STEVEN MADDEN, LTD. [SHOO] Filings

10-Q 1 shoo-20210930.htm 10-Q shoo-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ 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

STEVEN MADDEN, LTD.

(Exact name of registrant as specified in its charter)


Delaware						13-3588231
(State or other jurisdiction of						(I.R.S. Employer Identification No.)
incorporation or organization)

52-16 Barnett Avenue, Long Island City, New York 11104

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (718) 446-1800

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $.0001 per share	SHOO	The NASDAQ Stock Market LLC

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 (or 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Smaller reporting company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of November 1, 2021, there were 81,392,991 shares of the registrant’s common stock, $0.0001 par value, outstanding.

STEVEN MADDEN, LTD.

TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2021


PART I – FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Income/(Loss)	2

	Condensed Consolidated Statements of Comprehensive Income/(Loss)	3

	Condensed Consolidated Statements of Changes in Stockholder' Equity	4

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements - Unaudited	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	32

ITEM 4.	Controls and Procedures	33

PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings	34

ITEM 1A.	Risk Factors	34

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35

ITEM 6.	Exhibits	36

	Signatures	37

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands except for par value)


	September 30, 2021		December 31, 2020		September 30, 2020
	(unaudited)				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	219,523	$	247,864	$	223,820
Short-term investments	40,390		39,302		33,332
Accounts receivable, net of allowances of $11,596, $8,943 and $10,214	36,524		25,044		33,526
Factor accounts receivable	347,748		252,671		232,876
Inventories	201,198		101,420		109,683
Prepaid expenses and other current assets	19,182		17,415		13,477
Income tax receivable and prepaid taxes	16,536		14,525		1,120

Total current assets	881,101		698,241		647,834

Note receivable – related party	891		1,180		1,274
Property and equipment, net	36,843		43,268		43,130
Operating lease right-of-use asset	90,832		101,379		111,732
Deposits and other	4,332		4,822		2,660

Deferred taxes	4,964		5,415		14,686
Goodwill – net	167,957		168,265		166,794
Intangibles – net	113,140		115,191		116,300
Total Assets	$	1,300,060	$	1,137,761	$	1,104,410
LIABILITIES
Current liabilities:
Accounts payable	$	121,838	$	73,904	$	65,666
Accrued expenses	210,985		118,083		112,579

Operating leases – current portion	32,063		34,257		36,212
Income taxes payable	7,194		5,799		—
Contingent considerations – current portion	3,660		—		—
Accrued incentive compensation	12,834		3,873		3,615
Total current liabilities	388,574		235,916		218,072
Contingent considerations – long term portion	4,381		207		1,420

Operating leases – long-term portion	85,358		98,592		107,973
Deferred taxes	2,563		2,562		3,054
Other liabilities	12,004		10,115		6,151
Total Liabilities	492,880		347,392		336,670
Commitments, contingencies and other (Note Q)
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 – 0.0001 par value, 245,000 shares authorized,133,827, 133,247 and 133,173 shares issued, 81,393, 82,616 and 83,030 shares outstanding	8		8		6
Additional paid-in capital	487,732		478,463		472,116
Retained earnings	1,367,252		1,279,550		1,256,959
Accumulated other comprehensive loss	(29,206)		(29,164)		(37,477)
Treasury stock – 52,434, 50,631 and 50,143 shares at cost	(1,026,956)		(952,271)		(935,484)
Total Steven Madden, Ltd. stockholders’ equity	798,830		776,586		756,120
Noncontrolling interest	8,350		13,783		11,620
Total stockholders’ equity	807,180		790,369		767,740
Total Liabilities and Stockholders’ Equity	$	1,300,060	$	1,137,761	$	1,104,410

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Income/(Loss)

(unaudited)

(in thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales	$	525,067	$	342,830	$	1,278,765	$	839,877
Commission and licensing fee income	3,675		4,037		8,896		8,970
Total revenue	528,742		346,867		1,287,661		848,847
Cost of sales (exclusive of depreciation and amortization)	308,744		206,990		758,504		519,618
Gross profit	219,998		139,877		529,157		329,229
Operating expenses	131,580		102,968		363,888		302,753
Impairment of fixed assets and lease right-of-use assets	—		6,897		1,089		36,896
Impairment of intangibles	—		33,010		—		42,528
Income/(loss) from operations	88,418		(2,998)		164,180		(52,948)
Interest and other (expense)/income – net	(202)		88		(1,016)		1,491
Income/(loss) before provision (benefit) for income taxes	88,216		(2,910)		163,164		(51,457)
Provision/(benefit) for income taxes (Note M)	21,551		4,236		36,827		(9,366)
Net income/(loss)	66,665		(7,146)		126,337		(42,091)
Less: net income/(loss) attributable to noncontrolling interest	22		(195)		1,645		(1,103)
Net income/(loss) attributable to Steven Madden, Ltd.	$	66,643	$	(6,951)	$	124,692	$	(40,988)


Basic net income/(loss) per share	$	0.85	$	(0.09)	$	1.58	$	(0.52)

Diluted net income/(loss) per share	$	0.82	$	(0.09)	$	1.53	$	(0.52)

Basic weighted average common shares outstanding	78,129		78,560		78,686		78,650
Effect of dilutive securities – options/restricted stock	3,178		—		3,068		—
Diluted weighted average common shares outstanding	81,307		78,560		81,754		78,650

Cash dividends declared per common share	$	0.15	$	—	$	0.45	$	0.15

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income/(Loss)

(unaudited)

(in thousands)


	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
	Pre-tax amounts		Tax (expense)		After-tax amounts		Pre-tax amounts		Tax (expense)		After-tax amounts
Net income					$	66,665					$	126,337
Other comprehensive (loss)/income:
Foreign currency translation adjustment	$	(4,258)	$	—	(4,258)		$	(673)	$	—	(673)
Gain on cash flow hedging derivatives	365		(91)		274		1,174		(294)		880

Total other comprehensive (loss)/income	$	(3,893)	$	(91)	(3,984)		$	501	$	(294)	207

Comprehensive income					62,681						126,544
Less: comprehensive income attributable to noncontrolling interests					163						1,894
Comprehensive income attributable to Steven Madden, Ltd.					$	62,518					$	124,650

	Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020
	Pre-tax amounts		Tax benefit		After-tax amounts		Pre-tax amounts		Tax (expense)		After-tax amounts
Net loss					$	(7,146)					$	(42,091)
Other comprehensive income/(loss):
Foreign currency translation adjustment	$	2,630	$	—	2,630		$	(7,250)	$	—	(7,250)
(Loss)/gain on cash flow hedging derivatives	(674)		196		(478)		205		(53)		152

Total other comprehensive income/(loss)	$	1,956	$	196	2,152		$	(7,045)	$	(53)	(7,098)

Comprehensive loss					(4,994)						(49,189)
Less: comprehensive loss attributable to noncontrolling interests					(416)						(1,164)
Comprehensive loss attributable to Steven Madden, Ltd.					$	(4,578)					$	(48,025)

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders' Equity

(unaudited)

(in thousands)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Stock			Non-Controlling Interest		Total Stockholders' Equity
	Shares	Amount								Shares	Amount
Balance - June 30, 2021	82,156	$	8	$	481,646	$	1,312,827	$	(25,081)	51,661	$	(995,065)	$	8,187	$	782,522
Share repurchases and net settlement of awards under stock plan	(773)	—		—		—		—		773	(31,891)		—		(31,891)
Exercise of stock options	16	—		409		—		—		—	—		—		409
Issuance of restricted stock, net of forfeitures	(5)	—		—		—		—		—	—		—		—
Stock-based compensation	—	—		5,677		—		—		—	—		—		5,677
Foreign currency translation adjustment	—	—		—		—		(4,399)		—	—		141		(4,258)
Cash flow hedge (net of tax expense of $91)	—	—		—		—		274		—	—		—		274
Dividends on common stock ($0.15 per share)	—	—		—		(12,218)		—		—	—		—		(12,218)

Net income	—	—		—		66,643		—		—	—		22		66,665
Balance - September 30, 2021	81,393	$	8	$	487,732	$	1,367,252	$	(29,206)	52,434	$	(1,026,956)	$	8,350	$	807,180

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Stock			Non-Controlling Interest		Total Stockholders' Equity
	Shares	Amount								Shares	Amount
Balance - December 31, 2020	82,616	$	8	$	478,463	$	1,279,550	$	(29,164)	50,631	$	(952,271)	$	13,783	$	790,369
Share repurchases and net settlement of awards under stock plan	(1,803)	—		—		—		—		1,803	(74,685)		—		(74,685)
Exercise of stock options	311	—		7,232		—		—		—	—		—		7,232
Issuance of restricted stock, net of forfeitures	269	—		—		—		—		—	—		—		—
Stock-based compensation	—	—		16,696		—		—		—	—		—		16,696
Foreign currency translation adjustment	—	—		—		—		(922)		—	—		249		(673)
Cash flow hedge (net of tax expense of $294)	—	—		—		—		880		—	—		—		880
Dividends on common stock ($0.45 per share)	—	—		—		(36,990)		—		—	—		—		(36,990)
Distributions to noncontrolling interests, net	—	—		—		—		—		—	—		(2,859)		(2,859)
Acquisition of incremental ownership of joint ventures	—	—		(14,659)		—		—		—	—		(4,468)		(19,127)
Net income	—	—		—		124,692		—		—	—		1,645		126,337
Balance - September 30, 2021	81,393	$	8	$	487,732	$	1,367,252	$	(29,206)	52,434	$	(1,026,956)	$	8,350	$	807,180

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders' Equity

(unaudited)

(in thousands)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Stock			Non-Controlling Interest		Total Stockholders' Equity
	Shares	Amount								Shares	Amount
Balance - June 30, 2020	83,035	$	6	$	466,384	$	1,263,910	$	(39,850)	50,138	$	(935,366)	$	12,036	$	767,120
Share repurchases and net tax settlement of awards under stock plan	(5)	—		—		—		—		5	(118)		—		(118)


Stock-based compensation	—	—		5,732		—		—		—	—		—		5,732
Foreign currency translation adjustment	—	—		—		—		2,851		—	—		(221)		2,630

Cash flow hedge (net of tax benefit of $196)	—	—		—		—		(478)		—	—		—		(478)





Net loss	—	—		—		(6,951)		—		—	—		(195)		(7,146)
Balance - September 30, 2020	83,030	$	6	$	472,116	$	1,256,959	$	(37,477)	50,143	$	(935,484)	$	11,620	$	767,740

	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)		Treasury Stock			Non-Controlling Interest		Total Stockholders' Equity
	Shares	Amount								Shares	Amount
Balance - December 31, 2019	83,520	$	6	$	454,217	$	1,310,406	$	(30,440)	49,234	$	(905,688)	$	12,723	$	841,224
Share repurchases and net tax settlement of awards under stock plan	(909)	—		—		—		—		909	(29,796)		—		(29,796)
Exercise of stock options	52	—		960		—		—		—	—		—		960
Issuance of restricted stock, net of forfeitures	367	—		—		—		—		—	—		—		—
Stock-based compensation	—	—		16,939		—		—		—	—		—		16,939
Foreign currency translation adjustment	—	—		—		—		(7,189)		—	—		(61)		(7,250)

Cash flow hedge (net of tax expense of $53)	—	—		—		—		152		—	—		—		152
Dividends on common stock ($0.15 per share)	—	—		—		(12,459)		—		—	—		—		(12,459)


Investment of noncontrolling interest	—	—		—		—		—		—	—		359		359
Acquisition of noncontrolling interest	—	—		—		—		—		—	—		(298)		(298)
Net loss	—	—		—		(40,988)		—		—	—		(1,103)		(42,091)
Balance - September 30, 2020	83,030	$	6	$	472,116	$	1,256,959	$	(37,477)	50,143	$	(935,484)	$	11,620	$	767,740

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income/(loss)	$	126,337	$	(42,091)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Stock-based compensation	16,696		16,939
Depreciation and amortization	11,611		13,235
Loss on disposal of fixed assets	449		473
Impairment of intangibles	—		42,528
Impairment of lease right-of-use asset and fixed assets	1,089		36,896

Deferred taxes	452		(17,509)
Accrued interest on note receivable - related party	(18)		(24)
Notes receivable - related party	307		308
Change in valuation of contingent considerations	7,834		(5,020)
Gain on sale of trademark	(8,000)		—


Recovery of receivables, related to the Payless ShoeSource bankruptcy	(919)		—
Changes, net of acquisitions, in:
Accounts receivable	(10,561)		4,640
Factor accounts receivable	(95,077)		(16,405)
Inventories	(99,778)		27,213
Prepaid expenses, income tax receivables, prepaid taxes, and other current assets	(2,638)		7,691
Accounts payable and accrued expenses	143,111		(54,156)
Accrued incentive compensation	8,961		(7,319)
Leases and other liabilities	(3,672)		(6,792)
Net cash provided by operating activities	96,184		607

Cash flows from investing activities:

Capital expenditures	(4,599)		(5,496)
Proceeds from sale of a trademark	8,000		—
Purchases of short-term investments	(43,376)		(41,223)

Maturity/sale of short-term investments	42,383		47,243
Net cash provided by investing activities	2,408		524

Cash flows from financing activities:
Proceeds from exercise of stock options	7,232		960
Investment of noncontrolling interest	—		359
Distribution of noncontrolling interest earnings	(2,859)		—


Acquisition of incremental ownership of joint ventures	(19,127)		—
Common stock purchased for treasury	(74,685)		(29,796)
Cash dividends paid on common stock	(36,990)		(12,459)
Advances from factor	—		176,784
Repayments of advances from factor	—		(176,784)
Net cash used in financing activities	(126,429)		(40,936)
Effect of exchange rate changes on cash and cash equivalents	(504)		(476)
Net decrease in cash and cash equivalents	(28,341)		(40,281)
Cash and cash equivalents – beginning of period	247,864		264,101
Cash and cash equivalents – end of period	$	219,523	$	223,820

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

September 30, 2021

($ in thousands except share and per share data)

Note A – Basis of Reporting

The accompanying unaudited condensed consolidated financial statements of Steven Madden, Ltd. and subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles 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, such statements include all adjustments (consisting only of normal recurring items) that are considered necessary for a fair presentation of the financial position of the Company and the results of its operations and cash flows for the periods presented. Certain reclassifications were made to prior years' presentation to conform to the 2021 presentation. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the operating results for the full year. These financial statements should be read in conjunction with the financial statements and related disclosures for the year ended December 31, 2020 included in the Annual Report of Steven Madden, Ltd. on Form 10-K filed with the SEC on March 16, 2021.

Note B - COVID-19 and Restructuring Charges

In December 2019, COVID-19 emerged and spread worldwide. The World Health Organization declared COVID-19 a pandemic in March 2020, which resulted in federal, state and local governments and private entities mandating various restrictions, including the closure of non-essential businesses, travel restrictions, restrictions on public gatherings, stay-at-home orders and advisories and quarantining of people who may have been exposed to the virus. After closely monitoring and taking into consideration the guidance from federal, state and local governments, in March 2020, the Company temporarily closed all of its brick-and-mortar stores and its corporate offices in the U.S. and the vast majority of its brick-and-mortar stores and offices globally. On April 1, 2020, the Company temporarily furloughed a significant number of its employees. Employees with medical benefits continued to receive those benefits at no personal cost for a duration determined by the Company. As of September 30, 2020, most of the Company’s brick-and-mortar stores and corporate offices globally were reopened with limited capacity, most employees returned from furlough and a number of safety protocols and restrictions were implemented to ensure the safety of the Company's employees and customers. The COVID-19 pandemic has had and may continue to have a material impact on the Company's business, results of operations, financial position and cash flow. In response to the COVID-19 pandemic, the Company took precautionary measures to maintain adequate liquidity and financial flexibility by temporarily suspending share repurchases and the quarterly cash dividend (all of which were reinstated in the first quarter 2021); temporarily suspending salaries of the Company's founder and Creative and Design Chief, Steve Madden, the Company's Chairman and Chief Executive Officer, Edward Rosenfeld, and its Board of Directors (all of which were reinstated on October 1, 2020); temporarily reducing salaries by 30% for the Company's President, Chief Financial Officer, Chief Operating Officer and Chief Merchandising Officer (all of which were reinstated on August 1, 2020); reducing salaries for all other employees earning over $100 per year (all of which were reinstated on August 1, 2020); and significantly scaling back on non-essential operating expenses, capital expenditures and planned inventory purchases. The impact of the COVID-19 pandemic resulted in an unprecedented decline in the Company's revenue and earnings during 2020 and included charges from adjustments to the carrying amounts of certain trademarks, long-lived asset impairment charges and restructuring and other related charges. In 2021, despite the continued impact of the pandemic and supply chain disruption, the Company’s business saw improvements in its retail segment and improvements in sell in and sell-through performance in its wholesale businesses.

In 2020, as a result of the COVID-19 pandemic and after assessing the cost of the Company's operations, the Company implemented a restructuring plan that resulted in the reduction of a significant number of its corporate employees. In 2020, the Company in aggregate recorded a pre-tax charge of $7,181 related to restructuring and other related items, of which $490 was the remaining unpaid portion included in accrued expenses at December 31, 2020. During the three and nine months ended September 30, 2021, the Company recorded a pre-tax charge of $0 and $1,239, respectively, related to additional severance in connection with its restructuring plan and other related items. As of September 30, 2021, the remaining unpaid portion included in accrued expenses was $231.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

September 30, 2021

($ in thousands except share and per share data)

Note C – Reclassification

Certain reclassifications were made to prior years' amounts to conform to the 2021 presentation, primarily as it relates to the breakout of the impairment of fixed assets and lease right-of-use assets from operating expenses on the Condensed Consolidated Statements of Income/Loss and as it relates to segment reporting of corporate expenses and corporate assets. See Note R – Operating Segment Information, for more information.

Note D – Acquisitions

On April 14, 2021, the Company announced that it had completed the acquisition of the remaining 49.9% non-controlling interest in its European joint venture in the amount of $16,626. The European joint venture was formed in 2016 and distributes Steve Madden-branded footwear and accessories/apparel to most countries throughout Europe.

On June 28, 2021, the Company completed the acquisition of the remaining 49.9% non-controlling interest in its South African joint venture in the amount of $2,501. The South African joint venture was formed in 2014 and distributes Steve Madden-branded footwear and accessories/apparel throughout South Africa.

Note E – 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 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.

Significant areas involving management estimates include variable consideration included in revenue, allowances for bad debts, inventory valuation, valuation of intangible assets, impairment of long-lived assets, litigation reserves and contingent payment liabilities. The Company estimates variable consideration for future customer chargebacks and markdown allowances, discounts, returns and other miscellaneous compliance-related deductions that relate to the current-period sales. 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 profit levels, are analyzed by management to estimate the amount of the anticipated customer allowance. While the full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated, the Company has made accounting estimates based on the facts and circumstances available as of the reporting date. Actual amounts could differ from these estimates, and such differences could be material.

Note F– Factoring Agreement

In conjunction with the Credit Agreement described in Note T – Credit Agreement, on July 22, 2020, the Company and certain of its subsidiaries (collectively, the “Madden Entities”) entered into an Amended and Restated Deferred Purchase Factoring Agreement (the “Factoring Agreement”) with Rosenthal & Rosenthal, Inc. ("Rosenthal"). Pursuant to the Factoring Agreement, Rosenthal serves as the collection agent with respect to certain receivables of the Madden Entities and is entitled to receive a base commission of 0.20% of the gross invoice amount of each receivable assigned for collection, plus certain additional fees and expenses, subject to certain minimum annual commissions. Rosenthal will generally assume the credit risk resulting from a customer’s financial inability to make payment of credit-approved receivables. The initial term of the Factoring Agreement is twelve months, subject to automatic renewal for additional twelve-month periods, and the Factoring Agreement may be terminated at any time by Rosenthal or the Madden Entities on 60 days' notice and upon the occurrence of certain other events. The Madden Entities pledged all of their rights under the Factoring Agreement to the Agent (see Note T) under the Credit Agreement to secure obligations arising under the Credit Agreement.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

September 30, 2021

($ in thousands except share and per share data)

Note G – Short-Term Investments

As of September 30, 2021 and December 31, 2020, short-term investments consisted of certificates of deposit. These securities are classified as current based upon their maturities. As of September 30, 2021 and December 31, 2020 short-term investments amounted to $40,390 and $39,302, respectively, and have maturities of one year or less.

Note H – Fair Value Measurement

The accounting guidance under Accounting Standards Codification 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), requires the Company to make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 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. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:

•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.

•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.

•Level 3: Significant unobservable inputs.

The Company’s financial assets and liabilities subject to fair value measurements as of September 30, 2021 and December 31, 2020 are as follows:


			September 30, 2021
			Fair Value Measurements
	Fair value		Level 1		Level 2		Level 3
Assets:



Forward contracts	268		—		268		—
Total assets	$	268	$	—	$	268	$	—
Liabilities:
Contingent consideration	$	8,041	$	—	$	—	$	8,041
Forward contracts	86		—		86		—
Total liabilities	$	8,127	$	—	$	86	$	8,041


			December 31, 2020
			Fair Value Measurements
	Fair value		Level 1		Level 2		Level 3



Liabilities:
Contingent consideration	$	207	$	—	$	—	$	207
Forward contracts	997		—		997		—
Total liabilities	$	1,204	$	—	$	997	$	207

Forward contracts are entered into to manage the risk associated with the volatility of future cash flows (see Note P – Derivative Instruments). Fair value of these instruments is based on observable market transactions of spot and forward rates.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

September 30, 2021

($ in thousands except share and per share data)

The Company's level 3 balance consists of contingent consideration related to acquisitions. The changes in the Company's level 3 liabilities for the periods ended September 30, 2021 and December 31, 2020 are as follows:


	Balance at January 1, 2021		Payments	Acquisitions	Adjustments (1)	Balance at September 30, 2021

Liabilities:
Contingent consideration (2)	$	207	—	—	7,834	$	8,041

	Balance at January 1, 2020		Payments	Acquisitions	Adjustments (3)	Balance at December 31, 2020

Liabilities:
Contingent consideration	$	9,124	—	—	(8,917)	$	207

(1) In 2021, amount consists of adjustments of $7,720 and $114 that were included as an expense in operating expenses, related to the change in valuation of the contingent consideration in connection with the acquisitions of B.B. Dakota, Inc. and GREATS Brand, Inc., respectively.

(2) Total contingent consideration liability of $8,041 is comprised of $3,660, classified as current and $4,381, classified as non-current on the Consolidated Balance Sheets.

(3) In 2020, the amount consists of adjustments of $4,570 and $4,347 to the purchase accounting of B.B. Dakota, Inc. and GREATS Brand, Inc., respectively. The adjustment of $4,570 was included as a benefit to operating expenses and related to the change in valuation of the contingent consideration in connection with the acquisition of B.B. Dakota, Inc. The adjustment of $4,347 comprises an adjustment of $2,684 to the preliminary fair value, recorded during the first quarter 2020, and a benefit of $1,663 included in operating expenses related to the change in valuation of the contingent consideration in connection with the acquisition of GREATS Brand, Inc.

At September 30, 2021, the liability for potential contingent consideration was $7,920 in connection with the August 12, 2019 acquisition of B.B. Dakota, Inc. Pursuant to the terms of an earn-out provision contained in the equity purchase agreement, between the Company and the sellers of B.B. Dakota, Inc., earn-out payments are based on EBITDA performance. The fair value of the contingent payments was estimated using the Black-Scholes-Merton option pricing method with a nonlinear payoff structure based on a set of financial metrics of B.B. Dakota, Inc. during the earn-out period, utilizing a discount rate of 11.0%.

At September 30, 2021, the liability for potential contingent consideration was $121 in connection with the August 9, 2019 acquisition of GREATS Brand, Inc. Pursuant to the terms of an earn-out provision contained in the equity purchase agreement, between the Company and the sellers of GREATS Brand, Inc., earn-out payments are based on EBITA performance. The fair value of the contingent payments was estimated using a risk neutral simulation method to model the probability of different financial results of GREATS Brand, Inc. during the earn-out period, utilizing a discount rate of 10.0%.

The fair value of trademarks is measured on a non-recurring basis using Level 3 inputs, including forecasted cash flows, discount rates and implied royalty rates (See Note O).

The fair values of lease right-of-use assets and fixed assets related to Company-owned retail stores were determined using Level 3 inputs, including estimated discounted future cash flows associated with the assets using sales trends and market participant assumptions (See Note J).

The carrying value of certain financial instruments such as cash equivalents, certificates of deposit, accounts receivable, factor accounts receivable and accounts payable approximates their fair values due to the short-term nature of their underlying terms. Fair value of the notes receivable held by the Company approximates their carrying value based upon their imputed or actual interest rate, which approximates applicable current market interest rates. Some assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These assets can include long-lived assets that have been reduced to fair value when impaired. Assets that are written down to fair value when impaired are not subsequently adjusted to fair value unless further impairment occurs.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

September 30, 2021

($ in thousands except share and per share data)

Note I – Leases

The Company leases office space, sample production space, warehouses, showrooms, storage units and retail stores under operating leases. The Company’s portfolio of leases is primarily related to real estate. Since most of its leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Some of the Company’s retail store leases provide for variable lease payments based on future sales volumes at the leased location, which are not measurable at the inception of the lease and are therefore not included in the measurement of the right-of-use assets and lease liabilities. Under Accounting Standards Codification 842, "Leases," these variable lease costs are expensed as incurred.

As a result of the effects of the COVID-19 pandemic, the Company executed amendments to certain leases in its existing operating lease portfolio, which included changes to rental payments either to be fully or partially based on the future sales volumes at the leased location or reductions of the remaining lease costs obligations or in the form of rent abatements. The Company considered these concessions in accordance with the FASB Staff Q&A—Topic 842 and Topic 840: Accounting For Lease Concessions Related to the Effects of the COVID-19 Pandemic (the “Lease Modification Q&A”), and determined that the concessions resulted in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract. Consequently, the Company elected to account for these concessions as if they were contemplated in the enforceable rights and obligations of the existing contract.

The Company made payments for COVID-19 lease amendments during the nine months ended September 30, 2021, which are included in variable lease costs.

Lease Position

The table below presents the lease-related assets and liabilities recorded on the Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020:


	Classification on the Balance Sheet	September 30, 2021		December 31, 2020
Assets
Noncurrent (1)(2)	Operating lease right-of-use asset	$	90,832	$	101,379