0001628280-19-013154.txt : 20191104 0001628280-19-013154.hdr.sgml : 20191104 20191104142839 ACCESSION NUMBER: 0001628280-19-013154 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 72 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191104 DATE AS OF CHANGE: 20191104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STEVEN MADDEN, LTD. CENTRAL INDEX KEY: 0000913241 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 133588231 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23702 FILM NUMBER: 191189253 BUSINESS ADDRESS: STREET 1: 52-16 BARNETT AVE CITY: LONG ISLAND CITY STATE: NY ZIP: 11104 BUSINESS PHONE: 7184461800 MAIL ADDRESS: STREET 1: 52-16 BARNETT AVENUE CITY: LONG ISLAND CITY STATE: NY ZIP: 11104 FORMER COMPANY: FORMER CONFORMED NAME: MADDEN STEVEN LTD DATE OF NAME CHANGE: 19931008 10-Q 1 shoo-20190930x10q.htm 10-Q Document
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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, 2019
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)
Registrant's telephone number, including area code: (718) 446-1800

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  x   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x   No o
 
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
x
 
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 x 

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $.0001 per share
SHOO
The NASDAQ Stock Market LLC

As of October 31, 2019, there were 84,096,759 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, 2019



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
 
 
September 30,
2019
 
December 31,
2018
 
September 30,
2018
 
 
(unaudited)
 
 
 
(unaudited)
ASSETS
 
 

 
 

 
 

Current assets:
 
 

 
 

 
 

Cash and cash equivalents
 
$
167,492

 
$
200,031

 
$
172,537

Accounts receivable, net of allowances of $12,706, $10,849 and $1,380
 
37,781

 
25,057

 
49,260

Factor accounts receivable
 
297,722

 
241,395

 
282,789

Inventories
 
148,053

 
137,247

 
147,491

Marketable securities – available for sale
 
27,452

 
66,968

 
57,896

Prepaid expenses and other current assets
 
28,586

 
23,425

 
24,056

Prepaid taxes
 

 
9,002

 
19,910

Total current assets
 
707,086

 
703,125

 
753,939

Note receivable – related party
 
1,650

 
1,927

 
2,018

Property and equipment, net
 
60,662

 
64,807

 
65,472

Operating lease right-of-use asset
 
162,385

 

 

Deposits and other
 
2,695

 
1,967

 
1,980

Deferred taxes
 
13,646

 
9,321

 
6,381

Goodwill – net
 
171,412

 
148,112

 
148,956

Intangibles – net
 
162,929

 
143,311

 
146,313

Total Assets
 
$
1,282,465

 
$
1,072,570

 
$
1,125,059

LIABILITIES
 
 

 
 

 
 

Current liabilities:
 
 

 
 

 
 

Accounts payable
 
$
90,278

 
$
79,802

 
$
94,636

Accrued expenses
 
112,385

 
130,592

 
113,325

Operating leases - current portion
 
38,068

 

 

Income taxes payable
 
952

 

 

Contingent payment liability – current portion
 

 
3,000

 

Accrued incentive compensation
 
11,019

 
11,295

 
8,569

Total current liabilities
 
252,702

 
224,689

 
216,530

Contingent payment liability
 
9,770

 

 
3,000

Deferred rent
 

 
15,786

 
15,707

Operating leases - long-term portion
 
139,704

 

 

Deferred taxes
 
17,117

 
4,041

 
3,602

Other liabilities
 
12,936

 
13,372

 
19,023

Total Liabilities
 
432,229

 
257,888

 
257,862

Commitments, contingencies and other (Note N)
 


 


 


STOCKHOLDERS’ EQUITY
 
 

 
 

 
 

Preferred stock – $.0001 par value, 5,000 shares authorized; none issued; Series A Junior Participating preferred stock – $.0001 par value, 60 shares authorized; none issued
 

 

 

Common stock – $.0001 par value, 245,000 shares authorized, 132,685, 131,991 and 131,875 shares issued, 84,040, 85,715 and 87,407 shares outstanding
 
6

 
6

 
6

Additional paid-in capital
 
445,077

 
424,835

 
418,864

Retained earnings
 
1,305,276

 
1,217,521

 
1,217,200

Accumulated other comprehensive loss
 
(31,196
)
 
(32,628
)
 
(27,424
)
Treasury stock 48,645, 46,276 and 44,468 shares at cost
 
(880,425
)
 
(803,920
)
 
(748,876
)
Total Steven Madden, Ltd. stockholders’ equity
 
838,738

 
805,814

 
859,770

Noncontrolling interest
 
11,498

 
8,868

 
7,427

Total stockholders’ equity
 
850,236

 
814,682

 
867,197

Total Liabilities and Stockholders’ Equity
 
$
1,282,465

 
$
1,072,570

 
$
1,125,059


See accompanying notes to condensed consolidated financial statements - unaudited.

1



STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(unaudited)
(in thousands, except per share data)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Net sales
 
$
497,308

 
$
458,482

 
$
1,353,222

 
$
1,243,249

Cost of sales
 
306,277

 
283,265

 
839,849

 
779,525

Gross profit
 
191,031

 
175,217

 
513,373

 
463,724

Commission and licensing fee income – net
 
2,157

 
4,994

 
6,531

 
10,897

Operating expenses
 
125,147

 
110,007

 
358,520

 
326,276

Impairment charges
 

 

 
4,050

 

Income from operations
 
68,041

 
70,204

 
157,334

 
148,345

Interest and other income – net
 
961

 
872

 
3,415

 
2,502

Income before provision for income taxes
 
69,002

 
71,076

 
160,749

 
150,847

Provision for income taxes (Note J)
 
15,886

 
14,757

 
36,257

 
32,885

Net income
 
53,116

 
56,319

 
124,492

 
117,962

Less: net income attributable to noncontrolling interest
 
653

 
756

 
932

 
1,316

Net income attributable to Steven Madden, Ltd.
 
$
52,463

 
$
55,563

 
$
123,560

 
$
116,646

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic net income per share
 
$
0.66

 
$
0.68

 
$
1.55

 
$
1.43

 
 
 
 
 
 
 
 
 
Diluted net income per share
 
$
0.63

 
$
0.64

 
$
1.48

 
$
1.35

 
 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
 
79,092

 
81,727

 
79,854

 
81,832

Effect of dilutive securities – options/restricted stock
 
4,014

 
4,847

 
3,886

 
4,441

Diluted weighted average common shares outstanding
 
83,106

 
86,574

 
83,740

 
86,273

 
 
 
 
 
 
 
 
 
Cash dividends declared per common share
 
$
0.14

 
$
0.13

 
$
0.42

 
$
0.39


See accompanying notes to condensed consolidated financial statements - unaudited.

2



STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
 
 
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
 
 
Pre-tax amounts
 
Tax (expense)
 
After-tax amounts
 
Pre-tax amounts
 
Tax benefit
 
After-tax amounts
Net income
 
 
 
 
 
$
53,116

 
 
 
 
 
$
124,492

Other comprehensive (loss)/income:
 
 

 
 

 
 
 
 
 
 
 
 
      Foreign currency translation adjustment
 
$
(1,789
)
 
$

 
(1,789
)
 
$
1,828

 
$

 
1,828

      Gain/(loss) on cash flow hedging derivatives
 
314

 
(75
)
 
239

 
(501
)
 
120

 
(381
)
      Unrealized gain on marketable securities
 
21

 

 
21

 
88

 

 
88

Total other comprehensive (loss)/income
 
$
(1,454
)
 
$
(75
)
 
(1,529
)
 
$
1,415

 
$
120

 
1,535

 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
 
 
 
 
 
51,587

 
 
 
 
 
126,027

Less: comprehensive income attributable to noncontrolling interests
 
 
 
 
 
871

 
 
 
 
 
1,035

Comprehensive income attributable to Steven Madden, Ltd.
 
 
 
 
 
$
50,716

 
 
 
 
 
$
124,992

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
 
Pre-tax amounts
 
Tax benefit/(expense)
 
After-tax amounts
 
Pre-tax amounts
 
Tax (expense)
 
After-tax amounts
Net income
 
 
 
 
 
$
56,319

 
 
 
 
 
$
117,962

Other comprehensive income/(loss):
 
 
 
 
 
 
 
 
 
 
 
 
      Foreign currency translation adjustment
 
$
1,585

 
$

 
1,585

 
$
(2,696
)
 
$

 
(2,696
)
      (Loss)/gain on cash flow hedging derivatives
 
(476
)
 
114

 
(362
)
 
1,062

 
(255
)
 
807

      Unrealized gain on marketable securities
 
29

 
(7
)
 
22

 
104

 
(25
)
 
79

Total other comprehensive income/(loss)
 
$
1,138

 
$
107

 
1,245

 
$
(1,530
)
 
$
(280
)
 
(1,810
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
 
 
 
 
 
57,564

 
 
 
 
 
116,152

Less: comprehensive income attributable to noncontrolling interests
 
 
 
 
 
756

 
 
 
 
 
1,316

Comprehensive income attributable to Steven Madden, Ltd.
 
 
 
 
 
$
56,808

 
 
 
 
 
$
114,836


See accompanying notes to condensed consolidated financial statements - unaudited.

3



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, 2019
 
84,821

 
$
6

 
$
438,242

 
$
1,264,631

 
$
(29,449
)
 
47,860

 
$
(855,076
)
 
$
9,202

 
$
827,556

Share repurchases
 
(785
)
 

 

 

 

 
785

 
(25,349
)
 

 
(25,349
)
Exercise of stock options
 
37

 

 
807

 

 

 

 

 

 
807

Issuance of restricted stock, net of forfeitures
 
(33
)
 

 

 

 

 

 

 

 

Stock-based compensation
 

 

 
6,028

 

 

 

 

 

 
6,028

Foreign currency translation adjustment
 

 

 

 

 
(2,007
)
 

 

 
218

 
(1,789
)
Unrealized holding gain on securities
 

 

 

 

 
21

 

 

 

 
21

Cash flow hedge (net of tax expense of $75)
 

 

 

 

 
239

 

 

 

 
239

Dividends on common stock ($0.14 per share)
 

 

 

 
(11,818
)
 

 

 

 

 
(11,818
)
Acquisition of noncontrolling interest
 

 

 

 

 

 

 

 
1,425

 
1,425

Net income
 

 

 

 
52,463

 

 

 

 
653

 
53,116

Balance - September 30, 2019
 
84,040

 
$
6

 
$
445,077

 
$
1,305,276

 
$
(31,196
)
 
48,645

 
$
(880,425
)
 
$
11,498

 
$
850,236

 
 
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, 2018
 
85,715

 
$
6

 
$
424,835

 
$
1,217,521

 
$
(32,628
)
 
46,276

 
$
(803,920
)
 
$
8,868

 
$
814,682

Share repurchases
 
(2,369
)
 

 

 

 

 
2,369

 
(76,505
)
 

 
(76,505
)
Exercise of stock options
 
117

 

 
2,606

 

 

 

 

 

 
2,606

Issuance of restricted stock, net of forfeitures
 
577

 

 

 

 

 

 

 

 

Stock-based compensation
 

 

 
17,636

 

 

 

 

 

 
17,636

Foreign currency translation adjustment
 

 

 

 

 
1,725

 

 

 
103

 
1,828

Unrealized holding gain on securities
 

 

 

 

 
88

 

 

 

 
88

Cash flow hedge (net of tax benefit of $120)
 

 

 

 

 
(381
)
 

 

 

 
(381
)
Dividends on common stock ($0.42 per share)
 

 

 

 
(35,805
)
 

 

 

 

 
(35,805
)
Distributions to noncontrolling interests, net
 

 

 

 

 

 

 

 
(1,113
)
 
(1,113
)
Investment of noncontrolling interest
 

 

 

 

 

 

 

 
1,283

 
1,283

Acquisition of noncontrolling interest
 

 

 

 

 

 

 

 
1,425

 
1,425

Net income
 

 

 

 
123,560

 

 

 

 
932

 
124,492

Balance - September 30, 2019
 
84,040

 
$
6

 
$
445,077

 
$
1,305,276

 
$
(31,196
)
 
48,645

 
$
(880,425
)
 
$
11,498

 
$
850,236




4




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, 2018
 
87,726

 
$
6

 
$
412,073

 
$
1,173,310

 
$
(28,669
)
 
44,052

 
$
(733,098
)
 
$
6,671

 
$
830,293

Share repurchases
 
(416
)
 

 

 

 

 
416

 
(15,778
)
 

 
(15,778
)
Exercise of stock options
 
79

 

 
1,686

 

 

 

 

 

 
1,686

Issuance of restricted stock, net of forfeitures
 
18

 

 

 

 

 

 

 

 

Stock-based compensation
 

 

 
5,105

 

 

 

 

 

 
5,105

Foreign currency translation adjustment
 

 

 

 

 
1,585

 

 

 

 
1,585

Unrealized holding gain on securities (net of tax expense of $7)
 

 

 

 

 
22

 

 

 

 
22

Cash flow hedge (net of tax benefit of $114)
 

 

 

 

 
(362
)
 

 

 

 
(362
)
Dividends on common stock ($0.13 per share)
 

 

 

 
(11,673
)
 

 

 

 

 
(11,673
)
Net income
 

 

 

 
55,563

 

 

 

 
756

 
56,319

Balance - September 30, 2018
 
87,407

 
$
6

 
$
418,864

 
$
1,217,200

 
$
(27,424
)
 
44,468

 
$
(748,876
)
 
$
7,427

 
$
867,197


 
 
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, 2017
 
88,047

 
$
6

 
$
390,723

 
$
1,135,701

 
$
(25,614
)
 
42,912

 
$
(697,996
)
 
$
6,111

 
$
808,931

Share repurchases
 
(1,556
)
 

 

 

 

 
1,556

 
(50,880
)
 

 
(50,880
)
Exercise of stock options
 
582

 

 
12,801

 

 

 

 

 

 
12,801

Issuance of restricted stock, net of forfeitures
 
334

 

 

 

 

 

 

 

 

Stock-based compensation
 

 

 
15,340

 

 

 

 

 

 
15,340

Foreign currency translation adjustment
 

 

 

 

 
(2,696
)
 

 

 

 
(2,696
)
Unrealized holding gain on securities (net of tax expense of $25)
 

 

 

 

 
79

 

 

 

 
79

Cash flow hedge (net of tax expense of $255)
 

 

 

 

 
807

 

 

 

 
807

Dividends on common stock ($0.39 per share)
 

 

 

 
(35,147
)
 

 

 

 

 
(35,147
)
Net income
 

 

 

 
116,646

 

 

 

 
1,316

 
117,962

Balance - September 30, 2018
 
87,407

 
$
6

 
$
418,864

 
$
1,217,200

 
$
(27,424
)
 
44,468

 
$
(748,876
)
 
$
7,427

 
$
867,197


See accompanying notes to condensed consolidated financial statements - unaudited.

5



STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
 
Nine Months Ended September 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 

 
 

Net income
 
$
124,492

 
$
117,962

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Stock-based compensation
 
17,636

 
15,340

Depreciation and amortization
 
16,187

 
17,169

Loss on disposal of fixed assets
 
897

 
24

Impairment of intangible
 
4,050

 

Impairment of lease right-of-use asset
 
1,883

 

Deferred taxes
 
385

 
1,960

Accrued interest on note receivable - related party
 
(29
)
 
(35
)
Deferred rent benefit
 

 
(326
)
Realized loss on sale of marketable securities
 
5

 
182

Net benefit in connection with the reversal of a contingent liability partially offset by the acceleration of amortization related to the termination of the Kate Spade license agreement
 
(1,868
)
 

Recovery, net of provisions for bad debt expense, related to the Payless ShoeSource bankruptcy
 
(259
)
 

Changes, net of acquisitions, in:
 
 
 
 
Accounts receivable
 
(8,005
)
 
(9,788
)
Factor accounts receivable
 
(56,327
)
 
(81,353
)
Notes receivable - related party
 
307

 
307

Inventories
 
(1,453
)
 
(37,167
)
Prepaid expenses, prepaid taxes, deposits and other
 
3,688

 
5,234

Accounts payable and accrued expenses
 
(16,015
)
 
18,816

Accrued incentive compensation
 
(276
)
 
(1,898
)
Lease and other liabilities
 
(2,140
)
 
39

Net cash provided by operating activities
 
83,158

 
46,466

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 

Acquisitions, net of cash acquired
 
(36,753
)
 

Capital expenditures
 
(9,211
)
 
(8,164
)
Purchases of marketable securities
 
(37,426
)
 
(42,531
)
Maturity/sale of marketable securities
 
77,757

 
76,373

Net cash (used in)/provided by investing activities
 
(5,633
)
 
25,678

 
 
 
 
 
Cash flows from financing activities:
 
 
 
 

Proceeds from exercise of stock options
 
2,606

 
12,801

Investment of noncontrolling interest
 
1,283

 

Distribution of noncontrolling interest earnings
 
(1,113
)
 

Payment of contingent liability
 

 
(7,000
)
Common stock purchased for treasury
 
(76,505
)
 
(50,880
)
Cash dividends paid on common stock
 
(35,805
)
 
(35,147
)
Net cash (used in) financing activities
 
(109,534
)
 
(80,226
)
Effect of exchange rate changes on cash and cash equivalents
 
(530
)
 
(595
)
Net (decrease) in cash and cash equivalents
 
(32,539
)
 
(8,677
)
Cash and cash equivalents – beginning of period
 
200,031

 
181,214

Cash and cash equivalents – end of period
 
$
167,492

 
$
172,537

See accompanying notes to condensed consolidated financial statements - unaudited.

6

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial StatementsUnaudited
September 30, 2019
($ in thousands except share and per share data)


Note A – Basis of Reporting

The accompanying unaudited condensed consolidated financial statements of Steven Madden, Ltd. and subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) that are considered necessary for a fair presentation of the financial position of the Company and the results of its operations and cash flows for the periods presented. Certain adjustments were made to prior years' amounts to conform to the 2019 presentation. The results of operations for the three and nine month periods ended September 30, 2019 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, 2018 included in the Annual Report of Steven Madden, Ltd. on Form 10-K filed with the SEC on February 28, 2019.
Note B – Acquisitions
GREATS Brand, Inc.
On August 9, 2019, the Company acquired 90% of the outstanding common stock of GREATS Brand, Inc., owner of GREATS, a pioneering digitally native sneaker brand, for an initial payment of $12,829 and a future contingent payment of $5,000 based on the GREATS brand achieving certain EBIT targets. In connection therewith, the Company recorded a non-current liability of $5,000 as of the date of acquisition to reflect the estimated fair value of the contingent purchase price. The amount of future payments will be determined by GREATS' future performance with no minimum future payment. After the effect of closing adjustments, the purchase price was $17,539, net of cash acquired of approximately $290. The acquisition was funded by cash on hand and adds a new footwear brand with significant growth potential to the Company.
The results of the GREATS brand have been included in the consolidated financial statements since the date of acquisition within the U.S. location of the Retail segment.

7

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial StatementsUnaudited
September 30, 2019
($ in thousands except share and per share data)

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the August 9, 2019 acquisition date:
Cash
$
290

Accounts receivable
41

Inventory
1,469

Prepaid and other assets
4,553

Fixed assets
200

Trademark (1)
13,590

Customer relationships (2)
1,140

Accounts payable
(1,964
)
Accrued expenses
(1,168
)
Deferred tax liabilities long-term
(3,541
)
Noncontrolling interest
(1,425
)
Total fair value excluding goodwill
13,185

Goodwill
4,644

Net assets acquired
$
17,829

 
 
(1) Trademark is indefinitely lived.
 
(2) Customer relationships will be amortized over 20 years.
 

B.B. Dakota, Inc.
On August 12, 2019, the Company acquired 100% of the outstanding common stock of B.B Dakota, Inc., owner of BB Dakota, a contemporary women's apparel company, for an initial payment of $24,568 and a future contingent payment on the BB Dakota brand achieving certain EBITDA targets. In connection therewith, the Company recorded a non-current liability of $4,770 as of the date of acquisition to reflect estimated fair value of the contingent purchase price. The amount of future payments will be determined by BB Dakota's future performance with no minimum future payment. After the effect of closing adjustments, the purchase price was $28,985, net of cash acquired of approximately $353. The acquisition was funded by cash on hand and adds a new apparel brand with significant growth potential to the Company.
The results of the BB Dakota brand have been included in the consolidated financial statements since the date of acquisition within the U.S. location of the Wholesale Accessories/Apparel segment.

8

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial StatementsUnaudited
September 30, 2019
($ in thousands except share and per share data)

The following table summarizes the fair value of the assets acquired and liabilities assumed as of the August 12, 2019 acquisition date:
Cash
$
353

Accounts receivable
4,419

Inventory
7,885

Prepaid and other assets
855

Fixed assets
382

Trademark (1)
9,670

Customer relationships (2)
2,530

Accounts payable
(2,885
)
Accrued expenses
(2,893
)
Deferred tax liabilities long-term
(2,933
)
Total fair value excluding goodwill
17,383

Goodwill
11,955

Net assets acquired
$
29,338

 
 
(1) Trademark is indefinitely lived.
 
(2) Customer relationships will be amortized over 10 years.
 

The acquisitions were accounted for in accordance with FASB Topic ASC 805 ("Business Combinations"), which requires that the total cost of an acquisition be allocated to tangible and intangible assets acquired and liabilities assumed based upon their respective fair values at the date of acquisition.

The Company recorded goodwill for both acquisitions based on the amount by which the purchase price exceeded the fair value of the net assets acquired, which consists largely of the synergies expected from the acquisitions.

Preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revision, which may result in adjustments to the preliminary values discussed above.

SM Distribution (China) Co., Ltd.

In September 2019, the Company formed a joint venture with Channelink LLP through its subsidiary, SM Distribution (China) Co., Ltd. The Company is 51% interest holder in SM Distribution (China) Co., Ltd. and controls all of the significant participating rights of the joint venture. As the Company controls all of the significant participating rights of the joint venture and is the majority interest holder in SM Distribution (China) Co., Ltd., the assets, liabilities and results of operations of the joint venture are consolidated and included in the Company’s consolidated financial statements. The other member's interest is reflected in “Net income attributable to noncontrolling interest” in the Condensed Consolidated Statements of Income and “Noncontrolling interest” in the Condensed Consolidated Balance Sheets.
Note C – Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant areas involving management estimates include variable consideration included in revenue, allowances for bad debts, inventory valuation, valuation of intangible assets, litigation reserves and contingent payment liabilities. The Company estimates variable consideration on trade accounts receivables and factor receivables for future customer chargebacks and markdown

9

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial StatementsUnaudited
September 30, 2019
($ in thousands except share and per share data)

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 DFactor Receivable
The Company has a collection agency agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”). The agreement can be terminated by the Company or Rosenthal at any time upon 60 days' prior written notice. Under the agreement, the Company can request advances from Rosenthal of up to 85% of aggregate receivables submitted to Rosenthal. The agreement provides the Company with a $30,000 credit facility with a $15,000 sub-limit for letters of credit at an interest rate based, at the Company’s election, upon a calculation that utilizes either the prime rate minus 0.5% or LIBOR plus 2.5%. As of September 30, 2019 and 2018, no borrowings were outstanding under the credit facility. As of September 30, 2019 there were no open letters of credit and as of September 30, 2018 there were open letters of credit of $812. The Company also pays Rosenthal a fee based on a percentage of the gross invoice amount submitted to Rosenthal. With respect to receivables related to our private label business, the fee is 0.14% of the gross invoice amount. With respect to all other receivables, the fee is 0.20% of the gross invoice amount. Rosenthal assumes the credit risk on a substantial portion of the receivables that the Company submits to it and, to the extent of any loans made to the Company, Rosenthal maintains a lien on the Company’s receivables to secure the Company’s obligations.
Note E – Marketable Securities
Marketable securities consist primarily of certificates of deposit and corporate bonds with maturities greater than three months and up to four years at the time of purchase. These securities, which are classified as available-for-sale, are carried at fair value, with unrealized gains and losses, net of any tax effect, reported in stockholders’ equity as accumulated other comprehensive income/(loss). Amortization of premiums and discounts is included in interest income. These securities are classified as current and non-current marketable securities based upon their maturities. As of September 30, 2019, all bonds previously held by the Company reached maturity. For the three and nine months ended September 30, 2019 and 2018, the amortization of bond premiums totaled $0 and $218 compared to $175 and $557, respectively. The value of these securities may fluctuate as a result of changes in market interest rates and credit risk. The schedule of maturities at September 30, 2019 and December 31, 2018 is as follows: