STEVEN MADDEN, LTD. [SHOO] Filings

10-Q 1 shoo-20220331.htm 10-Q shoo-20220331

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 March 31, 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 April 22, 2022, there were 79,864,587 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

March 31, 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	5

	Notes to Condensed Consolidated Financial Statements - Unaudited	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26

ITEM 4.	Controls and Procedures	27

PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings	29

ITEM 1A.	Risk Factors	29

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

ITEM 6.	Exhibits	30

	Signatures	31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


	March 31, 2022		December 31, 2021		March 31, 2021
(in thousands, except par value)	(unaudited)				(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	170,347	$	219,499	$	233,202
Short-term investments	9,897		44,037		39,788
Accounts receivable, net of allowances of $11,903, $12,273 and $9,730	39,418		26,546		34,722
Factor accounts receivable	390,163		364,982		285,162
Inventories	233,380		255,213		106,561
Prepaid expenses and other current assets	21,225		20,845		16,667
Income tax receivable and prepaid income taxes	3,673		13,538		18,429

Total current assets	868,103		944,660		734,531

Note receivable – related party	696		794		1,081
Property and equipment, net	36,436		35,790		40,458
Operating lease right-of-use asset	83,994		85,449		99,510
Deposits and other	4,304		4,180		5,216

Deferred taxes	6,254		4,581		5,414
Goodwill – net	168,409		167,995		167,979
Intangibles – net	110,330		112,093		114,754
Total Assets	$	1,278,526	$	1,355,542	$	1,168,943
LIABILITIES
Current liabilities:
Accounts payable	$	121,428	$	136,766	$	99,007
Accrued expenses	162,232		243,163		120,253

Operating leases – current portion	31,615		30,759		33,359
Income taxes payable	23,195		4,522		—
Contingent payment liability – current portion	2,050		5,109		113
Accrued incentive compensation	4,740		14,871		3,761
Total current liabilities	345,260		435,190		256,493
Contingent payment liability – long term portion	—		6,960		564

Operating leases – long-term portion	75,553		80,072		96,246
Deferred tax liabilities	3,378		3,378		2,767
Other liabilities	10,928		9,404		12,105
Total Liabilities	435,119		535,004		368,175
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,134,361, 134,029 and 133,477 shares issued, 79,869, 80,557 and 82,692 shares outstanding	8		8		8
Additional paid-in capital	502,254		495,999		485,556
Retained earnings	1,478,806		1,421,067		1,288,322
Accumulated other comprehensive loss	(28,022)		(29,544)		(28,529)
Treasury stock – 54,492, 53,472 and 50,785 shares at cost	(1,117,831)		(1,075,432)		(957,829)
Total Steven Madden, Ltd. stockholders’ equity	835,215		812,098		787,528
Noncontrolling interest	8,192		8,440		13,240
Total stockholders’ equity	843,407		820,538		800,768
Total Liabilities and Stockholders’ Equity	$	1,278,526	$	1,355,542	$	1,168,943

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(unaudited)


	Three Months Ended March 31,
(in thousands, except per share data)	2022		2021
Net sales	$	557,344	$	358,901
Commission and licensing fee income	2,390		2,124
Total revenue	559,734		361,025
Cost of sales (exclusive of depreciation and amortization)	331,836		221,921
Gross profit	227,898		139,104
Operating expenses	130,002		110,448
Impairment of fixed assets and lease right-of-use assets	—		612

Income from operations	97,896		28,044
Interest and other income/(expense) – net	57		(37)
Income before provision for income taxes	97,953		28,007
Provision for income taxes	23,360		5,676
Net income	74,593		22,331
Less: net income attributable to noncontrolling interest	80		1,134
Net income attributable to Steven Madden, Ltd.	$	74,513	$	21,197


Basic net income per share	$	0.96	$	0.27

Diluted net income per share	$	0.94	$	0.26

Basic weighted average common shares outstanding	77,251		79,038
Effect of dilutive securities – options/restricted stock	2,412		2,851
Diluted weighted average common shares outstanding	79,663		81,889

Cash dividends declared per common share	$	0.21	$	0.15

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(unaudited)


	Three Months Ended March 31, 2022
(in thousands)	Pre-tax amounts		Tax expense		After-tax amounts
Net income					$	74,593
Other comprehensive income:
Foreign currency translation adjustment	$	1,131	$	—	1,131
Gain on cash flow hedging derivatives	87		(24)		63

Total other comprehensive income	$	1,218	$	(24)	1,194

Comprehensive income					75,787
Less: comprehensive income attributable to noncontrolling interests					(248)
Comprehensive income attributable to Steven Madden, Ltd.					$	76,035

	Three Months Ended March 31, 2021
(in thousands)	Pre-tax amounts		Tax expense		After-tax amounts
Net income					$	22,331
Other comprehensive income:
Foreign currency translation adjustment	$	(302)	$	—	(302)
Gain on cash flow hedging derivatives	875		(252)		623

Total other comprehensive income	$	573	$	(252)	321

Comprehensive income					22,652
Less: comprehensive income attributable to noncontrolling interests					820
Comprehensive income attributable to Steven Madden, Ltd.					$	21,832

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders' Equity

(unaudited)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Non-Controlling Interest		Total Stockholders' Equity
(in thousands except per share data)	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	(1,020)	—		—		—		—		1,020	(42,399)		—		(42,399)
Exercise of stock options	10	—		275		—		—		—	—		—		275
Issuance of restricted stock, net of forfeitures	322	—		—		—		—		—	—		—		—
Stock-based compensation	—	—		5,980		—		—		—	—		—		5,980
Foreign currency translation adjustment	—	—		—		—		1,459		—	—		(328)		1,131
Cash flow hedge (net of tax expense of $24)	—	—		—		—		63		—	—		—		63
Dividends on common stock ($0.21 per share)	—	—		—		(16,774)		—		—	—		—		(16,774)

Net income	—	—		—		74,513		—		—	—		80		74,593
Balance - March 31, 2022	79,869	$	8	$	502,254	$	1,478,806	$	(28,022)	54,492	$	(1,117,831)	$	8,192	$	843,407


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock			Non-Controlling Interest		Total Stockholders' Equity
(in thousands except per share data)	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	(154)	—		—		—		—		154	(5,558)		—		(5,558)
Exercise of stock options	65	—		1,554		—		—		—	—		—		1,554
Issuance of restricted stock, net of forfeitures	165	—		—		—		—		—	—		—		—
Stock-based compensation	—	—		5,539		—		—		—	—		—		5,539
Foreign currency translation adjustment	—	—		—		—		12		—	—		(314)		(302)

Cash flow hedge (net of tax of $252)	—	—		—		—		623		—	—		—		623
Dividends on common stock ($0.15 per share)	—	—		—		(12,425)		—		—	—		—		(12,425)
Distributions to non-controlling interests, net	—	—		—		—		—		—	—		(1,363)		(1,363)



Net income	—	—		—		21,197		—		—	—		1,134		22,331
Balance - March 31, 2021	82,692	$	8	$	485,556	$	1,288,322	$	(28,529)	50,785	$	(957,829)	$	13,240	$	800,768

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Three Months Ended March 31,
(in thousands)	2022		2021
Cash flows from operating activities:
Net income	$	74,593	$	22,331
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	5,980		5,539
Depreciation and amortization	5,223		4,028
Loss on disposal of fixed assets	208		222

Impairment of lease right-of-use asset and fixed assets	—		612

Deferred taxes	(1,673)		206
Accrued interest on note receivable - related party	(4)		(6)
Notes receivable - related party	102		102
Change in valuation of contingent payment liabilities	(4,910)		470



Recovery of receivables, related to the Payless ShoeSource bankruptcy	—		(919)
Changes, net of acquisitions, in:
Accounts receivable	(12,872)		(8,759)
Factor accounts receivable	(25,181)		(32,491)
Inventories	21,833		(5,141)
Prepaid expenses, income tax receivables, prepaid taxes, and other assets	9,802		(3,319)
Accounts payable and accrued expenses	(80,642)		22,097
Accrued incentive compensation	(10,131)		(112)
Leases and other liabilities	(1,774)		182
Net cash (used in)/provided by operating activities	(19,446)		5,042

Cash flows from investing activities:

Capital expenditures	(3,596)		(1,598)
Purchase of a trademark	(2,000)		—
Purchases of short-term investments	(9,668)		(2,054)

Maturity/sale of short-term investments	44,488		2,036
Net cash provided by/(used in) investing activities	29,224		(1,616)

Cash flows from financing activities:
Proceeds from exercise of stock options	275		1,554

Distribution of noncontrolling interest earnings	—		(1,363)



Common stock purchased for treasury	(42,399)		(5,558)
Cash dividends paid on common stock	(16,774)		(12,425)


Net cash used in financing activities	(58,898)		(17,792)
Effect of exchange rate changes on cash and cash equivalents	(32)		(296)
Net decrease in cash and cash equivalents	(49,152)		(14,662)
Cash and cash equivalents – beginning of period	219,499		247,864
Cash and cash equivalents – end of period	$	170,347	$	233,202

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 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 months ended March 31, 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 those 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

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.

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 March 31, 2022 and December 31, 2021, short-term investments consisted of certificates of deposit. These securities are classified as current based upon their maturities. As of March 31, 2022 and December 31, 2021 short-term investments amounted to $9,897 and $44,037, respectively, and have original maturities less than or equal to one year as of the balance sheet date.

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

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2022

(in thousands except per share data)

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 March 31, 2022 and December 31, 2021 were as follows:


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



Forward contracts	689		—		689		—		494		—		494		—
Total assets	$	689	$	—	$	689	$	—	$	494	$	—	$	494	$	—
Liabilities:
Contingent consideration	$	2,050	$	—	$	—	$	2,050	$	6,960	$	—	$	—	$	6,960
Forward contracts	139		—		139		—		46		—		46		—
Total liabilities	$	2,189	$	—	$	139	$	2,050	$	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 March 31, 2022 and December 31, 2021 were as follows:


	Balance at January 1, 2022		Adjustments(1)	Transfer out of Level 3	Balance at March 31, 2022(2)

Liabilities:
Contingent consideration	$	6,960	(4,910)	—	$	2,050

	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 $(4,910) 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 $2,050 is classified as current on the Consolidated Balance Sheets at March 31, 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, 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. On March 31, 2022, $5,109 was recorded in accrued expenses on the Consolidated Balance Sheets, and is expected to be paid within the next three months.

At March 31, 2022, the liability for potential contingent consideration was $2,050 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

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2022

(in thousands except per share data)

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 10.8%.

At March 31, 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, utilizing a discount rate of 9.5%.

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, 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

March 31, 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 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 March 31, 2022 and December 31, 2021:


	Classification on the Balance Sheet	March 31, 2022			December 31, 2021
Assets
Noncurrent (1)	Operating lease right-of-use asset	$	83,994		$	85,449

Liabilities
Current	Operating leases – current portion	$	31,615		$	30,759
Noncurrent	Operating leases – long-term portion	75,553			80,072
Total operating lease liabilities		$	107,168		$	110,831

Weighted-average remaining lease term		4.4 years			4.6 years
Weighted-average discount rate		4.2		%	4.3		%

(1) During the year ended December 31, 2021, the Company recorded a pre-tax impairment charge related to its lease right-of-use assets of $1,023 in the Direct-to-Consumer and its Wholesale Accessories/Apparel segments.

Lease Costs

The table below presents certain information related to lease costs during the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022		2021
Operating lease cost	$	8,255	$	10,192
Variable lease cost (1)	1,394		7,343

Less: sublease income	125		80
Total lease cost	$	9,524	$	17,455

(1) For the three months ended March 31, 2021, the Company incurred expenses related to the COVID-19 lease amendments of $6,570 which were included in variable lease cost.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2022

(in thousands except per share data)

Other Information

The table below presents supplemental cash flow information related to leases as of the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases	$	9,818	$	10,901


	Three Months Ended March 31,
	2022		2021
Noncash transactions
Right-of-use asset obtained in exchange for new operating lease liabilities	$	5,517	$	7,283
Right-of-use asset amortization expense	$	6,972	$	8,770

Undiscounted Cash Flows

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the lease liabilities recorded on the Consolidated Balance Sheet as of March 31, 2022:


2022 (remaining nine months)	$	27,309
2023	27,993
2024	21,297
2025	16,823
2026	11,786
Thereafter	12,213
Total minimum lease payments	117,421
Less: interest	10,253
Present value of lease liabilities	$	107,168

Note G – Impairment of Other Long-Lived Assets

Property and equipment and lease-related right-of-use assets, along with other long-lived assets, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. In 2021, the Company identified indicators of impairment for long-lived assets at certain retail stores. For such stores, the Company performed a recoverability test, comparing estimated undiscounted cash flows to the carrying value of the related long-lived assets. When the carrying value was more than the estimated undiscounted cash flows, the Company determined that an impairment test was required. Fair values of the long-lived assets were estimated using an income approach based on management’s forecast of future cash flows derived from continued retail operations and the fair values of individual operating lease assets were determined using estimated market rental rates. Significant estimates are used in determining future cash flows of each store over its remaining lease term, including the Company's expectations of future projected cash flows that include revenues, operating expenses, and market conditions. An impairment loss is recorded if the carrying amount of the long-lived asset group exceeds its fair value. For the three months ended March 31, 2021, the Company recorded total impairment charges of $612, for impairment of its fixed assets and right-of-use assets in its Direct-to-Consumer segment. These charges were recorded in impairment of fixed assets and lease right-of-use assets in the Company’s Condensed Consolidated Statements of Income.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2022

(in thousands except per share data)

Note H – Share Repurchase Program

The Company's Board of Directors authorized a share repurchase program (the “Share Repurchase Program”), effective as of January 1, 2004. The Share Repurchase Program does not have a fixed expiration or termination date and may be modified or terminated by the Board of Directors at any time. On several occasions, the Board of Directors has increased the amount authorized for repurchase of the Company's common stock. On April 24, 2019, the Board of Directors approved the expansion of the Company's Share Repurchase Program for up to $200,000 in repurchases of the Company's common stock, which included the amount remaining under the prior authorization. On November 2, 2021, the Board of Directors approved an increase in the Company's share repurchase authorization of approximately $200,000, bringing the total authorization to $250,000 which included the amount remaining under the prior authorization. The Share Repurchase Program permits the Company to effect repurchases from time to time through a combination of open market repurchases, net settlements of employee stock awards or in privately negotiated transactions at such prices and times as are determined to be in the best interest of the Company. During the three months ended March 31, 2022, an aggregate of 926 shares of the Company's common stock, excluding net settlements of employee stock awards, were repurchased under the Share Repurchase Program, at a weighted average price per share of $41.56, for an aggregate purchase price of approximately $38,475. As of March 31, 2022, approximately $185,076 remained available for future repurchases under the Share Repurchase Program.

The Steven Madden, Ltd. Amended and Restated 2006 Stock Incentive Plan (as further amended, the "2006 Plan"), which expired on April 6, 2019, and the Steven Madden, Ltd. 2019 Incentive Compensation Plan (the "2019 Plan") both provide the Company with the right to deduct or withhold, or require employees to remit to the Company, an amount sufficient to satisfy any applicable tax withholding and/or option cost obligations applicable to stock-based compensation awards. To the extent permitted, employees may elect to satisfy all or part of such withholding obligations by tendering to the Company previously owned shares or by having the Company withhold shares having a fair market value equal to the employee's withholding tax obligation and/or option cost. During the three months ended March 31, 2022, an aggregate of 94 shares were withheld in connection with the settlement of vested restricted stock to satisfy tax-withholding requirements and option costs, at an average price per share of $41.61, for an aggregate purchase price of approximately $3,924.

Note I – Net Income Per Share of Common Stock

Basic net income per share is based on the weighted average number of shares of common stock outstanding during the period, which does not include unvested restricted common stock subject to forfeiture of 2,970 shares for the period ended March 31, 2022, compared to 3,593 shares for the period ended March 31, 2021. Diluted net income per share reflects: (a) the potential dilution assuming shares of common stock were issued upon the exercise of outstanding in-the-money options and the assumed proceeds, which are deemed to be the proceeds from the exercise plus compensation cost not yet recognized attributable to future services using the treasury method, were used to purchase shares of the Company’s common stock at the average market price during the period, and (b) the vesting of granted non-vested restricted stock awards for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost not yet recognized attributable to future services using the treasury stock method, to the extent dilutive.


	Three Months Ended March 31,
	2022	2021
Weighted average common shares outstanding:
Basic	77,251	79,038
Effect of dilutive securities:
Stock awards and options to purchase shares of common stock	2,412	2,851
Diluted	79,663	81,889

For the three months ended March 31, 2022 and 2021, options to purchase approximately 5 and 4 shares of common stock, respectively, have been excluded from the calculation of diluted net income per share as the result would have been anti-dilutive. For the three months ended March 31, 2022 and 2021, 18 and 14 restricted shares were excluded from the calculation of diluted net income per share, respectively, as the result would have been anti-dilutive. The Company had contingently issuable performance awards outstanding that did not meet the performance conditions as of March 31, 2022 and 2021 and,

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2022

(in thousands except per share data)

therefore, were excluded from the calculation of diluted net income per common share for the three months ended March 31, 2022 and 2021. The maximum number of potentially dilutive shares that could be issued upon vesting for these performance awards was approximately 12 and 17 as of March 31, 2022 and 2021, respectively. These amounts were also excluded from the computation of weighted average potentially dilutive securities.

Note J – Income Taxes

The Company’s provision for income taxes for the three months ended March 31, 2022 and 2021 is based on the estimated annual effective tax rate, plus or minus discrete items. The following table presents the provision for income taxes and the effective tax rates for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022		2021
Income before provision for income taxes	$	97,953	$	28,007
Income tax expense	$	23,360	$	5,676
Effective tax rate	23.8%		20.3%

The difference between the Company’s effective tax rates for the three months ended March 31, 2022 and 2021 is primarily due to the expected jurisdictional mix of profit and losses from each period.

The Company recognizes interest and penalties, if any, related to uncertain income tax positions in income tax expense. Accrued interest and penalties on unrecognized tax benefits, and interest and penalty expense are immaterial to the consolidated financial statements.

The Company files income tax returns in the U.S. for federal, state, and local purposes, and in certain foreign jurisdictions. The Company's tax years 2018 through 2021 remain open to examination by most taxing authorities.

Note K – Equity-Based Compensation

The following table summarizes the number of shares of common stock authorized for issuance under the 2019 Plan, the number of stock-based awards granted (net of expired or cancelled awards) under the 2019 Plan and the number of shares of common stock available for the grant of stock-based awards under the 2019 Plan:


Common stock authorized			11,000
Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled awards			(4,546)
Common stock available for grant of stock-based awards as of March 31, 2022			6,454

In addition, vested and unvested options to purchase 20 shares of common stock and 2,010 shares of unvested restricted stock awarded under the 2006 Plan were outstanding as of March 31, 2022.

Total equity-based compensation for the three months ended March 31, 2022 and 2021 is as follows:


	Three Months Ended March 31,
	2022		2021
Restricted stock	$	5,062	$	4,509
Stock options	918		1,030
Total	$	5,980	$	5,539

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2022

(in thousands except per share data)

Equity-based compensation is included in operating expenses on the Company’s Condensed Consolidated Statements of Income.

Stock Options

Cash proceeds and intrinsic values related to total stock options exercised during the three months ended March 31, 2022 and 2021 are as follows:


	Three Months Ended March 31,
	2022		2021
Proceeds from stock options exercised	$	275	$	1,554
Intrinsic value of stock options exercised	$	172	$	867

During the three months ended March 31, 2022, options to purchase 310 shares vested with a weighted average exercise price of $29.31. During the three months ended March 31, 2021, options to purchase 357 shares vested with a weighted average exercise price of $25.55. As of March 31, 2022, there were unvested options relating to 160 shares of common stock outstanding with a total of $1,466 of unrecognized compensation cost and an average vesting period of 1.5 years.

The Company uses the Black-Scholes-Merton option-pricing model to estimate the fair value of options granted, which requires several assumptions. The expected term of the options represents the estimated period of time until exercise and is based on the historical experience of similar awards. Expected volatility is based on the historical volatility of the Company’s common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield is based on the Company's annualized dividend per share amount divided by the Company's stock price. The following weighted average assumptions were used for stock options granted during the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022	2021
Volatility	45.1%	48.4%
Risk free interest rate	1.2%	0.2%
Expected life in years	5	3
Dividend yield	1.8%	1.8%
Weighted average fair value	$15.60	$10.33

Activity relating to stock options granted under the Company’s plans during the three months ended March 31, 2022 is as follows:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2022	2,531	$	29.06
Granted	9	46.47
Exercised	(10)	24.51

Outstanding at March 31, 2022	2,530	$	29.14	2.5 years	$	25,596
Exercisable at March 31, 2022	2,370	$	28.36	2.4 years	$	25,343

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2022

(in thousands except per share data)

Restricted Stock

The following table summarizes restricted stock activity during the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
	2022			2021
	Number of Shares	Weighted Average Fair Value at Grant Date		Number of Shares	Weighted Average Fair Value at Grant Date
Outstanding at January 1,	2,849	$	23.80	3,651	$	20.81
Granted	323	41.82		187	38.10
Vested	(201)	31.67		(223)	28.50
Forfeited	(1)	32.13		(22)	35.82
Outstanding at March 31,	2,970	$	25.22	3,593	$	21.14

As of March 31, 2022, the Company had $55,784 of total unrecognized compensation cost related to restricted stock awards granted under the 2019 Plan and the 2006 Plan. This cost is expected to be recognized over a weighted average period of 3.4 years. 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.

Note L – Goodwill and Intangible Assets

The following is a summary of the carrying amount of goodwill by reporting unit as of March 31, 2022:


	Wholesale						Net Carrying Amount
	Footwear		Accessories/ Apparel		Direct-to-Consumer
Balance at January 1, 2022	$	90,066	$	62,688	$	15,241	$	167,995


Translation	224		—		190		414
Balance at March 31, 2022	$	90,290	$	62,688	$	15,431	$	168,409

The following table details identifiable intangible assets as of March 31, 2022:



	Estimated Lives	Cost Basis		Accumulated Amortization		Impairment & Other(1)		Net Carrying Amount
Trade names	1–10 years	$	18,695	$	(10,787)	$	(2,620)	$	5,288
Customer relationships	10–20 years	38,680		(23,638)		(1,472)		13,570




		57,375		(34,425)		(4,092)		18,858