 2006, the Board of Directors declared a 3-for-2 stock split of its
outstanding shares of common stock, to be effected in the form of a stock
dividend of one share of stock for every two shares outstanding. The dividend
was paid on May 26, 2006 to stockholders of record at the close of business on
May 11, 2006. All share and per share data provided herein gives effect to this
stock split, applied retroactively.
NOTE B - USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the 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.
Allowances for bad debts, returns and customer chargebacks: The Company provides
reserves on trade accounts receivables for future customer chargebacks and
markdown allowances, discounts, returns and other miscellaneous compliance
related deductions that relate to the current period sales. As a result of a
reevaluation of the retail environment, the Company revised its method for
evaluating its estimate of the allowance for customer chargebacks beginning in
the fourth quarter of 2005. In the past, the Company looked at historical
dilution levels of customers to determine the allowance amount. Under the new
method of estimation, the Company evaluates anticipated chargebacks by reviewing
several performance indicators of its major customers. These performance
indicators, which include retailers inventory levels, sell through rates and
gross margin levels, are analyzed by key account executives to estimate the
amount of the anticipated customer allowance.
NOTE C - MARKETABLE SECURITIES
Marketable securities consist primarily of corporate bonds, U.S. treasury notes
and government asset-backed securities with maturities greater than three months
and up to five years at the time of purchase, as well as marketable equity
securities. 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 D - 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.
4
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE E - REVENUE RECOGNITION
The Company recognizes revenue on wholesale sales when products are shipped
pursuant to our 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 deduct the amount of loss sustained 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 acting in the
capacity of an agent through its Adesso-Madden Division by arranging to produce
private label shoes to the specifications of its clients. In addition, the
Company has leveraged the strength of its Steve Madden brands and product
designs resulting in a partial recovery of its design, product and development
costs from its suppliers. Commission revenue and product and development cost
recoveries are recognized as earned when title of the product transfers from the
manufacturer to the customer and is reported on a net basis after deducting
operating expenses.
The Company licenses its trademarks for use in connection with the
manufacturing, marketing and sale of sunglasses, eyewear, outerwear, watches,
children's apparel, dresses and hosiery products. The license agreements require
the licensee to pay to the Company a royalty and, in substantially all of the
agreements, an advertising fee based on the higher of a minimum or a net sales
percentage as defined in the various agreements. Licensing revenue is recognized
on the basis of net sales reported by the licensees or minimum guaranteed
royalties, if higher. In substantially all of the Company's license agreements,
the minimum guaranteed royalty is earned and payable on a quarterly basis.
NOTE F - SALES DEDUCTIONS
The Company supports retailers' initiatives to maximize the sales of its
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 Condensed Consolidated Statement of
Operations as deductions to sales. For the three and nine month periods ended
September 30, 2006, the total deduction to net sales for these expenses was
$9,675 and $24,980, respectively, as compared to $9,682 and $27,421 for the
comparable periods in 2005.
NOTE G - COST OF SALES
All costs incurred to bring finished products to the Company's distribution
center and, in the retail division, the costs to bring products to the Company's
stores, are included in the cost of sales line item on the Condensed
Consolidated Statement of Operations. These include purchase commissions,
letters of credit fees, brokerage fees, material and labor and related items,
sample expenses, custom duty, inbound freight, royalty payments on licensed
products, labels and product packaging. All warehouse and distribution costs and
freight to customers, if any, are included in the operating expenses line item
of the Company's Condensed Consolidated Statement of Operations. The Company's
gross margins may not be comparable to other companies in the industry because
some companies may include warehouse and distribution as a component of cost of
sales, while other companies report on the same basis as the Company and include
them in operating expenses.
NOTE H - RECLASSIFICATION
The Company has reclassified royalty payments on its Condensed Consolidated
Statement of Operations from operating expenses to cost of sales. This
reclassification resulted in an increase in the wholesale cost of sales for the
three and nine months ended September 30, 2005 of $969 and $2,835, respectively,
with a corresponding decrease to operating expenses in the same periods. This
reclassification had no impact on the net income of the Company.
5
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE H - RECLASSIFICATION (CONTINUED)
Revision in the Classification of Auction Rate Bonds. During the first quarter
of 2006, the Company revised its presentation of its auction rate bonds to
short-term investments. Previously, such investments had been classified as cash
and cash equivalents. Accordingly, the Company has revised the classification to
report these securities as short-term investments on its Consolidated Balance
Sheet as of December 31, 2005. As previously reported at December 31, 2005,
$10,000 of these auction rate municipal bonds were classified as cash and cash
equivalents on the Company's Consolidated Balance Sheet.
NOTE I - NET INCOME PER SHARE OF COMMON STOCK
Basic income per share is based on the weighted average number of common shares
outstanding during the period. Diluted income per share reflects the potential
dilution assuming common shares were issued upon the exercise of outstanding
options and the proceeds thereof were used to purchase outstanding common
shares. Diluted income per share also reflects the unvested and unissued shares
promised to employees that have a dilutive effect. For the three- and nine-month
periods ended September 30, 2006, no stock options have been excluded from the
calculation because inclusion of such shares would be antidilutive, as compared
to none and approximately 185,000 stock options, excluded respectively, for the
three- and nine-months ended September 30, 2005.
NOTE J - STOCK-BASED COMPENSATION
In March 2006, the Board of Directors approved the Steven Madden, Ltd. Stock
Incentive Plan (the "Plan") under which nonqualified stock options, stock
appreciation rights, performance shares, restricted stock, other stock-based
awards and performance-based cash awards may be granted to employees,
consultants and non-employee directors. The shareholders approved the Plan on
May 26, 2006. The number of shares that may be issued or used under the Plan
cannot exceed 1,200,000 shares. Management believes that the Plan will better
align the interests of its recipients with those of its shareholders. In
addition, the Company has three stock option plans entitled The 1996 Stock Plan,
The 1997 Stock Plan and The 1999 Stock Plan. The option plans provide that the
option price shall not be less than the fair market value of the common stock on
the date of grant and that no portion of the option may be exercised beyond ten
years from that date. As of September 30, 2006, 6,893,000 options have been
authorized under the three stock option plans and 6,882,000 have been granted,
net of expirations and cancellations.
Effective January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123R, "Accounting for Stock-Based
Compensation" ("SFAS No. 123R"), which requires stock-based compensation to be
measured based on the fair value of the awards on the grant date. The Company
elected the "modified prospective method" of transition as permitted by SFAS No.
123R. Under this transition method, the Company is required to record
compensation expense for all awards granted after the date of adoption and for
the unvested portion of previously granted awards that were outstanding at the
date of adoption, and accordingly, periods prior to adoption are not restated.
For the three and nine month periods ended September 30, 2006, total
equity-based compensation of $768 and $1,452, respectively, was included in
operating expense. As of September 30, 2006, unrecognized equity-based
compensation was $11,552, which is expected to be recognized over a weighted
average period of 3.8 years. As required by SFAS No. 123R, prior period unearned
compensation has been reclasssed to additional paid-in capital for all periods
presented.
SFAS No. 123R requires the Company to apply an estimated forfeiture rate in
calculating the period expense, as opposed to recognizing forfeitures as an
expense reduction as they occur, which was the method used by the Company prior
to adoption. The adjustment to apply estimated forfeitures to previously
recognized stock-based compensation was considered immaterial and, as such, was
not classified as a cumulative effect of a change in accounting principle.
6
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE J - STOCK-BASED COMPENSATION (CONTINUED)
Prior to the adoption of SFAS No. 123R, the Company presented cash flows
resulting from the tax benefits of deductions from the exercise of stock options
as operating cash flows in the Statements of Cash Flows. SFAS No. 123R requires
cash flows resulting from the tax benefits from tax deductions in excess of the
compensation costs recognized for those options (tax benefits) to be classified
as financing cash flows. The Company realized an excess tax benefit from the
exercise of stock options of $3,556 during the nine months ended September 30,
2006.
Prior to adopting SFAS No. 123R, the Company's equity-based compensation expense
was accounted for under the provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees", as permitted by SFAS No. 123. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provision of SFAS No. 123R to equity-based
employee compensation for the three and nine month periods ended September 30,
2005:
Three Months Nine Months
Ended Ended
September 30, September 30,
2005 2005
------------ ------------
Reported net income $ 5,513 $ 11,761
Stock-based employee compensation included in
reported net income, net of tax -- 165
Stock-based employee compensation determined
under the fair value based method, net of tax (735) (1,772)
------------ ------------
Pro forma net income $ 4,778 $ 10,154
============ ============
Basic income per share:
As reported $ 0.27 $ 0.59
Pro forma $ 0.24 $ 0.51
Diluted income per share:
As reported $ 0.26 $ 0.57
Pro forma $ 0.23 $ 0.49
Stock Options
During the three and nine months ended September 30, 2006, there were 311,672
and 466,672 options exercised, respectively, with a total intrinsic value of
$6,680 and $8,444 for the corresponding periods. No options vested during the
three-month period and 30,000 options vested during the nine-month period ended
September 30, 2006, with a weighted average exercise price of $11.84 and a total
intrinsic value of $822. As of September 30, 2006, there were no unvested
options. There were no options granted during the nine months ended September
30, 2006.
The Company estimates the fair value of options granted using the Black-Scholes
option-pricing model, which requires several assumptions. The expected term of
the options represents the estimated period of time until exercise and is based
on historical experience of similar awards. Expected volatility is based on the
historical volatility of the Company's stock. The risk free interest rate is
based on the U.S Treasury yield curve in effect at the time of the grant. With
the exception of a special dividend paid in November of 2005 and a special
dividend to be paid on November 22, 2006, the Company historically has not paid
dividends and thus the expected dividend rate is assumed to be zero. The
weighted average fair value of options granted in 2005 was approximately $4.07
using the Black-Scholes option-pricing model assuming a volatility of 43%, a
risk free interest rate of 3.86%, an expected life of 3 years and no dividend
yield.
7
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE J - STOCK-BASED COMPENSATION (CONTINUED)
Activity relating to stock options granted under the Company's plans and outside
the plans during the nine months ended September 30, 2006 is as follows:
Weighted
Weighted Average
Average Remaining Aggregate
Number of Exercise Contractual Intrinsic
Shares Price Term Value
------------ ------------ ------------ ------------
Outstanding at January 1 1,950,000 $ 9.79
Granted -- --
Exercised (467,000) 12.39
Cancelled/Forfeited (3,000) 8.00
------------ ------------
Outstanding at September 30 1,480,000 $ 8.97 4.8 $ 44,816
============ ============ ============ ============
Exercisable at September 30 1,480,000 $ 8.97 4.8 $ 44,816
============ ============ ============ ============
Restricted Stock
During the nine months ended September 30, 2006, pursuant to the Company's Board
of Directors approval of the Plan in March 2006, the Company granted 423,500
restricted stock shares to employees and directors (including 165,000 granted to
the Company's Creative and Design Chief), all of which were outstanding as of
September 30, 2006. The Company determines the fair value of its restricted
stock awards based on the market price of its common stock on the date of grant.
The weighted average grant date fair value of the restricted shares was $32.38
and the average vesting period is 4.2 years. There were no shares that vested
during the three and nine months ended September 30, 2006.
NOTE K - ACQUISITION
On February 7, 2006, the Company acquired all of the equity interest of
privately held Daniel M. Friedman and Associates, Inc. and D.M.F. International
(collectively, "Daniel M. Friedman"). Founded in 1995, Daniel M. Friedman
designs, sources, markets and sells name brand fashion handbags and accessories.
The acquisition was completed for consideration of $18,710, including
transaction costs, subject to adjustment, which includes certain earn-out
provisions based on financial performance through 2010.
The Daniel M. Friedman acquisition was accounted for using the purchase method
of accounting as required by SFAS Statement No. 141, "Business Combinations".
Accordingly, the assets and liabilities of Daniel M. Friedman were adjusted to
their fair values, and the excess of the purchase price over the fair value of
the assets acquired, including identified intangible assets, was recorded as
goodwill. The fair values assigned to tangible and intangible assets acquired
and liabilities assumed are based on management's estimates and assumptions, as
well as third-party independent valuations. The total preliminary purchase price
has been allocated as follows:
Current assets $ 9,772
Property and equipment 289
Deposits 62
Intangible assets 8,400
Goodwill 5,428
Liabilities assumed (5,241)
------------
Net assets acquired $ 18,710
============
8
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE K - ACQUISITION (CONTINUED)
The purchase price and related allocation are preliminary and may be revised as
a result of adjustments made to the purchase price pursuant to the earn out
provisions.
The results of operations of Daniel M. Friedman have been included in the
Company's Condensed Consolidated Statements of Operations from the date of the
acquisition. The following pro forma information presents the results of the
Company's operations as though the Daniel M. Friedman acquisition had been
completed as of the first day of the three and nine month periods below:
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30,
---------------------------- ----------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Net sales $ 123,240 $ 110,965 $ 363,740 $ 312,695
Operating income $ 21,874 $ 10,916 $ 61,823 $ 23,349
Net income $ 12,647 $ 6,579 $ 36,307 $ 14,429
Basic earnings per share $ 0.61 $ 0.32 $ 1.74 $ 0.72
Diluted earnings per share $ 0.57 $ 0.31 $ 1.65 $ 0.70
NOTE L - GOODWILL AND INTANGIBLE ASSETS
The following is a summary of the carrying amount goodwill by segment for the
nine months ended September 30, 2006:
Steven by Daniel M.
Steve Madden Friedman Total
------------ ------------ ------------
Balance at December 31, 2005 $ 1,547 $ 0 $ 1,547
Acquisition of Daniel M. Friedman -- 5,428 5,428
------------ ------------ ------------
Balance at September 30, 2006 $ 1,547 $ 5,428 $ 6,975
============ ============ ============
The following table details identifiable intangible assets acquired on February
7, 2006 in the Daniel M. Friedman transaction as of September 30, 2006:
Accumulated Net carrying
Cost basis amortization amount
------------ ------------ ------------
Trade name $ 200 $ 22 $ 178
Customer relationships 2,600 175 2,425
License agreements 5,600 716 4,884
------------ ------------ ------------
$ 8,400 $ 913 $ 7,487
------------ ------------ ------------
9
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE L - GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
The amortization of intangible assets is included in operating expenses on the
Company's Condensed Consolidated Statement of Operations. The estimated future
amortization expense of purchased intangibles as of September 30, 2006 is as
follows:
2006 (remaining three months) $ 343
2007 1,370
2008 1,370
2009 1,267
2010 1,267
Thereafter 1,870
------------
$ 7,487
============
NOTE M - COMPREHENSIVE INCOME
Comprehensive income for the three and nine month periods ended September 30,
2006, after considering other comprehensive income including unrealized gain on
marketable securities of $344 and $467, was $12,991 and $36,670, respectively.
For the comparable periods ended September 30, 2005, after considering other
comprehensive loss on marketable securities of $152 and $319, comprehensive
income was $5,361 and $11,442, respectively.
NOTE N - RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, "Accounting for Uncertainty In Income Taxes" ("FIN 48"),
which addresses the accounting for uncertainty in income taxes recognized in the
financial statements in accordance with FASB Statement No. 109, "Accounting for
Income Taxes". FIN 48 provides guidance on the financial statement recognition
and measurement of a tax position taken on the Company's tax return. FIN 48 also
provides guidance on classification, interest and penalties, accounting in
interim periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company is evaluating the requirements of
FIN 48 and expects that its adoption will not have a material impact on the
Company's results of operations and earnings per share.
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("SFAS No. 157"). SFAS No. 157 clarifies the
principle that fair value should be based on the assumptions market participants
would use when pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions.
Under the standard, fair value measurements would be separately disclosed by
level within the fair value hierarchy. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years, with early adoption permitted. The
Company has not yet determined the impact, if any, that the implementation of
SFAS No. 157 will have on the results of operations or financial condition.
10
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE O - COMMITMENTS, CONTINGENCIES AND OTHER
[1] Legal proceedings:
(a) On July 28, 2005, adidas America, Inc., and adidas-Salomon AG
(together, "adidas") filed a Demand for Arbitration (the
"Demand") against Steven Madden, Ltd., and Steven Madden
Retail, Inc. before the American Arbitration Association. In
its Demand, adidas alleged that the parties had previously
been engaged in a lawsuit over the Company's sale of sneakers
that allegedly infringed adidas' "three stripe" mark. The
parties settled that lawsuit by entering into a settlement
agreement dated August 4, 2003 that prohibited the Company
from selling shoes that contained adidas' "three-stripe" mark
either with one additional stripe or with one less stripe.
Adidas alleged in the Demand that the Company was selling
three shoes that adidas contends violate the settlement
agreement and infringe adidas' "three-stripe" mark. The
Company has settled the matter with no material effect on the
Company's financial statements.
(b) On August 10, 2005, the U.S. Customs Department ("Customs")
issued a report that asserts that certain commissions which
the Company treated as buying agents' commissions (which are
non-dutiable), should be treated as "selling agents'
commissions" and hence are dutiable. In the report, Customs
estimates that the Company had underpaid duties during the
calendar years of 1998 through 2004 in the amount of $1,051
plus interest and penalties. Based on management's estimation
at this point, a reserve of $2,047 covering under-payments,
interest and penalties, was recorded as of March 31, 2006 in
the Condensed Consolidated Financial Statements. Such reserve
may in the future be modified to reflect the status of this
matter.
(c) On or about January 23, 2006, the Company and Steven Madden,
Jamieson Karson, Arvind Dharia and Amelia Newton Varela were
named as defendants in a lawsuit filed by Jojeli, Inc.
("Jojeli") and Alan Rick Friedman in the United States
District Court for the Southern District of New York. In their
complaint, Jojeli and Mr. Friedman asserted claims arising
from the Company's decision to terminate Jojeli's services on
or about November 28, 2005. Mr. Friedman, Jojeli's principal,
served as a senior salesperson for the Company, and provided
his services to the Company pursuant to an April 26, 2004
written agreement. In their complaint, Jojeli and Mr. Friedman
alleged eight claims against the Company and/or three of its
executives and/or one of its managers, including breach of
contract, violation of the New York Labor Law, tortuous
interference with contract, civil conspiracy, defamation, and
prima facie tort. They sought damages on their various claims
of approximately $2,700 and they also sought a declaration
that they were not bound by the restrictive covenant in the
parties' contract. On or about March 1, 2006, the individual
defendants and the Company moved to dismiss the tort claims
contained in the complaint and to strike Mr. Friedman's claim
for punitive damages in connection with his contract claims.
More specifically, the defendants moved to dismiss the claims
alleging defamation, interference with contract, prima facie
tort and civil conspiracy. If the motion was granted in its
entirety, the individual defendants would have been dismissed
from the suit and Mr. Friedman's remaining claims would have
consisted of breach of contract and alleged violations of the
New York Labor Law. On or about April 13, 2006, Mr. Friedman
filed an amended complaint in the action. In his amended
complaint, Mr. Friedman (i) dropped his defamation claim
against the Company's Executive Vice President of Wholesale
Sales, Amelia Newton Varela, (ii) dropped all claim(s) against
the Company's Chief Financial Officer, Arvind Dharia, and
(iii) supplemented certain allegations concerning the
remaining defendants in an effort to strengthen or preserve
his remaining tort claims. On June 5, 2006, the Court
dismissed the plaintiffs' tort claims against the Company and
the remaining individual defendants. More specifically, the
Court dismissed Mr. Friedman's tortuous interference and
conspiracy claims against Mr. Karson, Mr. Madden and Ms.
Newton, and it dismissed Mr. Friedman's prima facie tort claim
against Mr. Karson, Mr. Madden and the Company. On or about
June 28, 2006, the Company and the individual defendants filed
an answer in which they denied the remaining counts of the
Amended Complaint, which consisted of claims for breach of
contract, breach of the implied covenant of good faith and
fair dealing, and for violations of certain provisions of the
New York Labor Law. On June 30, 2006, the parties appeared
before the
11
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE O - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
court for a status conference at which time the Court
established a pre-trial schedule requiring that non-expert
discovery be completed by December 29, 2006 and that
dispositive motions be filed by February 2, 2007. Effective
September 27, 2006, the Company and the individual defendants
reached an agreement to resolve the claims asserted by Jojeli,
Inc. and Alan Rick Friedman. Pursuant to the terms of the
parties' settlement agreement, the terms of which are
confidential, the Company agreed to pay certain sums of money
to Jojeli. As a result of the parties' settlement, the lawsuit
has been dismissed with prejudice. The settlement, which was
provided for in prior periods, did not have a material effect
on the Company's financial statements.
(d) The Company has been named as a defendant in certain other
lawsuits in the normal course of business. In the opinion of
management, after consulting with legal counsel, 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.
[2] Licensee Agreement:
On September 14, 2006, the Company, through its Daniel M. Friedman division,
entered into a license agreement to design, manufacture and distribute handbags
and belts and related accessories under the "Tracy Reese" and the "Plenty"
brand. In addition, the Company has the right to use the phrase "Plenty by Tracy
Reese". The agreement requires the Company to pay the licensor a royalty based
on net sales and a minimum royalty in the event that specified net sales targets
are not achieved.
[3] Licensor Agreement
On May 11, 2006, the Company entered into an agreement to license the Stevies
brand for the design, manufacture and distribution of girls' apparel, which will
be sold exclusively through J.C. Penney. On June 21, 2006, the Company entered
into an agreement to license the Steve Madden and Steven by Steve Madden brands
for the design, manufacture and distribution of watches. Both of these
agreements require the licensees to pay the Company a royalty and an advertising
fee based on net sales and a minimum payment in the event that specified net
sales targets are not achieved.
NOTE P - SUBSEQUENT EVENTS
[1] Common Stock Dividend
On October 30, 2006, the Board of Directors declared a special dividend of $1.00
per share payable to Steven Madden, Ltd. shareholders of record at the close of
business on November 13, 2006. The dividend is payable on November 22, 2006.
[2] Licensor Agreement:
On October 9, 2006, the Company entered into an agreement with Jump Apparel to
license the Steve Madden and Steven by Steve Madden brands for the design,
manufacture and distribution of dresses. The agreements require the licensee to
pay the Company a royalty and an advertising fee based on net sales and a
minimum payment in the event that specified net sales targets are not achieved.
12
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE Q - OPERATING SEGMENT INFORMATION
The Company's reportable segments are primarily determined based on distribution
channels of its various brands. The wholesale segment markets its products
through department and specialty stores throughout the country and the retail
segment thru the operation of various Company owned stores and the Company's
website. The First Cost segment represents activities of a subsidiary which
earns commissions for acting as a buying agent to mass-market merchandisers,
shoe chains and other off-price retailers with respect to their purchase of
footwear.
-------------Wholesale divisions-----------------
Other
footwear Daniel M. Total First
Quarter ended, Womens Mens brands Friedman Wholesale Retail Cost Consolidated
September 30, 2006: ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------
Net sales to external
customers $ 41,654 $ 16,253 $ 21,135 $ 12,709 $ 91,751 $ 31,489 $ 123,240
Gross profit 15,735 7,028 9,299 2,669 34,731 16,292 51,023
Commissions and
licensing fees - net 733 -- -- -- 733 $ 3,117 3,850
Income (loss) from
operations 9,374 3,290 4,505 (216) 16,953 1,804 3,117 21,874
Segment assets $ 108,703 $ 19,236 $ 53,134 $ 23,289 $ 204,362 $ 43,068 $ 17,349 $ 264,779
September 30, 2005:
Net sales to external
customers $ 33,000 $ 15,062 $ 22,956 -- $ 71,018 $ 29,049 $ 100,067
Gross profit 9,746 5,478 6,064 -- 21,288 13,974 35,262
Commissions and
licensing fees - net 568 -- -- -- 568 -- $ 1,649 2,217
Income from operations 2,747 2,556 1,611 -- 6,914 438 1,649 9,001
Segment assets $ 108,361 $ 12,584 $ 31,738 -- $ 152,683 $ 39,194 $ 11,991 $ 203,868
13
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements - Unaudited
September 30, 2006
($ in thousands except per share data)
NOTE Q - OPERATING SEGMENT INFORMATION (CONTINUED)
-------------Wholesale divisions-------------
Other
----------- footwear Daniel M. Total First
Nine months ended, Womens Mens brands Friedman Wholesale Retail Cost Consolidated
September 30, 2006: ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------------
Net sales to external
customers $ 117,551 $ 49,539 $ 65,550 $ 38,287 $ 270,927 $ 90,128 $ 361,055
Gross profit 45,324 20,816 27,276 11,997 105,413 46,448 151,861
Commissions and
licensing fees - net 2,259 -- -- -- 2,259 $ 8,178 10,437
Income from
operations 25,071 9,342 11,819 4,460 50,692 2,774 8,178 61,644
Segment assets $ 108,703 $ 19,236 $ 53,134 $ 23,289 $ 204,362 $ 43,068 $ 17,349 $ 264,779
September 30, 2005:
Net sales to external
customers $ 92,446 $ 41,526 $ 62,238 -- $ 196,210 $ 88,151 $ 284,361
Gross profit 26,609 15,738 15,714 -- 58,061 42,163 100,224
Commissions and
licensing fees - net 1,744 -- -- -- 1,744 -- $ 3,497 5,241
Income from operations 4,658 6,669 2,604 -- 13,931 1,451 3,497 18,879
Segment assets $ 108,361 $ 12,584 $ 31,738 -- $ 152,683 $ 39,194 $ 11,991 $ 203,868
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the unaudited Financial Statements
and Notes thereto appearing elsewhere in this document.
Statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere in this document as well as statements
made in press releases and oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf
that are not statements of historical or current fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other unknown factors that could cause the
actual results of the Company to be materially different from the historical
results or from any future results expressed or implied by such forward-looking
statements. In addition to statements which explicitly describe such risks and
uncertainties, readers are urged to consider statements labeled with the terms
"believes", "belief", "expects", "intends", "anticipates" or "plans" to be
uncertain forward-looking statements. The forward-looking statements contained
herein are also subject generally to other risks and uncertainties that are
described from time to time in the Company's reports and registration statements
filed with the Securities and Exchange Commission.
Overview:
--------
($ in thousands, except retail sales data per square foot and earnings per
share)
The quarter ended September 30, 2006 marks the sixth consecutive quarter that
the Company has achieved a double-digit percentage increase in both earnings per
share and net income. Diluted earnings per share increased 119% to $0.57 from
$0.26 for the same period in 2005. Net income increased 129% in the third
quarter of 2006 to $12,647 as compared to $5,513 for the comparable period of
2005. For the nine months ended September 30, 2006, diluted earnings per share
increased 188% and net income increased 208% over the comparable period of 2005.
The earnings growth in the third quarter is the result of a 23% increase in net
sales, an increase in gross profit margins of 6%, an increase in net commission
and licensing fee income of 74%, and a decrease of operating expenses as a
percentage of net sales of 1%.
During the quarter, the Company made progress on its stated goal to evolve Steve
Madden into a global lifestyle brand by signing a license agreement for Steve
Madden and Steven by Steve Madden dresses. The new dress lines, which will
initially ship in spring 2007, join the existing sunglasses, eyewear, outerwear,
watches, children's apparel, and hosiery offerings. Management is pleased to be
expanding the Company's presence beyond footwear and accessories and believes
the new dress lines mark a very logical extension of the Company's brands.
The Company continues to diversify its business by continuing to develop some of
its new brands. SM New York for instance, which was launched in the fourth
quarter of 2005, has been growing steadily. The Company is also testing and
developing various other new brands where it sees a strategic opportunity to do
so such as Natural Comfort, which was launched last quarter, and a line of high
end mens footwear under the Steven by Steve Madden brand.
In line with prior commitments to enhance shareholders value, the Board of
Directors approved on October 30, 2006 a special one-time cash dividend of $1.00
per share of outstanding common stock. Combined with the $8.3 million of share
repurchases so far in 2006, the total amount of capital returned to shareholders
this year will amount to approximately $29.3 million, which is in addition to
the approximately $21.5 million returned to shareholders in 2005. The Company is
able to provide this special dividend and repurchase of stock while still
reinvesting in the business and funding management's initiatives for future
growth.
The Retail Division continued its strong performance. In the third quarter, net
sales increased 8%, and same store sales (sales in stores, including the
internet store, that were in operation throughout all of the third quarters of
2006 and 2005) increased 10.5%. This growth in comparable store sales came on
top of a 12.3% comparable store sales growth achieved last year. Store sales
productivity remained high with sales per square foot of $746 in the quarter
compared to $752 for the same quarter last year.
The Company's annualized inventory turnover decreased to 7.5 times in the third
quarter of 2006 compared to 8.2 in the third quarter of 2005. The decrease in
inventory turn is due to an increase in open stock items which require
15
higher inventory model to be maintained in the warehouse. In addition, the
recently acquired Daniel M. Friedman division requires relatively higher on hand
inventory levels to fulfill its reorder business. The Company's accounts
receivable average collection days improved to 58 days in the third quarter of
2006 compared to 59 days in the third quarter of the previous year.
As of September 30, 2006, the Company had $112,456 in cash, cash equivalents and
marketable securities, no short or long-term debt, and total stockholders equity
of $221,260. Working capital increased to $162,577 as of September 30, 2006
compared to $125,354 as of September 30, 2005.
The following tables set forth information on operations for the periods
indicated:
Selected Financial Information
Nine Months Ended
September 30
($ in thousands)
2006 2005
-------------------- --------------------
CONSOLIDATED:
------------
Net sales $ 361,055 100% $ 284,361 100%
Cost of sales 209,194 58 184,137 65
Gross profit 151,861 42 100,224 35
Other operating income - net of expenses 10,437 3 5,241 2
Operating expenses 100,654 28 86,067 30
Impairment of goodwill -- -- 519 0
Income from operations 61,644 17 18,879 7
Interest and other income, net 1,628 1 1,398 0
Income before income taxes 63,272 18 20,277 7
Net income 36,203 10 11,761 4
By Segment:
WHOLESALE DIVISION:
------------------
Net sales $ 270,927 100% $ 196,210 100%
Cost of sales 165,514 61 138,149 70
Gross profit 105,413 39 58,061 30
Other operating income 2,259 1 1,744 1
Operating expenses 56,980 21 45,874 24
Income from operations 50,692 19 13,931 7
RETAIL DIVISION:
---------------
Net sales $ 90,128 100% $ 88,151 100%
Cost of sales 43,680 48 45,988 52
Gross profit 46,448 52 42,163 48
Operating expenses 43,674 49 40,193 46
Impairment of goodwill -- -- 519 --
Income from operations 2,774 3 1,451 2
Number of stores 95 98
FIRST COST DIVISION:
-------------------
Other commission income- net of expenses $ 8,178 100% $ 3,497 100%
16
Selected Financial Information
Three Months Ended
September 30
($ in thousands)
2006 2005
-------------------- --------------------
CONSOLIDATED:
------------
Net sales $ 123,240 100% $ 100,067 100%
Cost of sales 72,217 59 64,805 65
Gross profit 51,023 41 35,262 35
Other operating income - net of expenses 3,850 3 2,217 2
Operating expenses 32,999 27 28,478 28
Income from operations 21,874 17 9,001 9
Interest and other income, net 715 1 504 1
Income before income taxes 22,589 18 9,505 10
Net income 12,647 10 5,513 6
By Segment:
WHOLESALE DIVISION:
------------------
Net sales $ 91,751 100% $ 71,018 100%
Cost of sales 57,020 62 49,730 70
Gross profit 34,731 38 21,288 30
Other operating income 733 1 568 1
Operating expenses 18,511 20 14,942 21
Income from operations 16,953 19 6,914 10
RETAIL DIVISION:
---------------
Net sales $ 31,489 100% $ 29,049 100%
Cost of sales 15,197 48 15,075 52
Gross profit 16,292 52 13,974 48
Operating expenses 14,488 46 13,536 47
Income from operations 1,804 6 438 1
Number of stores 95 98
FIRST COST DIVISION:
-------------------
Other commission income- net of expenses $ 3,117 100% $ 1,649 100%
17
RESULTS OF OPERATIONS
($ in thousands)
Nine Months Ended September 30, 2006 vs. Nine Months Ended September 30, 2005
Consolidated:
------------
Total net sales for the nine-month period ended September 30, 2006 increased by
27% to $361,055 from $284,361 for the comparable period of 2005. This increase
resulted from significantly higher sales contributed by the Wholesale Division
including Daniel M. Friedman from the acquisition date.
Gross profit as a percentage of sales increased to 42% for the nine-month period
ended September 30, 2006 from 35% for the nine-month period ended September 30,
2005. This increase is the result of an increase in the gross profit as a
percentage of sales in the Wholesale Division to 39% for the nine-month period
ended September 30, 2006 from 30% for the comparable period of 2005, as well as
an increase in the Retail Division to 52% as compared to 48% for the comparable
period of 2005.
Operating expenses increased to $100,654 in the nine months ended September 30,
2006 from $86,067 in the same period of 2005. The increase in dollars was caused
by; a) the addition of the Daniel M. Friedman division which added $7,537; b)
the launch of the new divisions, SMNY and Rule, and; c) sales growth related
variable expenses such as warehousing, sales commissions and factors'
commissions as well as profit based employee incentives. As a percentage of
sales, operating expenses decreased to 28% in the first nine months of 2006 from
30% in the same period of 2005, reflecting the Company's ability to control
costs and leverage its expense structure against the increase in sales.
Income from operations was $61,644 for the nine-month period ended September 30,
2006 compared to $18,879 for the comparable period of 2005. Net income increased
by 208% to $36,203 for the nine-month period ended September 30, 2006 compared
to $11,761 for the nine-month period ended September 30, 2005. This increase in
income was primarily due to the increase in sales, the higher gross margin, a
substantial increase in commission income and the contribution of the Daniel M.
Friedman division.
Wholesale Division:
------------------
Sales from the Wholesale Division accounted for $270,927 or 75%, and $196,210 or
69% of total sales for the nine-month periods ended September 30, 2006 and 2005,
respectively. This increase resulted from the sales contributed by the recently
acquired Daniel M. Friedman and higher sales from Madden Womens, Madden Mens,
Candie's and Steven as well as the contribution of the new brands, SMNY and
Rule. Gross profit as a percentage of sales increased to 39% for the nine-month
period ended September 30, 2006 from 30% in the same period last year, primarily
due to a significant decrease in off-price sales and lower inventory markdowns
and allowances. Operating expenses increased to $56,980 for the nine-month
period ended September 30, 2006 from $45,874 in the comparable period of 2005.
This increase is primarily due to an increase in direct selling expenses
reflective of the 38% growth in sales, incentive bonuses and the incremental
costs associated with the new brands SMNY and Rule, as well as the addition of
Daniel M. Friedman. As a percentage of sales, operating expenses decreased to
21% for the nine-month period ended September 30, 2006 from 24% for the same
period last year, reflecting the Company's ability to control costs and leverage
its expense structure against the increase in sales. Income from operations for
the Wholesale Division increased to $50,692 for the nine-month period ended
September 30, 2006 compared to $13,931 for the nine-month period ended September
30, 2005.
Retail Division:
---------------
Sales from the Retail Division accounted for $90,128 or 25% and $88,151 or 31%
of total sales for the nine-month periods ended September 30, 2006 and 2005,
respectively. The Company opened five new stores and closed eight
under-performing stores during the year ended September 30, 2006. As a result,
the Company had 95 retail stores as of September 30, 2006 compared to 98 stores
as of September 30, 2005. The 95 stores currently in operation include 92 under
the Steve Madden name, two under the Steven name and one internet store.
Comparable store sales (sales of those stores, including the internet store,
that were open for the entire first nine months of 2006 and 2005) for the
nine-month period ended September 30, 2006 increased 2% over the same period of
2005. Gross profit as a percentage of sales increased to 52% for the nine-month
period ended September 30, 2006 from 48% in the comparable period of 2005,
primarily due to a significant decrease in promotional selling activity and an
increase in
18
inventory operating efficiencies. Operating expenses for the Retail Division
were $43,674 for the nine-month period ended September 30, 2006 and $40,193 for
the comparable period of 2005. This increase was primarily due to the non-cash
write off of unamortized assets associated with the remodeling of nine stores
and the closing of six stores in the current period. Income from operations for
the Retail Division was $2,774 for the nine-month period ended September 30,
2006 compared to $1,451 for the same period in 2005.
First Cost Division:
-------------------
The First Cost Division generated net commission income of $8,178 for the
nine-month period ended September 30, 2006, compared to $3,497 in the comparable
period of 2005. The increase was the result of growth in the private label
business and, in addition, the Company's ability to leverage the strength of its
Steve Madden brands and product designs resulting in a partial recovery of its
design, product and development costs from its suppliers.
Three Months Ended September 30, 2006 vs. Three Months Ended September 30, 2005
Consolidated:
------------
Total net sales for the three-month period ended September 30, 2006 increased by
23% to $123,240 from $100,067 for the comparable period of 2005. This sales
growth was primarily the result of the double-digit sales increases in the
Steven and Steve Madden Womens divisions as well as the incremental sales from
the new Daniel M. Friedman, Rule and SMNY divisions. These increases were
partially offset by declines in the l.e.i , Candie's and Stevies divisions.
Gross profit as a percentage of sales increased to 41% for the three-month
period ended September 30, 2006 from 35% for the three-month period ended
September 30, 2005. This increase is the result of an increase in the gross
profit as a percentage of sales in the Wholesale Division to 38% for the
three-month period ended September 30, 2006 from 30% for the comparable period
of 2005, as well as an increase in the gross profit as a percentage of sales in
the Retail Division to 52% for the three-month period ended September 30, 2006
from 48% for the three-month period ended September 30, 2005.
Operating expenses increased to $32,999 in the third quarter of 2006 from
$28,478 in the third quarter of 2005. The increase in dollars was caused by; a)
the addition of the Daniel M. Friedman division which added $2,885; b) the
launch of the new divisions, SMNY and Rule, and; c) sales growth related
variable expenses such as warehousing, sales commissions and factors'
commissions as well as profit based employee incentives. As a percentage of
sales, operating expenses decreased to 27% in the third quarter of 2006 from 28%
in the third quarter of 2005, reflecting the Company's ability to control costs
and leverage its expense structure against the increase in sales.
Income from operations was $21,874 for the three-month period ended September
30, 2006 compared to $9,001 for the comparable period of 2005. The Daniel M.
Friedman division had a loss from operations of $216 due to excessive markdowns
incurred to clear slow moving inventory. Net income increased by 129% to $12,647
for the three-month period ended September 30, 2006 compared to $5,513 for the
three-month period ended September 30, 2005. This increase in income was
primarily due to the increase in sales, the higher gross margin, a substantial
increase in commission income and the reduction of operating expenses as a
percentage of sales.
Wholesale Division:
------------------
Sales from the Wholesale Division accounted for $91,751 or 74%, and $71,018 or
71% of total sales for the three-month periods ended September 30, 2006 and
2005, respectively. This increase resulted from the sales contributed by the
recently acquired Daniel M. Friedman and higher sales from Steven, Madden Womens
and Madden Mens as well as the contribution of the new brands, SMNY and Rule.
Gross profit as a percentage of sales in the Wholesale Division increased to 38%
for the three-month period ended September 30, 2006 from 30% for the three-month
period ended September 30 2005, primarily due to better product offerings and
improved efficiencies in inventory management resulting in a significant
reduction of inventory markdowns and allowances. Operating expenses increased to
$18,511 for the three-month period ended September 30, 2006 from $14,942 in the
comparable period of 2005. This increase is primarily due to an increase in
direct selling expenses reflective of the 29% growth in sales, incentive bonuses
and the incremental costs associated with the new brands SMNY and Rule and
Daniel M. Friedman. As a percentage of sales, operating expenses decreased to
20% for the three-month period ended September 30, 2006 from 21% for the
three-month period ended September 30, 2005, reflecting the Company's
19
ability to control costs and leverage its expense structure against the increase
in sales. Income from operations for the Wholesale Division increased to $16,953
for the three-month period ended September 30, 2006 compared to $6,914 for the
same period last year.
Retail Division:
---------------
Sales from the Retail Division accounted for $31,489 or 26% and $29,049 or 29%
of total sales for the three-month periods ended September 30, 2006 and 2005,
respectively. Comparable store sales (sales of those stores, including the
internet store, that were open for the third quarter of 2006 and 2005) for the
three-month period ended September 30, 2006 increased 11% over the same period
of 2005. Gross profit as a percentage of sales increased to 52% for the
three-month period ended September 30, 2006 from 48% in the comparable period of
2005, primarily due to a significant decrease in inventory markdowns and other
promotional activities. Operating expenses for the Retail Division were $14,488
for the three-month period ended September 30, 2006 and $13,536 in the
comparable period of 2005. This increase was primarily due to the non-cash write
off of unamortized assets associated with the remodeling of three stores and the
closing of one store in the current period. Income from operations for the
Retail Division was $1,804 for the three-month period ended September 30, 2006
compared to $438 for the three-month period ended September 30, 2005.
First Cost Division:
-------------------
Adesso-Madden, Inc. generated net commission income of $3,117 for the
three-month period ended September 30, 2006, compared to $1,649 in the
comparable period of 2005. The increase was the result of growth in the private
label business and, in addition, the Company's ability to leverage the strength
of its Steve Madden brands and product designs resulting in a partial recovery
of its design, product and development costs from its suppliers.
LIQUIDITY AND CAPITAL RESOURCES
($ in thousands)
The Company had working capital of $162,577 at September 30, 2006 compared to
$114,066 at December 31, 2005. The Company's net income for the nine months
ended September 30, 2006 contributed to the increase in working capital.
Additionally, during the nine months ended September 30, 2006, a significant
amount of the Company's bond portfolio moved to within one year of their
maturity date resulting in a reclassification of these bonds to current assets.
Under the terms of a factoring agreement with GMAC, the Company is eligible to
draw down 80% of its invoiced receivables at an interest rate of two and
one-half percent (2.5%) over the 30 day London Inter-Bank Offered Rate
("LIBOR"). The agreement, which has no specific expiration date and can be
terminated by either party with 60 days written notice after June 30, 2007,
provides the Company with a $25 million credit facility with a $15 million
sub-limit on direct borrowings. GMAC maintains a lien on all of the Company's
receivables and assumes the credit risk for all assigned accounts approved by
them.
As of September 30, 2006, the Company had invested $69,100 in marketable
securities consisting of corporate bonds, U.S. Treasury notes, government
asset-backed securities, certificates of deposits and equities.
The Company believes that based upon its current financial position and
available cash and marketable securities, it will meet all of its financial
commitments and operating needs for at least the next twelve months.
OPERATING ACTIVITIES
($ in thousands)
During the nine-month period ended September 30, 2006, net cash provided by
operating activities was $24,832. Sources of cash were provided primarily by the
net income of $36,203 and an increase in accounts payable and other accrued
expenses of $4,100. The primary uses of cash were an increase in factored
receivables of $23,075 caused by a substantial increase in sales in the current
period of 2006, as well as an increase in non-factored receivables of $3,168, an
increase in prepaid expenses, prepaid taxes, deposits and other assets of $2,126
and increase in inventories of $1,441.
20
CONTRACTUAL OBLIGATIONS
The Company's contractual obligations as of September 30, 2006 were as follows :
Payment due by period (in thousands)
Remainder of 2011 and
Contractual Obligations Total 2006 2007-2008 2009-2010 after
------------ ------------ ------------ ------------ ------------
Operating lease obligations $ 90,027 $ 3,235 $ 25,865 $ 22,857 $ 38,070
Purchase obligations 51,752 51,752 0 0 0
Other long-term liabilities
(future minimum royalty
payments) 5,917 579 998 740 3,600
------------ ------------ ------------ ------------ ------------
Total $ 147,696 $ 55,566 $ 26,863 $ 23,597 $ 41,670
============ ============ ============ ============ ============
At September 30, 2006, the Company had un-negotiated open letters of credit for
the purchase of imported merchandise of approximately $3,501.
The Company has an employment agreement with Steven Madden, its Creative and
Design Chief, which provides for an annual base salary of $600 subject to
certain specified adjustments through June 30, 2015. The agreement also provides
for annual bonuses based on EBITDA, revenue of any new business, and royalty
income over $2 million, plus an equity grant and a non-accountable expense
allowance.
On February 7, 2006, the Company acquired all of the equity interest of Daniel
M. Friedman. The acquisition was completed for consideration of $18,710,
including transaction costs, subject to adjustment, including certain earn-out
provisions based on financial performance through 2010.
The Company has employment agreements with certain executives, which provide for
the payment of compensation aggregating approximately $2,149 in 2006, $1,643 in
2007, $1,192 in 2008 and $480 in 2009. In addition, some of the employment
agreements provide for incentive compensation based on various performance
criteria as well as other benefits. The Chief Operating Officer of the Company
is entitled to deferred compensation calculated as a percentage of his base
salary.
Significant portions of the Company's products are produced at overseas
locations, the majority of which are located in China as well as Brazil, Italy
and Spain. The Company has not entered into any long-term manufacturing or
supply contracts with any of these foreign companies. The Company believes that
a sufficient number of alternative sources exist outside of the United States
for the manufacture of its products. In addition, the Company currently makes
approximately 98% of its purchases in U.S. dollars.
INVESTING ACTIVITIES
($ in thousands)
During the nine-month period ended September 30, 2006, the Company invested
$19,867 in marketable securities and received $16,996 from the maturities and
sales of securities. Also, the Company invested $15,404 in the acquisition of
Daniel M. Friedman. Additionally, the Company made capital expenditures of
$7,116, principally for leasehold improvements for three new stores, remodeling
of nine existing stores, additional office space and upgrades to its computer
systems.
FINANCING ACTIVITIES
($ in thousands)
During the nine-month period ended September 30, 2006, the Company repurchased
349,000 shares of the Company's common stock at a total cost of $8,264. The
Company received $5,781 in cash and also realized an excess tax benefit of
$3,556 in connection with the exercise of stock options.
21
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 the Company's unaudited condensed consolidated
financial statements which have been prepared in accordance with GAAP. The
preparation of these financial statements requires management 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. Estimates are
made based upon historical factors, current circumstances and the experience and
judgment of management. Assumptions and estimates are evaluated on an ongoing
basis and the Company may employ outside experts to assist in evaluations.
Therefore, actual results could materially differ from those estimates under
different assumptions and conditions. Management believes the following critical
accounting estimates are more significantly affected by judgments and estimates
used in the preparation of the Company's condensed consolidated financial
statements: allowance for bad debts, returns, and customer chargebacks;
inventory reserves; valuation of intangible assets; litigation reserves and cost
of sales.
Allowances for bad debts, returns and customer chargebacks. The Company provides
reserves against its trade accounts receivables for future customer chargebacks,
co-op advertising allowances, discounts, returns and other miscellaneous
deductions that relate to the current period. The reserve against the Company's
non-factored trade receivables also includes estimated losses that may result
from customers' inability to pay. The amount of the reserve for bad debts,
returns, discounts and compliance chargebacks are determined by analyzing aged
receivables, current economic conditions, the prevailing retail environment and
historical dilution levels for customers. As a result of a reevaluation of the
retail environment, the Company revised its method for evaluating its allowance
for customer markdowns and advertising chargebacks in the fourth quarter of
2005. In the past, the Company would look at historical dilution levels for
customers to determine the allowance amount. Under the new methodology, the
Company evaluates anticipated chargebacks by reviewing several performance
indicators for its major customers. These performance indicators (which include
inventory levels at the retail floors, sell through rates and gross margin
levels) are analyzed by key account executives to estimate the amount of the
anticipated customer allowance. Failure to correctly estimate the amount of the
reserve could materially impact the Company's results of operations and
financial position.
Inventory reserves. Inventories are stated at lower of cost or market, on a
first-in, first-out basis. The Company reviews inventory on a regular basis for
excess and slow moving inventory. The review is based on an analysis of
inventory on hand, prior sales, and expected net realizable value through future
sales. The 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 as well as subsequent sales. The Company considers 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 the 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
the expectation of future consumer demand for the Company's product. A
misinterpretation or misunderstanding of future consumer demand for the
Company's product, 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, "Goodwill and Other Intangible
Assets", 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 "Accounting for Impairment or Disposal of
Long-lived Assets." 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 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.
22
Litigation reserves. Estimated amounts for litigation claims that are probable
and can be reasonably estimated are recorded as liabilities in the Company's
consolidated financial statements. 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 a particular litigation. As additional
information becomes available, management will assess the potential liability
related to the pending litigation and revise their estimates. Such revisions in
management's estimates of the contingent liability could materially impact the
Company's results of operation and financial position.
Cost of sales. All costs incurred to bring finished products to the Company's
distribution center and, in the retail division, the costs to bring products to
the Company's stores, are included in the cost of sales line item on the
Company's Condensed Consolidated Statement of Operations. These include purchase
commissions, letter of credit fees, brokerage fees, material and labor and
related items, sample expenses, custom duty, inbound freight, royalty payments
on licensed products, labels and product packaging. All warehouse and
distribution costs are included in the operating expenses line item of the
Company's Condensed 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 as a component of cost of
sales, while other companies report on the same basis as the Company and include
them in operating expenses.
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 LIBOR. An analysis of the
Company's credit agreement with GMAC can be found in the Liquidity and Capital
Resources section under Item 2 of this report.
As of September 30, 2006, the Company had investments in marketable securities
valued at $69,100, which consist primarily of corporate bonds, U.S. treasury
notes, certificates of deposit and government asset-backed securities that have
various maturities through December 2009, as well as marketable equity
securities. 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
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 report.
23
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Certain legal proceedings in which the Company is involved are discussed in Note
K and Part I, Item 3 to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2005. The
following discussion is limited to recent developments concerning certain of the
Company's legal proceedings and should be read in conjunction with the Company's
earlier SEC Reports. Unless otherwise indicated, all proceedings discussed in
those earlier Reports remain outstanding.
On July 28, 2005, adidas America, Inc., and adidas-Salomon AG (together,
"adidas") filed a Demand for Arbitration (the "Demand") against Steven Madden,
Ltd., and Steven Madden Retail, Inc. before the American Arbitration
Association. In its Demand, adidas alleged that the parties had previously been
engaged in a lawsuit over the Company's sale of sneakers that allegedly
infringed adidas' "three stripe" mark. The parties settled that lawsuit by
entering into a settlement agreement dated August 4, 2003 that prohibited the
Company from selling shoes that contained adidas' "three-stripe" mark either
with one additional stripe or with one less stripe. Adidas alleged in the Demand
that the Company was selling three shoes that adidas contends violate the
settlement agreement and infringe adidas' "three-stripe" mark. The Company has
settled the matter with no material effect on the Company's financial
statements.
On or about January 23, 2006, the Company and Steven Madden, Jamieson Karson,
Arvind Dharia and Amelia Newton Varela were named as defendants in a lawsuit
filed by Jojeli, Inc. ("Jojeli") and Alan Rick Friedman in the United States
District Court for the Southern District of New York. In their complaint, Jojeli
and Mr. Friedman asserted claims arising from the Company's decision to
terminate Jojeli's services on or about November 28, 2005. Mr. Friedman,
Jojeli's principal, served as a senior salesperson for the Company, and provided
his services to the Company pursuant to an April 26, 2004 written agreement. In
their complaint, Jojeli and Mr. Friedman alleged eight claims against the
Company and/or three of its executives and/or one of its managers, including
breach of contract, violation of the New York Labor Law, tortuous interference
with contract, civil conspiracy, defamation, and prima facie tort. They sought
damages on their various claims of approximately $2,700 and they also sought a
declaration that they were not bound by the restrictive covenant in the parties'
contract. On or about March 1, 2006, the individual defendants and the Company
moved to dismiss the tort claims contained in the complaint and to strike Mr.
Friedman's claim for punitive damages in connection with his contract claims.
More specifically, the defendants moved to dismiss the claims alleging
defamation, interference with contract, prima facie tort and civil conspiracy.
If the motion was granted in its entirety, the individual defendants would have
been dismissed from the suit and Mr. Friedman's remaining claims would have
consisted of breach of contract and alleged violations of the New York Labor
Law. On or about April 13, 2006, Mr. Friedman filed an amended complaint in the
action. In his amended complaint, Mr. Friedman (i) dropped his defamation claim
against the Company's Executive Vice President of Wholesale Sales, Amelia Newton
Varela, (ii) dropped all claim(s) against the Company's Chief Financial Officer,
Arvind Dharia, and (iii) supplemented certain allegations concerning the
remaining defendants in an effort to strengthen or preserve his remaining tort
claims. On June 5, 2006, the Court dismissed the plaintiffs' tort claims against
the Company and the remaining individual defendants. More specifically, the
Court dismissed Mr. Friedman's tortuous interference and conspiracy claims
against Mr. Karson, Mr. Madden and Ms. Newton, and it dismissed Mr. Friedman's
prima facie tort claim against Mr. Karson, Mr. Madden and the Company. On or
about June 28, 2006, the Company and the individual defendants filed an answer
in which they denied the remaining counts of the Amended Complaint, which
consisted of claims for breach of contract, breach of the implied covenant of
good faith and fair dealing, and for violations of certain provisions of the New
York Labor Law. On June 30, 2006, the parties appeared before the court for a
status conference at which time the Court established a pre-trial schedule
requiring that non-expert discovery be completed by December 29, 2006 and that
dispositive motions be filed by February 2, 2007. Effective September 27, 2006,
the Company and the individual defendants reached an agreement to resolve the
claims asserted by Jojeli, Inc. and Alan Rick Friedman. Pursuant to the terms of
the parties' settlement agreement, the terms of which are confidential, the
Company agreed to pay certain sums of money to Jojeli. As a result of the
parties' settlement, the lawsuit has been dismissed with prejudice. The
settlement, which was provided for in prior periods, did not have a material
effect on the Company's financial statements.
The Company has been named as a defendant in certain other lawsuits in the
normal course of business. In the opinion of management, after consulting with
legal counsel, 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.
24
ITEM 1A. RISK FACTORS
The risk factors included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2005 have not materially changed.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:
There were no unregistered sales of equity securities and the Company did not
repurchase any of its common stock during the quarter ended September 30, 2006.
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.
25
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, 2006
STEVEN MADDEN, LTD.
/s/ JAMIESON A. KARSON
-----------------------------------------
Jamieson A. Karson
Chairman and Chief Executive Officer
/s/ ARVIND DHARIA
-----------------------------------------
Arvind Dharia
Chief Financial Officer
26
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.
27