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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, 2022
or
☐ 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 November 2, 2022, there were 77,883,481 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, 2022
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| | | | | | | | | | | | | | | | | | | | |
| | September 30,
2022 | | December 31,
2021 | | September 30,
2021 |
| (in thousands, except par value) | | (unaudited) | | | | (unaudited) |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 139,194 | | | $ | 219,499 | | | $ | 219,523 | |
| Short-term investments | | 9,051 | | | 44,037 | | | 40,390 | |
Accounts receivable, net of allowances of $8,636, $12,273 and $11,596 | | 48,601 | | | 26,546 | | | 36,524 | |
| Factor accounts receivable | | 341,141 | | | 364,982 | | | 347,748 | |
| Inventories | | 244,315 | | | 255,213 | | | 201,198 | |
| Prepaid expenses and other current assets | | 25,531 | | | 20,845 | | | 19,182 | |
| Income tax receivable and prepaid income taxes | | 9,416 | | | 13,538 | | | 16,536 | |
| | | | | | |
| Total current assets | | 817,249 | | | 944,660 | | | 881,101 | |
| | | | | | |
| Note receivable – related party | | 499 | | | 794 | | | 891 | |
| Property and equipment, net | | 36,861 | | | 35,790 | | | 36,843 | |
| Operating lease right-of-use asset | | 90,407 | | | 85,449 | | | 90,832 | |
| Deposits and other | | 3,655 | | | 4,180 | | | 4,332 | |
| | | | | | |
| Deferred taxes | | 6,945 | | | 4,581 | | | 4,964 | |
| Goodwill – net | | 167,652 | | | 167,995 | | | 167,957 | |
| Intangibles – net | | 102,967 | | | 112,093 | | | 113,140 | |
| Total Assets | | $ | 1,226,235 | | | $ | 1,355,542 | | | $ | 1,300,060 | |
| LIABILITIES | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | | $ | 99,173 | | | $ | 136,766 | | | $ | 121,838 | |
| Accrued expenses | | 119,650 | | | 243,163 | | | 210,985 | |
| | | | | | |
| Operating leases – current portion | | 30,234 | | | 30,759 | | | 32,063 | |
| Income taxes payable | | 19,161 | | | 4,522 | | | 7,194 | |
| Contingent payment liability – current portion | | 440 | | | 5,109 | | | 3,660 | |
| Accrued incentive compensation | | 11,423 | | | 14,871 | | | 12,834 | |
| Total current liabilities | | 280,081 | | | 435,190 | | | 388,574 | |
| Contingent payment liability – long term portion | | — | | | 6,960 | | | 4,381 | |
| | | | | | |
| Operating leases – long-term portion | | 79,906 | | | 80,072 | | | 85,358 | |
| Deferred tax liabilities | | 3,378 | | | 3,378 | | | 2,563 | |
| Other liabilities | | 10,930 | | | 9,404 | | | 12,004 | |
| Total Liabilities | | 374,295 | | | 535,004 | | | 492,880 | |
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,134,443, 134,029 and 133,827 shares issued, 77,906, 80,557 and 81,393 shares outstanding | | 8 | | | 8 | | | 8 | |
| Additional paid-in capital | | 514,156 | | | 495,999 | | | 487,732 | |
| Retained earnings | | 1,555,563 | | | 1,421,067 | | | 1,367,252 | |
| Accumulated other comprehensive loss | | (39,887) | | | (29,544) | | | (29,206) | |
Treasury stock – 56,537, 53,472 and 52,434 shares at cost | | (1,187,537) | | | (1,075,432) | | | (1,026,956) | |
| Total Steven Madden, Ltd. stockholders’ equity | | 842,303 | | | 812,098 | | | 798,830 | |
| Noncontrolling interest | | 9,637 | | | 8,440 | | | 8,350 | |
| Total stockholders’ equity | | 851,940 | | | 820,538 | | | 807,180 | |
| Total Liabilities and Stockholders’ Equity | | $ | 1,226,235 | | | $ | 1,355,542 | | | $ | 1,300,060 | |
See accompanying notes to condensed consolidated financial statements - unaudited.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands, except per share data) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net sales | | $ | 553,120 | | | $ | 525,067 | | | $ | 1,643,144 | | | $ | 1,278,765 | |
| Commission and licensing fee income | | 3,523 | | | 3,675 | | | 8,222 | | | 8,896 | |
| Total revenue | | 556,643 | | | 528,742 | | | 1,651,366 | | | 1,287,661 | |
| Cost of sales (exclusive of depreciation and amortization) | | 327,167 | | | 308,744 | | | 976,227 | | | 758,504 | |
| Gross profit | | 229,476 | | | 219,998 | | | 675,139 | | | 529,157 | |
| Operating expenses | | 150,724 | | | 131,580 | | | 433,252 | | | 363,888 | |
| Impairment of fixed assets and lease right-of-use assets | | — | | | — | | | — | | | 1,089 | |
| | | | | | | | |
| Income from operations | | 78,752 | | | 88,418 | | | 241,887 | | | 164,180 | |
| Interest and other income/(expense) – net | | 1,340 | | | (202) | | | 106 | | | (1,016) | |
| Income before provision for income taxes | | 80,092 | | | 88,216 | | | 241,993 | | | 163,164 | |
| Provision for income taxes | | 18,335 | | | 21,551 | | | 56,728 | | | 36,827 | |
| Net income | | 61,757 | | | 66,665 | | | 185,265 | | | 126,337 | |
| Less: net income attributable to noncontrolling interest | | 460 | | | 22 | | | 995 | | | 1,645 | |
| Net income attributable to Steven Madden, Ltd. | | $ | 61,297 | | | $ | 66,643 | | | $ | 184,270 | | | $ | 124,692 | |
| | | | | | | | |
| | | | | | | | |
| Basic net income per share | | $ | 0.81 | | | $ | 0.85 | | | $ | 2.41 | | | $ | 1.58 | |
| | | | | | | | |
| Diluted net income per share | | $ | 0.79 | | | $ | 0.82 | | | $ | 2.35 | | | $ | 1.53 | |
| | | | | | | | |
| Basic weighted average common shares outstanding | | 75,598 | | | 78,129 | | | 76,463 | | | 78,686 | |
| Effect of dilutive securities – options/restricted stock | | 1,798 | | | 3,178 | | | 2,116 | | | 3,068 | |
| Diluted weighted average common shares outstanding | | 77,396 | | | 81,307 | | | 78,579 | | | 81,754 | |
| | | | | | | | |
| Cash dividends declared per common share | | $ | 0.21 | | | $ | 0.15 | | | $ | 0.63 | | | $ | 0.45 | |
See accompanying notes to condensed consolidated financial statements - unaudited.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 |
| (in thousands) | | Pre-tax amounts | | Tax benefit | | After-tax amounts | | Pre-tax amounts | | Tax expense | | After-tax amounts |
| Net income | | | | | | $ | 61,757 | | | | | | | $ | 185,265 | |
| Other comprehensive income/(loss): | | | | | | | | | | | | |
| Foreign currency translation adjustment | | $ | (7,712) | | | $ | — | | | (7,712) | | | $ | (12,145) | | | $ | — | | | (12,145) | |
| (Loss)/gain on cash flow hedging derivatives | | (148) | | | 40 | | | (108) | | | 591 | | | (160) | | | 431 | |
| | | | | | | | | | | | |
| Total other comprehensive loss | | $ | (7,860) | | | $ | 40 | | | (7,820) | | | $ | (11,554) | | | $ | (160) | | | (11,714) | |
| | | | | | | | | | | | |
| Comprehensive income | | | | | | 53,937 | | | | | | | 173,551 | |
| Less: comprehensive loss attributable to noncontrolling interests | | | | | | (202) | | | | | | | (376) | |
| Comprehensive income attributable to Steven Madden, Ltd. | | | | | | $ | 54,139 | | | | | | | $ | 173,927 | |
| | | | | | | | | | | | |
| | Three Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 |
| (in thousands) | | Pre-tax amounts | | Tax expense | | After-tax amounts | | Pre-tax amounts | | Tax expense | | After-tax amounts |
| Net income | | | | | | $ | 66,665 | | | | | | | $ | 126,337 | |
| Other comprehensive 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 | |
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, 2022 | | 79,007 | | | $ | 8 | | | $ | 508,063 | | | $ | 1,510,651 | | | $ | (32,729) | | | 55,420 | | | $ | (1,152,459) | | | $ | 9,784 | | | $ | 843,318 | |
| Share repurchases and net settlement of awards under stock plan | | (1,117) | | | — | | | — | | | — | | | — | | | 1,117 | | | (35,078) | | | — | | | (35,078) | |
| | | | | | | | | | | | | | | | | | |
| Issuance of restricted stock, net of forfeitures | | 16 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | | — | | | — | | | 6,148 | | | — | | | — | | | — | | | — | | | — | | | 6,148 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (7,050) | | | — | | | — | | | (662) | | | (7,712) | |
Cash flow hedge (net of tax benefit of $40) | | — | | | — | | | — | | | — | | | (108) | | | — | | | — | | | — | | | (108) | |
Dividends on common stock ($0.21 per share) | | — | | | — | | | — | | | (16,385) | | | — | | | — | | | — | | | — | | | (16,385) | |
| | | | | | | | | | | | | | | | | | |
| Sale of minority noncontrolling interest of a subsidiary | | — | | | — | | | (55) | | | — | | | — | | | — | | | — | | | 55 | | | — | |
| Net income | | — | | | — | | | — | | | 61,297 | | | — | | | — | | | — | | | 460 | | | 61,757 | |
| Balance - September 30, 2022 | | 77,906 | | | $ | 8 | | | $ | 514,156 | | | $ | 1,555,563 | | | $ | (39,887) | | | 56,537 | | | $ | (1,187,537) | | | $ | 9,637 | | | $ | 851,940 | |
| | | | | | | | | | | | | | | | | | |
| | 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 | | (3,065) | | | — | | | — | | | — | | | — | | | 3,065 | | | (112,105) | | | — | | | (112,105) | |
| Exercise of stock options | | 18 | | | — | | | 415 | | | — | | | — | | | — | | | — | | | — | | | 415 | |
| Issuance of restricted stock, net of forfeitures | | 396 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock-based compensation | | — | | | — | | | 18,298 | | | — | | | — | | | — | | | — | | | — | | | 18,298 | |
| Foreign currency translation adjustment | | — | | | — | | | — | | | — | | | (10,774) | | | — | | | — | | | (1,371) | | | (12,145) | |
Cash flow hedge (net of tax expense of $160) | | — | | | — | | | — | | | — | | | 431 | | | — | | | — | | | — | | | 431 | |
Dividends on common stock ($0.63 per share) | | — | | | — | | | — | | | (49,774) | | | — | | | — | | | — | | | — | | | (49,774) | |
| | | | | | | | | | | | | | | | | | |
| Sale of minority noncontrolling interest of a subsidiary | | — | | | — | | | (556) | | | — | | | — | | | — | | | — | | | 1,573 | | | 1,017 | |
| Net income | | — | | | — | | | — | | | 184,270 | | | — | | | — | | | — | | | 995 | | | 185,265 | |
| Balance - September 30, 2022 | | 77,906 | | | $ | 8 | | | $ | 514,156 | | | $ | 1,555,563 | | | $ | (39,887) | | | 56,537 | | | $ | (1,187,537) | | | $ | 9,637 | | | $ | 851,940 | |
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 tax 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 tax 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 non-controlling interests, net | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (2,859) | | | (2,859) | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Acquisition of noncontrolling interest | | — | | | — | | | (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 | |
See accompanying notes to condensed consolidated financial statements - unaudited.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| (in thousands) | | 2022 | | 2021 |
| Cash flows from operating activities: | | | | |
| Net income | | $ | 185,265 | | | $ | 126,337 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Stock-based compensation | | 18,298 | | | 16,696 | |
| Depreciation and amortization | | 15,425 | | | 11,611 | |
| Loss on disposal of fixed assets | | 312 | | | 449 | |
| | | | |
| Impairment of lease right-of-use asset and fixed assets | | — | | | 1,089 | |
| | | | |
| Deferred taxes | | (2,364) | | | 452 | |
| Accrued interest on note receivable - related party | | (12) | | | (18) | |
| Notes receivable - related party | | 307 | | | 307 | |
| Change in valuation of contingent payment liabilities | | (6,520) | | | 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 | | (25,623) | | | (10,561) | |
| Factor accounts receivable | | 23,841 | | | (95,077) | |
| Inventories | | 6,842 | | | (99,778) | |
| Prepaid expenses, income tax receivables, prepaid taxes, and other assets | | 120 | | | (2,638) | |
| Accounts payable and accrued expenses | | (140,144) | | | 143,111 | |
| Accrued incentive compensation | | (3,448) | | | 8,961 | |
| Leases and other liabilities | | (5,213) | | | (3,672) | |
| Payment of contingent consideration | | (339) | | | — | |
| Net cash provided by operating activities | | 66,747 | | | 96,184 | |
| | | | |
| Cash flows from investing activities: | | | | |
| | | | |
| Capital expenditures | | (10,115) | | | (4,599) | |
| (Purchase)/sale of a trademark | | (2,000) | | | 8,000 | |
| Purchases of short-term investments | | (38,951) | | | (43,376) | |
| | | | |
| Maturity/sale of short-term investments | | 73,726 | | | 42,383 | |
| Net cash provided by investing activities | | 22,660 | | | 2,408 | |
| | | | |
| Cash flows from financing activities: | | | | |
| Proceeds from exercise of stock options | | 415 | | | 7,232 | |
| | | | |
| Distribution of noncontrolling interest earnings | | — | | | (2,859) | |
| | | | |
| | | | |
| Acquisition of noncontrolling interest | | — | | | (19,127) | |
| | | | |
| Common stock purchased for treasury | | (112,105) | | | (74,685) | |
| Cash dividends paid on common stock | | (49,774) | | | (36,990) | |
| Payment of contingent consideration | | (4,770) | | | — | |
| | | | |
| | | | |
| Net cash used in financing activities | | (166,234) | | | (126,429) | |
| Effect of exchange rate changes on cash and cash equivalents | | (3,478) | | | (504) | |
| Net decrease in cash and cash equivalents | | (80,305) | | | (28,341) | |
| Cash and cash equivalents – beginning of period | | 219,499 | | | 247,864 | |
| Cash and cash equivalents – end of period | | $ | 139,194 | | | $ | 219,523 | |
See accompanying notes to condensed consolidated financial statements - unaudited.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements – Unaudited
September 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 nine months ended September 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 September 30, 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 September 30, 2022 and December 31, 2021, short-term investments amounted to $9,051 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
September 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 September 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2022 | | December 31, 2021 |
| | | Fair value | | Level 1 | | Level 2 | | Level 3 | | Fair value | | Level 1 | | Level 2 | | Level 3 |
| Assets: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Forward contracts | | 1,524 | | | — | | | 1,524 | | | — | | | 494 | | | — | | | 494 | | | — | |
| Total assets | | $ | 1,524 | | | $ | — | | | $ | 1,524 | | | $ | — | | | $ | 494 | | | $ | — | | | $ | 494 | | | $ | — | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Contingent consideration | | $ | 440 | | | $ | — | | | $ | — | | | $ | 440 | | | $ | 6,960 | | | $ | — | | | $ | — | | | $ | 6,960 | |
| Forward contracts | | 476 | | | — | | | 476 | | | — | | | 46 | | | — | | | 46 | | | — | |
| Total liabilities | | $ | 916 | | | $ | — | | | $ | 476 | | | $ | 440 | | | $ | 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 September 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at
January 1, 2022 | | Adjustments(1) | | Transfer out
of Level 3 | | | | Balance at September 30, 2022(2) | | | | | | | |
| | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | |
| Contingent consideration | $ | 6,960 | | | (6,520) | | | — | | | | | $ | 440 | | | | | | | | |
| | | | | | | | | | | | | | | | |
| 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 $(6,520) 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 $440 is classified as current on the Consolidated Balance Sheets at September 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 September 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
September 30, 2022
(in thousands except per share data)
At September 30, 2022, the liability for potential contingent consideration was $440 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 12.3%.
At September 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, 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
September 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, which 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 September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | |
| | Classification on the Balance Sheet | | September 30, 2022 | | December 31, 2021 |
| Assets | | | | | |
Noncurrent (1) | Operating lease right-of-use asset | | $ | 90,407 | | $ | 85,449 |
| | | | | |
| Liabilities | | | | | |
| Current | Operating leases – current portion | | $ | 30,234 | | $ | 30,759 |
| Noncurrent | Operating leases – long-term portion | | 79,906 | | 80,072 |
| Total operating lease liabilities | | | $ | 110,140 | | $ | 110,831 |
| | | | | |
| Weighted-average remaining lease term | | | |