STEVEN MADDEN, LTD. [SHOO] Filings

10-Q 1 shoo-20220630.htm 10-Q shoo-20220630

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 June 30, 2022

☐ 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)

(718) 446-1800

(Registrant's telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 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 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 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 July 27, 2022, there were 79,000,272 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

June 30, 2022


PART I – FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Income	2

	Condensed Consolidated Statements of Comprehensive Income	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	22

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	35

ITEM 4.	Controls and Procedures	36

PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings	37

ITEM 1A.	Risk Factors	37

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

ITEM 6.	Exhibits	38

	Signatures	39

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	June 30, 2022		December 31, 2021		June 30, 2021
(in thousands, except par value)	(unaudited)				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	150,929	$	219,499	$	262,144
Short-term investments	29,569		44,037		40,513
Accounts receivable, net of allowances of $13,095, $12,273 and $10,586	31,377		26,546		24,598
Factor accounts receivable	344,716		364,982		254,545
Inventories	306,547		255,213		125,525
Prepaid expenses and other current assets	31,047		20,845		20,549
Income tax receivable and prepaid income taxes	12,225		13,538		15,906

Total current assets	906,410		944,660		743,780

Note receivable – related party	598		794		987
Property and equipment, net	35,004		35,790		38,213
Operating lease right-of-use asset	85,608		85,449		97,222
Deposits and other	4,029		4,180		4,574

Deferred taxes	6,517		4,581		5,415
Goodwill – net	167,959		167,995		168,426
Intangibles – net	107,167		112,093		114,526
Total Assets	$	1,313,292	$	1,355,542	$	1,173,143
LIABILITIES
Current liabilities:
Accounts payable	$	105,130	$	136,766	$	91,822
Accrued expenses	219,005		243,163		139,717

Operating leases – current portion	31,074		30,759		33,561
Income taxes payable	14,100		4,522		1,477
Contingent payment liability – current portion	2,000		5,109		3,660
Accrued incentive compensation	8,334		14,871		8,921
Total current liabilities	379,643		435,190		279,158
Contingent payment liability – long term portion	—		6,960		4,381

Operating leases – long-term portion	76,023		80,072		92,179
Deferred tax liabilities	3,378		3,378		2,921
Other liabilities	10,930		9,404		11,982
Total Liabilities	469,974		535,004		390,621
Commitments, contingencies and other (Note N)
STOCKHOLDERS’ EQUITY
Preferred stock – $0.0001 par value, 5,000 shares authorized; none issued; Series A Junior Participating preferred stock – $0.0001 par value, 60 shares authorized; none issued	—		—		—
Common stock – $0.0001 par value, 245,000 shares authorized,134,427, 134,029 and 133,817 shares issued, 79,007, 80,557 and 82,156 shares outstanding	8		8		8
Additional paid-in capital	508,063		495,999		481,646
Retained earnings	1,510,651		1,421,067		1,312,827
Accumulated other comprehensive loss	(32,729)		(29,544)		(25,081)
Treasury stock – 55,420, 53,472 and 51,661 shares at cost	(1,152,459)		(1,075,432)		(995,065)
Total Steven Madden, Ltd. stockholders’ equity	833,534		812,098		774,335
Noncontrolling interest	9,784		8,440		8,187
Total stockholders’ equity	843,318		820,538		782,522
Total Liabilities and Stockholders’ Equity	$	1,313,292	$	1,355,542	$	1,173,143

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share data)	2022		2021		2022		2021
Net sales	$	532,680	$	394,797	$	1,090,024	$	753,698
Commission and licensing fee income	2,309		3,097		4,699		5,221
Total revenue	534,989		397,894		1,094,723		758,919
Cost of sales (exclusive of depreciation and amortization)	317,224		227,839		649,060		449,760
Gross profit	217,765		170,055		445,663		309,159
Operating expenses	152,526		121,860		282,528		232,308
Impairment of fixed assets and lease right-of-use assets	—		477		—		1,089

Income from operations	65,239		47,718		163,135		75,762
Interest and other expense – net	(1,291)		(777)		(1,234)		(814)
Income before provision for income taxes	63,948		46,941		161,901		74,948
Provision for income taxes	15,033		9,600		38,393		15,276
Net income	48,915		37,341		123,508		59,672
Less: net income attributable to noncontrolling interest	455		489		535		1,623
Net income attributable to Steven Madden, Ltd.	$	48,460	$	36,852	$	122,973	$	58,049


Basic net income per share	$	0.63	$	0.47	$	1.60	$	0.74

Diluted net income per share	$	0.62	$	0.45	$	1.55	$	0.71

Basic weighted average common shares outstanding	76,556		78,899		76,902		78,968
Effect of dilutive securities – options/restricted stock	2,158		3,162		2,288		3,013
Diluted weighted average common shares outstanding	78,714		82,061		79,190		81,981

Cash dividends declared per common share	$	0.21	$	0.15	$	0.42	$	0.30

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three Months Ended June 30, 2022						Six Months Ended June 30, 2022
(in thousands)	Pre-tax amounts		Tax expense		After-tax amounts		Pre-tax amounts		Tax expense		After-tax amounts
Net income					$	48,915					$	123,508
Other comprehensive income/(loss):
Foreign currency translation adjustment	$	(5,564)	$	—	(5,564)		$	(4,433)	$	—	(4,433)
Gain on cash flow hedging derivatives	640		(164)		476		725		(186)		539

Total other comprehensive loss	$	(4,924)	$	(164)	(5,088)		$	(3,708)	$	(186)	(3,894)

Comprehensive income					43,827						119,614
Less: comprehensive income/ (loss) attributable to noncontrolling interests					74						(174)
Comprehensive income attributable to Steven Madden, Ltd.					$	43,753					$	119,788

	Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
(in thousands)	Pre-tax amounts		Tax benefit		After-tax amounts		Pre-tax amounts		Tax expense		After-tax amounts
Net income					$	37,341					$	59,672
Other comprehensive income:
Foreign currency translation adjustment	$	3,887	$	—	3,887		$	3,585	$	—	3,585
(Loss)/ gain on cash flow hedging derivatives	(23)		6		(17)		815		(209)		606

Total other comprehensive income	$	3,864	$	6	3,870		$	4,400	$	(209)	4,191

Comprehensive income					41,211						63,863
Less: comprehensive income attributable to noncontrolling interests					911						1,731
Comprehensive income attributable to Steven Madden, Ltd.					$	40,300					$	62,132

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 - March 31, 2022	79,869	$	8	$	502,254	$	1,478,806	$	(28,022)	54,492	$	(1,117,831)	$	8,192	$	843,407
Share repurchases and net settlement of awards under stock plan	(928)	—		—		—		—		928	(34,628)		—		(34,628)
Exercise of stock options	8	—		140		—		—		—	—		—		140
Issuance of restricted stock, net of forfeitures	58	—		—		—		—		—	—		—		—
Stock-based compensation	—	—		6,170		—		—		—	—		—		6,170
Foreign currency translation adjustment	—	—		—		—		(5,183)		—	—		(381)		(5,564)
Cash flow hedge (net of tax expense of $164)	—	—		—		—		476		—	—		—		476
Dividends on common stock ($0.21 per share)	—	—		—		(16,615)		—		—	—		—		(16,615)

Sale of minority noncontrolling interest of a subsidiary	—	—		(501)		—		—		—	—		1,518		1,017
Net income	—	—		—		48,460		—		—	—		455		48,915
Balance - June 30, 2022	79,007	$	8	$	508,063	$	1,510,651	$	(32,729)	55,420	$	(1,152,459)	$	9,784	$	843,318

	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, 2021	80,557	$	8	$	495,999	$	1,421,067	$	(29,544)	53,472	$	(1,075,432)	$	8,440	$	820,538
Share repurchases and net settlement of awards under stock plan	(1,948)	—		—		—		—		1,948	(77,027)		—		(77,027)
Exercise of stock options	18	—		415		—		—		—	—		—		415
Issuance of restricted stock, net of forfeitures	380	—		—		—		—		—	—		—		—
Stock-based compensation	—	—		12,150		—		—		—	—		—		12,150
Foreign currency translation adjustment	—	—		—		—		(3,724)		—	—		(709)		(4,433)
Cash flow hedge (net of tax expense of $186)	—	—		—		—		539		—	—		—		539
Dividends on common stock ($0.42 per share)	—	—		—		(33,389)		—		—	—		—		(33,389)

Sale of minority noncontrolling interest of a subsidiary	—	—		(501)		—		—		—	—		1,518		1,017
Net income	—	—		—		122,973		—		—	—		535		123,508
Balance - June 30, 2022	79,007	$	8	$	508,063	$	1,510,651	$	(32,729)	55,420	$	(1,152,459)	$	9,784	$	843,318

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 - March 31, 2021	82,692	$	8	$	485,556	$	1,288,322	$	(28,529)	50,785	$	(957,829)	$	13,240	$	800,768
Share repurchases and net tax settlement of awards under stock plan	(876)	—		—		—		—		876	(37,236)		—		(37,236)
Exercise of stock options	230	—		5,269		—		—		—	—		—		5,269
Issuance of restricted stock, net of forfeitures	110	—		—		—		—		—	—		—		—
Stock-based compensation	—	—		5,480		—		—		—	—		—		5,480
Foreign currency translation adjustment	—	—		—		—		3,465		—	—		422		3,887

Cash flow hedge (net of tax benefit of $6)	—	—		—		—		(17)		—	—		—		(17)
Dividends on common stock ($0.15 per share)	—	—		—		(12,347)		—		—	—		—		(12,347)
Distributions to non-controlling interests, net	—	—		—		—		—		—	—		(1,496)		(1,496)


Acquisition of noncontrolling interest	—	—		(14,659)		—		—		—	—		(4,468)		(19,127)
Net income	—	—		—		36,852		—		—	—		489		37,341
Balance - June 30, 2021	82,156	$	8	$	481,646	$	1,312,827	$	(25,081)	51,661	$	(995,065)	$	8,187	$	782,522

	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 tax settlement of awards under stock plan	(1,030)	—		—		—		—		1,030	(42,794)		—		(42,794)
Exercise of stock options	295	—		6,823		—		—		—	—		—		6,823
Issuance of restricted stock, net of forfeitures	275	—		—		—		—		—	—		—		—
Stock-based compensation	—	—		11,019		—		—		—	—		—		11,019
Foreign currency translation adjustment	—	—		—		—		3,477		—	—		108		3,585

Cash flow hedge (net of tax expense of $209)	—	—		—		—		606		—	—		—		606
Dividends on common stock ($0.30 per share)	—	—		—		(24,772)				—	—		—		(24,772)
Distributions to non-controlling interests, net	—	—		—		—		—		—	—		(2,859)		(2,859)


Acquisition of noncontrolling interest	—	—		(14,659)		—		—		—	—		(4,468)		(19,127)
Net income	—	—		—		58,049		—		—	—		1,623		59,672
Balance - June 30, 2021	82,156	$	8	$	481,646	$	1,312,827	$	(25,081)	51,661	$	(995,065)	$	8,187	$	782,522

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Six Months Ended June 30,
(in thousands)	2022		2021
Cash flows from operating activities:
Net income	$	123,508	$	59,672
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	12,150		11,019
Depreciation and amortization	10,471		7,993
Loss on disposal of fixed assets	260		303

Impairment of lease right-of-use asset and fixed assets	—		1,089

Deferred taxes	(1,936)		359
Accrued interest on note receivable - related party	(8)		(11)
Notes receivable - related party	204		204
Change in valuation of contingent payment liabilities	(4,960)		7,834
Gain on sale of trademark	—		(8,000)


Recovery of receivables, related to the Payless ShoeSource bankruptcy	—		(919)
Changes, net of acquisitions, in:
Accounts receivable	(4,564)		1,365
Factor accounts receivable	20,589		(1,874)
Inventories	(53,222)		(24,105)
Prepaid expenses, income tax receivables, prepaid taxes, and other assets	(7,676)		(2,125)
Accounts payable and accrued expenses	(44,197)		35,836
Accrued incentive compensation	(6,537)		5,048
Leases and other liabilities	(3,457)		(1,765)
Payment of contingent consideration	(339)		—
Net cash provided by operating activities	40,286		91,923

Cash flows from investing activities:

Capital expenditures	(5,263)		(2,782)
(Purchase)/sale of a trademark	(2,000)		8,000
Purchases of short-term investments	(38,951)		(26,574)

Maturity/sale of short-term investments	53,803		26,460
Net cash provided by investing activities	7,589		5,104

Cash flows from financing activities:
Proceeds from exercise of stock options	415		6,823

Distribution of noncontrolling interest earnings	—		(2,859)


Acquisition of noncontrolling interest	—		(19,127)

Common stock purchased for treasury	(77,027)		(42,794)
Cash dividends paid on common stock	(33,389)		(24,772)
Payment of contingent consideration	(4,770)		—


Net cash used in financing activities	(114,771)		(82,729)
Effect of exchange rate changes on cash and cash equivalents	(1,674)		(18)
Net (decrease)/increase in cash and cash equivalents	(68,570)		14,280
Cash and cash equivalents – beginning of period	219,499		247,864
Cash and cash equivalents – end of period	$	150,929	$	262,144

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

June 30, 2022

(in thousands except 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 (“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, the results of its operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2022 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, 2021 included in the Annual Report of Steven Madden, Ltd. on Form 10-K filed with the SEC on March 1, 2022.

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 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 these estimates.

Significant areas involving management estimates include variable consideration included in revenue, allowances for bad debts, inventory valuation, valuation of goodwill and intangible assets and impairment of long-lived assets related to retail stores. The Company estimates variable consideration on trade accounts receivables and factor receivables 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 margin levels, are analyzed by management to estimate the amount of the anticipated customer allowance.

Note C – Acquisitions & Sale of Minority Noncontrolling Interest

On April 14, 2021, the Company completed the acquisition of the remaining 49.9% non-controlling interest in its European joint venture in the amount of $16,682. 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 $2,260. The South African joint venture was formed in 2014 and distributes Steve Madden-branded footwear and accessories/apparel throughout South Africa.

As of April 1, 2022, the Company sold a 49.9% minority non-controlling interest in Steve Madden South Africa Proprietary Limited for $1,017 to a third party to form a joint venture.

On December 27, 2021, the Company acquired the rights for Dolce Vita Handbags for the total purchase price of $2,000, which include trademarks and all internet domain name registrations.

Note D – Short-Term Investments

As of June 30, 2022 and December 31, 2021, short-term investments consisted of certificates of deposit and commercial paper. These securities are classified as current based upon their maturities. As of June 30, 2022 and December 31, 2021 short-term investments amounted to $29,569 and $44,037, respectively, and have original maturities less than or equal to one year as of the balance sheet date.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

June 30, 2022

(in thousands except per share data)

Note E – 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 June 30, 2022 and December 31, 2021 were as follows:


	June 30, 2022								December 31, 2021
	Fair value		Level 1		Level 2		Level 3		Fair value		Level 1		Level 2		Level 3
Assets:



Forward contracts	1,321		—		1,321		—		494		—		494		—
Total assets	$	1,321	$	—	$	1,321	$	—	$	494	$	—	$	494	$	—
Liabilities:
Contingent consideration	$	2,000	$	—	$	—	$	2,000	$	6,960	$	—	$	—	$	6,960
Forward contracts	147		—		147		—		46		—		46		—
Total liabilities	$	2,147	$	—	$	147	$	2,000	$	7,006	$	—	$	46	$	6,960

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

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 June 30, 2022 and December 31, 2021 were as follows:


	Balance at January 1, 2022		Adjustments(1)	Transfer out of Level 3	Balance at June 30, 2022(2)

Liabilities:
Contingent consideration	$	6,960	(4,960)	—	$	2,000

	Balance at January 1, 2021		Adjustments(3)	Transfer out of Level 3(4)	Balance at December 31, 2021

Liabilities:
Contingent consideration	$	207	11,862	(5,109)	$	6,960

(1) In 2022, amount consists of an adjustment of $(4,960) that was included as a benefit in operating expenses, related to the change in valuation of the contingent consideration in connection with the acquisition of B.B. Dakota, Inc.

(2) Total contingent consideration liability of $2,000 is classified as current on the Consolidated Balance Sheets at June 30, 2022.

(3) In 2021, amount consists of adjustments of $11,869 and $(7) 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.

(4) On December 31, 2021, the transfer out of level 3 amount of $5,109, which was recorded in accrued expenses on the Consolidated Balance Sheets, represented the current portion of our contingent liabilities and was measured at the amount payable based upon actual EBITDA performance for the related performance period. As of June 30, 2022, $5,109 was paid, of which $339 was included as a payment from operating activities and $4,770 was included as a payment from financing activities on the Condensed Consolidated Statement of Cash Flows.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

June 30, 2022

(in thousands except per share data)

At June 30, 2022, the liability for potential contingent consideration was $2,000 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 11.5%.

At June 30, 2022, the liability for potential contingent consideration was $0 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. However, the EBITA performance is not expected to be met under any of the scenarios.

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 L – Goodwill and Intangible Assets).

The fair values of lease right-of-use assets and fixed assets related to Company-owned retail stores are measured on a non-recurring basis and were determined using Level 3 inputs, including estimated discounted future cash flows associated with the assets using sales trends, market rents and market participant assumptions (see Note F – Leases).

The carrying value of certain financial instruments such as cash equivalents, certificates of deposit, commercial paper, 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 (non-recurring). 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

June 30, 2022

(in thousands except per share data)

Note F – Leases

The Company leases office space, sample production space, warehouses, showrooms, storage units and retail stores are recorded 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 estimates 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 Topic 842, "Leases," these variable lease costs are expensed as incurred.

Lease Position

The table below presents the lease-related assets and liabilities recorded on the Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021: