STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note F – Fair Value Measurement (continued)
The majority of our level 3 balances consist of contingent consideration related to various acquisitions and certain notes receivable. The changes in our level 3 assets and liabilities for the periods ended March 31, 2016 and December 31, 2015 are as follows:
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|
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Balance at January 1,
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Payments
|
|
Accrued Interest
|
|
Acquisitions
|
|
Change in estimate
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Foreign Currency Translation
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|
Balance at March 31,
|
2016
|
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Assets:
|
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|
|
|
|
|
|
|
|
|
|
|
|
Note receivable – related party
|
$
|
2,990
|
|
|
(103
|
)
|
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16
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|
|
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|
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$
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2,903
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Note receivable – SM Canada
|
$
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1,158
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|
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|
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80
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$
|
1,238
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Liabilities:
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Contingent consideration
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$
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24,775
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(3,483
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)
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$
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21,292
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|
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Balance at January 1,
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Payments
|
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Accrued Interest
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Acquisitions
|
|
Change in estimate
|
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Foreign Currency Translation
|
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Balance at December 31,
|
2015
|
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Assets:
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Note receivable – related party
|
$
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3,328
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(409
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)
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71
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|
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$
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2,990
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Note receivable – SM Canada
|
$
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1,878
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(466
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)
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(254
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)
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$
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1,158
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Liabilities:
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Contingent consideration
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$
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38,633
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(6,270
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)
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(5,576
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)
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(2,012
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)
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$
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24,775
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Forward contracts are entered into to manage the risk associated with the volatility of future cash flows denominated in Mexican pesos. Fair value of these instruments are based on observable market transactions of spot and forward rates.
For the note receivable due from related party (see Note I) and due from the sellers of SM Canada (see Note D), the carrying value was determined to be the fair value, based upon their actual and imputed interest rates, which approximate current market interest rates.
The Company has recorded a liability for potential contingent consideration in connection with the December 30, 2014 acquisition of all of the outstanding capital stock of Trendy Imports S.A. de C.V., Comercial Diecisiette S.A. de C.V. and Maximus Designer Shoes S.A. de C.V. (together, "SM Mexico"). Pursuant to the terms of an earn-out agreement between the Company and the seller of SM Mexico, earn-out payments, if achieved, are due annually to the seller of SM Mexico based on the financial performance of SM Mexico for each of the twelve-month periods ending on December 31, 2015 and 2016, inclusive. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of SM Mexico during the earn-out period. The current portion of the earn-out due based on the twelve-month period ending December 31, 2015 approximates the recorded value. An earn-out payment of
$3,483
for the period ended December 31, 2015 was paid to the seller of SM Mexico in the first quarter of this year.
The Company has recorded a liability for potential contingent consideration in connection with the August 13, 2014 acquisition of all of the outstanding capital stock of Dolce Vita Holdings, Inc., a Washington corporation ("Dolce Vita"). Pursuant to the terms of an earn-out agreement between the Company and the seller of Dolce Vita, earn-out payments are due annually to the seller of Dolce Vita based on the financial performance of Dolce Vita for each of the twelve-month periods ending on September 30, 2015 and 2016, inclusive, provided that the aggregate minimum earn-out payment shall be no less than
$5,000
. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of Dolce Vita during the earn-out period.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note F – Fair Value Measurement (continued)
The Company has recorded a liability for potential contingent consideration in connection with the February 21, 2012 acquisition of SM Canada. Pursuant to the terms of an earn-out agreement between the Company and the seller of SM Canada, earn-out payments, if achieved, are due annually to the seller of SM Canada based on the financial performance of SM Canada for each of the 12-month periods ending on March 31, 2013 through 2017, inclusive. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of SM Canada during the earn-out period.
The Company has recorded a liability for potential contingent consideration in connection with the May 25, 2011 acquisition of all of the outstanding shares of capital stock of Cejon, Inc. and Cejon Accessories, Inc. and all of the outstanding membership interests in New East Designs, LLC (collectively, "Cejon"). Pursuant to the terms of an earn-out agreement between the Company and the sellers of Cejon, earn-out payments, if achieved, are made annually to the sellers of Cejon, based on the financial performance of Cejon for each of the twelve-month periods ending on June 30, 2012 through 2016, inclusive. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of Cejon during the earn-out period.
Accounting guidance permits entities to choose to measure financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The accounting guidance also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that chose different measurement attributes for similar assets and liabilities. The Company has elected not to measure any eligible items at fair value.
The carrying value of certain financial instruments such as accounts receivable, factor accounts receivable and accounts payable approximates their fair values due to the short-term nature of their underlying terms. The fair values of investment in marketable securities available for sale are determined by reference to publicly quoted prices in an active market. 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.
Note G – Revenue Recognition
The Company recognizes revenue on wholesale sales when (i) products are shipped pursuant to its standard terms, which are freight on board Company warehouse, or when products are delivered to the consolidators, or any other destination, as per the terms of the customers’ purchase order, (ii) persuasive evidence of an arrangement exists, (iii) the price is fixed and determinable and (iv) collection is reasonably assured. Sales reductions on wholesale sales for anticipated discounts, allowances and other deductions are recognized during the period when sales are recorded. With the exception of our cold weather accessories and Blondo businesses, normally we do not accept returns from our wholesale customers unless there are product quality issues, which we charge back to the vendors at cost. Sales of cold weather accessories and Blondo products to wholesale customers are recorded net of returns, which are estimated based on historical experience. Such amounts have historically not been material.
Retail sales are recognized when the payment is received from customers and are recorded net of estimated returns. The Company generates commission income acting as a buying agent by arranging to manufacture private label shoes to the specifications of its customers. The Company’s commission revenue also includes fees charged for its design, product and development services provided to certain suppliers in connection with the Company’s private label business. Commission revenue and product and development fees are recognized as earned when title to the product transfers from the manufacturer to the customer and collections are reasonably assured and are reported on a net basis after deducting related operating expenses.
The Company licenses its Steve Madden®, Steven by Steve Madden®, Madden Girl® and Stevies® trademarks for use in connection with the manufacture, marketing and sale of outerwear, hosiery, activewear, sleepwear, jewelry, watches, hair accessories, umbrellas, bedding, luggage, and men’s leather accessories. In addition, the Company licenses the Betsey Johnson® and Dolce Vita® trademarks for use in connection with the manufacture, marketing and sale of women's and children’s apparel, hosiery, swimwear, outerwear, sleepwear, activewear, jewelry, watches, bedding, luggage, stationary, umbrellas, and household goods. The license agreements require the licensee to pay the Company a royalty and, in substantially all of the agreements, an advertising fee based on the higher of a minimum or a net sales percentage as defined in the various agreements. In addition, under the terms of retail selling agreements, most of the Company’s international distributors are required to pay the Company a royalty
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note G – Revenue Recognition (continued)
based on a percentage of net sales, in addition to a commission and a design fee on the purchases of the Company’s products. Licensing revenue is recognized on the basis of net sales reported by the licensees, or the minimum guaranteed royalties, if higher.
In substantially all of the Company’s license agreements, the minimum guaranteed royalty is earned and receivable on a quarterly basis.
Note H – Sales Deductions
The Company supports retailers’ initiatives to maximize sales of the Company’s products on the retail floor by subsidizing the co-op advertising programs of such retailers, providing them with inventory markdown allowances and participating in various other marketing initiatives of its major customers. In addition, the Company accepts returns for damaged products for which the Company’s costs are normally charged back to the responsible third-party factory. Such expenses are reflected in the condensed consolidated financial statements as deductions to arrive at net sales.
Note I – Note Receivable – Related Party
On June 25, 2007, the Company made a loan to Steve Madden, its Creative and Design Chief and a principal stockholder of the Company, in the amount of
$3,000
in order for Mr. Madden to satisfy a personal tax obligation resulting from the exercise of stock options that were due to expire and to retain the underlying Company common stock. Mr. Madden executed a secured promissory note in favor of the Company, for which a securities brokerage account maintained by Mr. Madden with his broker serves as collateral security. None of the securities held in the securities brokerage account are shares of the Company's common stock. There have been successive amendments of the secured promissory note, the most recent of which occurred on April 8, 2016, at which time the secured promissory note was amended to substitute the collateral securing the secured promissory note from shares of the Company's common stock to the security interest in Mr. Madden's securities brokerage account. Previously, on January 3, 2012, in connection with an amendment of Mr. Madden’s employment contract, the secured promissory note was amended and restated to extend the maturity date of the obligation to December 31, 2023 and eliminate the accrual of interest after December 31, 2011. Prior to its January 3, 2012 amendment and restatement, the secured promissory note was accruing interest at the rate of
6%
per annum. In addition, the secured promissory note provides that, commencing on December 31, 2014, and annually on each December 31 thereafter through the maturity date, one-tenth of the principal amount thereof, together with accrued interest, will be cancelled by the Company, provided that Mr. Madden continues to be employed by the Company on each such December 31. Contemporaneously, the Company will release its security interest in a portion of the securities held in Mr. Madden's securities brokerage account generally correlating to the amount of indebtedness cancelled on such date. As of December 31, 2011,
$1,090
of interest has accrued on the principal amount of the loan evidenced by the secured promissory note related to the period prior to the elimination of the accrual of interest and has been reflected on the Company’s Condensed Consolidated Financial Statements. Pursuant to the elimination of further interest accumulation under the secured promissory note, the outstanding principal amount of the loan and the accrued interest as of March 31, 2016 has been discounted to reflect imputed interest, which will be amortized over the remaining life of the loan. For the year ended December 31, 2015, the Company also recorded a charge in the amount of
$409
to write-off the required one-tenth of the principal amount of the secured promissory note, which was partially offset by accrued imputed interest of
$71
.
Note J – 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. The Share Repurchase Program permits the Company to effect repurchases from time to time through a combination of open market repurchases or in privately negotiated transactions at such prices and times as are determined to be in the best interest of the Company. On February 22, 2016, the Board of Directors approved the extension of the Share Repurchase Program for an additional
$136,000
in repurchases of the Company's common stock. During the
three
months ended
March 31, 2016
, an aggregate of
391,685
shares of the Company's common stock were repurchased under the Share Repurchase Program, at an average
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note J – Share Repurchase Program (continued)
price per share of
$35.83
, for an aggregate purchase price of approximately
$14,034
. As of
March 31, 2016
, approximately
$186,054
remained available for future repurchases under the Share Repurchase Program.
Note K – 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
4,113,000
shares for the
three
months ended
March 31, 2016
, compared to
4,069,000
shares for the
three
months ended
March 31, 2015
. 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 proceeds thereof 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. For the
three
months ended
March 31, 2016
, options to purchase approximately
363,000
shares of common stock have been excluded in the calculation of diluted net income per share as compared to
259,000
shares that were excluded for the
three
months ended
March 31, 2015
, as the result would have been antidilutive. For the
three
months ended
March 31, 2016
and
2015
, all unvested restricted stock awards were dilutive.
Note L – Equity-Based Compensation
In March 2006, the Company's Board of Directors approved the Steven Madden, Ltd. 2006 Stock Incentive Plan (the “Plan”) under which nonqualified stock options, stock appreciation rights, performance shares, restricted stock, other stock-based awards and performance-based cash awards may be granted to employees, consultants and non-employee directors. The stockholders approved the Plan on May 26, 2006. On May 25, 2007, the stockholders approved an amendment to the Plan to increase the maximum number of shares that may be issued under the Plan from
4,050,000
to
5,231,250
. On May 22, 2009, the stockholders approved an amendment and restatement of the Plan that, among other things, increased the maximum number of shares that may be issued under the Plan to
13,716,000
. On May 25, 2012, the stockholders approved an amendment to the Plan that increased the maximum number of shares that may be issued under the Plan to
23,466,000
. The following table summarizes the number of shares of common stock authorized for use under the Plan, the number of stock-based awards granted (net of expired or cancelled awards) under the Plan and the number of shares of common stock available for the grant of stock-based awards under the Plan:
|
|
|
|
Common stock authorized
|
23,466,000
|
|
Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled
|
(19,864,000
|
)
|
Common stock available for grant of stock-based awards as of March 31, 2016
|
3,602,000
|
|
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note L – Equity-Based Compensation (continued)
Total equity-based compensation for the
three
months ended
March 31, 2016
and
2015
is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Restricted stock
|
$
|
4,143
|
|
|
$
|
3,760
|
|
Stock options
|
784
|
|
|
998
|
|
Total
|
$
|
4,927
|
|
|
$
|
4,758
|
|
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, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2016
|
|
2015
|
Proceeds from stock options exercised
|
$
|
3,678
|
|
|
$
|
16,807
|
|
Intrinsic value of stock options exercised
|
$
|
11,030
|
|
|
$
|
27,446
|
|
During the
three
months ended
March 31, 2016
, options to purchase approximately
214,328
shares of common stock with a weighted average exercise price of
$31.63
vested. During the
three
months ended
March 31, 2015
, options to purchase approximately
298,527
shares of common stock with a weighted average exercise price of
$26.73
vested. As of
March 31, 2016
, there were unvested options relating to
493,009
shares of common stock outstanding with a total of
$4,235
of unrecognized compensation cost and an average vesting period of
0.94
years.
The Company uses the Black-Scholes 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. With the exception of special dividends paid in November of 2005 and 2006, the Company historically has not paid regular cash dividends and thus the expected dividend rate is assumed to be zero. The following weighted average assumptions were used for stock options granted during the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Volatility
|
|
22.2% to 26.2%
|
|
23.7% to 28.3%
|
Risk free interest rate
|
|
1.20% to 1.73%
|
|
0.99% to 1.60%
|
Expected life in years
|
|
3.8 to 5.0
|
|
4.1 to 5.1
|
Dividend yield
|
|
0.00%
|
|
0.00%
|
Weighted average fair value
|
|
$7.26
|
|
$8.48
|
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note L – Equity-Based Compensation (continued)
Activity relating to stock options granted under the Company’s plans and outside the plans during the
three
months ended
March 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
Outstanding at January 1, 2016
|
|
2,016,000
|
|
|
$
|
23.51
|
|
|
|
|
|
|
Granted
|
|
63,500
|
|
|
31.91
|
|
|
|
|
|
|
Exercised
|
|
(410,000
|
)
|
|
9.00
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
(16,000
|
)
|
|
29.27
|
|
|
|
|
|
|
Outstanding at March 31, 2016
|
|
1,653,500
|
|
|
$
|
27.36
|
|
|
3.4 years
|
|
$
|
16,012
|
|
Exercisable at March 31, 2016
|
|
1,161,000
|
|
|
$
|
24.66
|
|
|
2.8 years
|
|
$
|
14,373
|
|
Restricted Stock
The following table summarizes restricted stock activity during the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
Number of Shares
|
|
Weighted Average Fair Value at Grant Date
|
|
Number of Shares
|
|
Weighted Average Fair Value at Grant Date
|
Non-vested at January 1,
|
|
4,055,000
|
|
|
$
|
25.32
|
|
|
4,067,000
|
|
|
$
|
24.69
|
|
Granted
|
|
273,000
|
|
|
34.06
|
|
|
191,000
|
|
|
35.80
|
|
Vested
|
|
(126,000
|
)
|
|
29.51
|
|
|
(135,000
|
)
|
|
21.23
|
|
Forfeited
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-vested at March 31,
|
|
4,202,000
|
|
|
$
|
25.81
|
|
|
4,123,000
|
|
|
$
|
22.84
|
|
As of
March 31, 2016
, the Company had
$75,510
of total unrecognized compensation cost related to restricted stock awards granted under the Plan. This cost is expected to be recognized over a weighted average of
6.60
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.
On January 3, 2012, the Company and its Creative and Design Chief, Steven Madden, entered into an amendment of Mr. Madden’s existing employment agreement, pursuant to which, on February 8, 2012, Mr. Madden was granted
1,463,057
restricted shares of the Company’s common stock at the then market price of
$27.34
, which will vest in equal annual installments over a seven-year period commencing on December 31, 2017 and, thereafter, on each December 31 through December 31, 2023, subject to Mr. Madden’s continued employment on each such vesting date. Pursuant to the contract, on June 30, 2012, Mr. Madden exercised his right to receive an additional restricted stock award, and, on July 3, 2012, he was granted
1,893,342
restricted shares of the Company's common stock at the then market price of
$21.13
, which will vest in the same manner as the aforementioned grant.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note M – Acquisitions
Blondo
On January 23, 2015 the Company acquired the trademarks and other intellectual property and related assets of Blondo, a fashion-oriented footwear brand specializing in waterproof leather boots, from Regence Footwear Inc. and 3074153 Canada Inc. for a purchase price of approximately
$9,129
. During the first quarter of 2016 and prior to January 23, 2016, the Company finalized the allocation of the purchase price for Blondo. The final allocation of the purchase price is as follows:
|
|
|
|
|
Inventory
|
$
|
233
|
|
Trademarks
|
7,196
|
|
Total fair value excluding goodwill
|
7,429
|
|
Goodwill
|
1,700
|
|
|
|
Net assets acquired
|
$
|
9,129
|
|
Note N – Goodwill and Intangible Assets
The following is a summary of the carrying amount of goodwill by segment as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
|
|
|
Net Carrying Amount
|
|
|
Footwear
|
|
Accessories
|
|
Retail
|
|
Balance at January 1, 2016
|
|
$
|
73,018
|
|
|
$
|
49,324
|
|
|
$
|
14,755
|
|
|
$
|
137,097
|
|
Acquisitions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchase accounting adjustment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Translation and other
|
|
598
|
|
|
—
|
|
|
401
|
|
|
999
|
|
Balance at March 31, 2016
|
|
$
|
73,616
|
|
|
$
|
49,324
|
|
|
$
|
15,156
|
|
|
$
|
138,096
|
|
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note N – Goodwill and Intangible Assets (continued)
The following table details identifiable intangible assets as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Lives
|
|
Cost Basis
|
|
Accumulated Amortization (1)
|
|
Impairment (2)
|
|
Net Carrying Amount
|
Trade names
|
|
6–10 years
|
|
$
|
4,590
|
|
|
$
|
3,026
|
|
|
$
|
—
|
|
|
$
|
1,564
|
|
Customer relationships
|
|
10 years
|
|
41,509
|
|
|
18,477
|
|
|
—
|
|
|
23,032
|
|
License agreements
|
|
3–6 years
|
|
5,600
|
|
|
5,600
|
|
|
—
|
|
|
—
|
|
Non-compete agreement
|
|
5 years
|
|
2,440
|
|
|
2,361
|
|
|
—
|
|
|
79
|
|
Re-acquired right
|
|
2 years
|
|
4,200
|
|
|
2,532
|
|
|
—
|
|
|
1,668
|
|
Other
|
|
3 years
|
|
14
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
|
|
|
58,353
|
|
|
32,010
|
|
|
—
|
|
|
26,343
|
|
Re-acquired right
|
|
indefinite
|
|
35,200
|
|
|
8,285
|
|
|
—
|
|
|
26,915
|
|
Trademarks
|
|
indefinite
|
|
100,333
|
|
|
—
|
|
|
3,045
|
|
|
97,288
|
|
|
|
|
|
$
|
193,886
|
|
|
$
|
40,295
|
|
|
$
|
3,045
|
|
|
$
|
150,546
|
|
(1) Includes the effect of foreign currency translation related primarily to the movements of the Canadian dollar and Mexican peso in relation to the U.S. dollar.
(2) An impairment charge of
$3,045
was recorded in the first quarter of 2015 related to the Company's Wild Pair trademark. The impairment was triggered by a loss of future anticipated cash flows from a significant customer.
The estimated future amortization expense of purchased intangibles as of
March 31, 2016
is as follows:
|
|
|
|
|
2016 (remaining nine months)
|
$
|
4,164
|
|
2017
|
3,327
|
|
2018
|
3,192
|
|
2019
|
3,118
|
|
2020
|
2,307
|
|
Thereafter
|
10,235
|
|
|
$
|
26,343
|
|
Note O – Derivative Instruments
The Company uses derivative instruments, specifically, forward foreign exchange contracts, to manage the risk associated with the volatility of future cash flows denominated in Mexican pesos. The foreign exchange contracts are used to mitigate the impact of exchange rate fluctuations on forecasted purchases of inventory from Mexico and are designated as cash flow hedging instruments. As of
March 31, 2016
, the fair value of the Company's foreign currency derivatives, which is included on the Condensed Consolidated Balance Sheets in other assets, is
$72
. As of
March 31, 2016
,
$106
of gains related to cash flow hedges are recorded in accumulated other comprehensive loss, net of taxes and are expected to be recognized in earnings at the same time the hedged items affect earnings. As of
March 31, 2015
,
$1,993
of losses related to cash flow hedges were recorded in accumulated other comprehensive loss, net of taxes. As of
March 31, 2016
, the Company's hedging activities were considered effective and, thus, no ineffectiveness from hedging activities were recognized in the Condensed Consolidated Statements of Income. For the
three
months ended
March 31, 2016
, losses of
$362
were reclassified from accumulated other comprehensive income and recognized in the income statement in cost of sales, as compared to losses of
$214
for the
three
months ended
March 31, 2015
.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note P – Commitments, Contingencies and Other
Legal proceedings:
Information regarding certain specific legal proceedings in which the Company is involved is contained in Part 1, Item 3, and in Note O to the notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015. Unless otherwise indicated in this report, all proceedings discussed in the earlier reports which are not indicated therein as having been concluded, remain outstanding as of
March 31, 2016
.
The Company has been named as a defendant in certain other lawsuits in the normal course of business. In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from these matters should not have a material effect on the Company's financial position or results of operations. It is the policy of management to disclose the amount or range of reasonably possible losses in excess of recorded amounts.
Note Q – Operating Segment Information
The Company operates the following business segments: Wholesale Footwear, Wholesale Accessories, Retail, First Cost and Licensing. The Wholesale Footwear segment, through sales to department stores, mid-tier retailers, mass market merchants, online retailers and specialty stores, derives revenue, both domestically and worldwide (via our International business), from sales of branded and private label women’s, men’s, girls’ and children’s footwear. The Wholesale Accessories segment, which includes branded and private label handbags, belts and small leather goods as well as cold weather and selected other fashion accessories, derives revenue, both domestically and worldwide (via our International business), from sales to department stores, mid-tier retailers, mass market merchants, online retailers and specialty stores. Our Wholesale Footwear and Wholesale Accessories segments, through our International business, derive revenue from Canada, Mexico and South Africa and, under special distribution arrangements, from Asia, Australia, Europe, the Middle East, India, South and Central America and New Zealand. The Retail segment, through the operation of Company-owned retail stores in the United States, Canada, Mexico and South Africa and the Company’s websites, derives revenue from sales of branded women’s, men’s and children’s footwear, accessories and licensed products to consumers. The First Cost segment represents activities of a subsidiary that earns commissions and design fees for serving as a buying agent of footwear products to mass-market merchandisers, mid-tier department stores and other retailers with respect to their purchase of footwear. In the Licensing segment, the Company generates revenue by licensing its Steve Madden®,
Steven by Steve Madden®, Madden Girl® and Stevies® trademarks and other trademark rights for use in connection with the manufacture, marketing and sale of outerwear, hosiery, activewear, sleepwear, jewelry, watches, hair accessories, umbrellas, bedding, luggage, and men’s leather accessories.
In addition, this segment licenses the Betsey Johnson® and Dolce Vita® trademarks for use in connection with the manufacture, marketing and sale of women's and children’s apparel, hosiery, swimwear, outerwear, sleepwear, activewear, jewelry, watches, bedding, luggage, stationary, umbrellas, and household goods.
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note Q – Operating Segment Information (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the three months ended,
|
|
Wholesale Footwear
|
|
Wholesale Accessories
|
|
Total Wholesale
|
|
Retail
|
|
First Cost
|
|
Licensing
|
|
Consolidated
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
228,922
|
|
|
$
|
46,879
|
|
|
$
|
275,801
|
|
|
$
|
53,556
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
329,357
|
|
Gross profit
|
|
70,923
|
|
|
15,204
|
|
|
86,127
|
|
|
30,075
|
|
|
—
|
|
|
—
|
|
|
116,202
|
|
Commissions and licensing fees – net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
585
|
|
|
1,586
|
|
|
2,171
|
|
Income from operations
|
|
26,252
|
|
|
4,296
|
|
|
30,548
|
|
|
(2,839
|
)
|
|
585
|
|
|
1,586
|
|
|
29,880
|
|
Segment assets
|
|
$
|
583,241
|
|
|
$
|
94,178
|
|
|
677,419
|
|
|
156,183
|
|
|
81,898
|
|
|
—
|
|
|
915,500
|
|
Capital expenditures
|
|
|
|
|
|
|
|
$
|
1,417
|
|
|
$
|
2,967
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,384
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$
|
222,895
|
|
|
$
|
53,317
|
|
|
$
|
276,212
|
|
|
$
|
47,733
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
323,945
|
|
Gross profit
|
|
67,679
|
|
|
17,517
|
|
|
85,196
|
|
|
26,182
|
|
|
—
|
|
|
—
|
|
|
111,378
|
|
Commissions and licensing fees – net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,528
|
|
|
2,390
|
|
|
3,918
|
|
Income from operations
|
|
21,758
|
|
|
5,647
|
|
|
27,405
|
|
|
(1,476
|
)
|
|
1,528
|
|
|
2,390
|
|
|
29,847
|
|
Segment assets
|
|
$
|
566,127
|
|
|
$
|
141,896
|
|
|
708,023
|
|
|
144,744
|
|
|
39,089
|
|
|
—
|
|
|
891,856
|
|
Capital expenditures
|
|
|
|
|
|
|
|
$
|
2,191
|
|
|
$
|
1,478
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,669
|
|
Revenues by geographic area for the
three
months ended
March 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2016
|
|
2015
|
Domestic (a)
|
|
$
|
299,394
|
|
|
$
|
293,976
|
|
International
|
|
29,963
|
|
|
29,969
|
|
Total
|
|
$
|
329,357
|
|
|
$
|
323,945
|
|
(a) Includes revenues of $87,930 and $84,744 for the three months ended March 31, 2016 and 2015, respectively, related to sales to U.S. customers where the title is transferred outside the U.S. and the sale is recorded by our International business.
|
Note R – Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2016-02, Leases, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018 with early adoption permitted. Under Accounting Standards Update 2016-02, lessees will be required to recognize for all leases, at the commencement date of the lease, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and a right-to-use asset, which is an asset that represents the lessee’s right to use or control the use of a specified asset for the lease term. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.
In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. Accounting Standards Update 2016-01 generally
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
–
Unaudited
March 31, 2016
($ in thousands except share and per share data)
Note R – Recent Accounting Pronouncements (continued)
requires companies to measure investments in equity securities, except those accounted for under the equity method, at fair value and recognize any changes in fair value in net income. The new guidance must be applied using a modified-retrospective approach and is effective for periods beginning after December 15, 2017 and early adoption is not permitted. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.
In November 2015, the FASB issued Accounting Standards Update 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. Accounting Standards Update 2015-17 simplifies current guidance and requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet. Accounting Standards Update 2015-17 can be applied either prospectively or retrospectively and is effective for periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.
In September 2015, the FASB issued Accounting Standards Update 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Accounting Standards Update 2015-16 is effective for periods beginning after December 15, 2015, including interim periods within those fiscal years. The new guidance must be applied prospectively to adjustments to provisional amounts that occur after the effective date, with early adoption permitted. The Company has adopted this guidance and there is no material impact on its financial statements.
In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. Accounting Standards Update 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new guidance must be applied on a prospective basis and is effective for periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the effect that the new guidance will have on its financial statements and related disclosures.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Amendments to the Consolidation Analysis, which is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 with early adoption permitted. Accounting Standards Update No. 2015-02 amends the assessment of whether a limited partnership or an LLC is a variable interest entity; the effect that fees paid to a decision maker have on the consolidation analysis; how variable interests held by a reporting entity's related parties or de facto agents affect its consolidation conclusion; and for entities other than limited partnerships or LLCs, clarifies how to determine whether the equity holders as a group have power over an entity. The Company has adopted this guidance and there is no material impact on its financial statements.
In May 2014, the FASB issued new accounting guidance, Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, on revenue recognition. The new standard provides for a single five-step model to be applied to all revenue contracts with customers as well as requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. Accounting Standards Update No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted, but not before the original effective date of the standard. The Company is currently evaluating the impact of the new guidance on our consolidated financial statements.