UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20192020
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) 
Delaware13-3588231
(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

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $.0001 per shareSHOOThe 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.
Yesx☒   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).
Yesx☒   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 filerx☒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 classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $.0001 per shareSHOOThe NASDAQ Stock Market LLC

As of August 1, 2019,July 30, 2020, there were 84,860,21483,151,403 shares of the registrant’s common stock, $0.0001 par value, outstanding.



STEVEN MADDEN, LTD.
TABLE OF CONTENTS TO QUARTERLY REPORT ON FORM 10-Q
June 30, 20192020



 
1
2
3
PART I – FINANCIAL INFORMATION
ITEM 1.
Condensed Consolidated Balance Sheets
1
Condensed Consolidated Statements of Income
2
Condensed Consolidated Statements of Comprehensive Income
3
Condensed Consolidated Statements of Changes in Stockholder' Equity
4
6
7
2024
3033
3133
3134
3234
3335
3436





PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
 June 30,
2019		 December 31,
2018		 June 30,
2018		June 30,
2020		December 31,
2019		June 30,
2019
 (unaudited)   (unaudited) (unaudited) (unaudited)
ASSETS  
  
  
ASSETS   
Current assets:  
  
  
Current assets:   
Cash and cash equivalents $212,664
 $200,031
 $190,985
Cash and cash equivalents$318,101  $264,101  $212,664  
Accounts receivable, net of allowances of $12,570, $10,849 and $1,292 21,409
 25,057
 39,510
Accounts receivable, net of allowances of $9,937, $11,066 and $12,570Accounts receivable, net of allowances of $9,937, $11,066 and $12,57020,183  38,166  21,409  
Factor accounts receivable 285,227
 241,395
 245,808
Factor accounts receivable123,496  216,471  285,227  
Inventories 146,120
 137,247
 133,627
Inventories103,282  136,896  146,120  
Marketable securities – available for sale 36,096
 66,968
 64,327
Marketable securities – available for sale38,837  40,521  36,096  
Prepaid expenses and other current assets 31,275
 23,425
 24,483
Prepaid expenses and other current assets18,444  22,066  31,275  
Prepaid taxes 8,012
 9,002
 13,289
Prepaid taxes13,578  658  8,012  
Total current assets 740,803
 703,125
 712,029
Total current assets635,921  718,879  740,803  
Note receivable – related party 1,743
 1,927
 2,108
Note receivable – related party1,369  1,558  1,743  
Property and equipment, net 61,654
 64,807
 67,378
Property and equipment, net49,594  65,504  61,654  
Operating lease right-of-use asset 179,320
 —
 —
Operating lease right-of-use asset120,489  155,700  179,320  
Deposits and other 2,592
 1,967
 2,211
Deposits and other2,917  2,948  2,592  
Marketable securities – available for sale —
 —
 2,122
Deferred taxes 9,319
 9,321
 6,340
Deferred taxes6,360  —  9,319  
Goodwill – net 148,566
 148,112
 148,142
Goodwill – net166,333  171,349  148,566  
Intangibles – net 137,563
 143,311
 147,312
Intangibles – net149,409  162,709  137,563  
Total Assets $1,281,560
 $1,072,570
 $1,087,642
Total Assets$1,132,392  $1,278,647  $1,281,560  
LIABILITIES  
  
  
LIABILITIES   
Current liabilities:  
  
  
Current liabilities:   
Accounts payable $107,436
 $79,802
 $100,463
Accounts payable$42,474  $61,706  $107,436  
Accrued expenses 129,810
 130,592
 126,774
Accrued expenses113,744  169,895  129,810  
Operating leases - current portion 38,652
 —
 —
Operating leases - current portion36,890  38,624  38,652  
Contingent payment liability – current portion —
 3,000
 —
Advances from factorAdvances from factor42,662  —  —  
Accrued incentive compensation 6,321
 11,295
 4,189
Accrued incentive compensation2,122  11,046  6,321  
Total current liabilities 282,219
 224,689
 231,426
Total current liabilities237,892  281,271  282,219  
Contingent payment liability —
 —
 3,000
Contingent payment liability1,829  9,124  —  
Deferred rent —
 15,786
 15,727
Operating leases - long-term portion 154,643
 —
 —
Operating leases - long-term portion114,630  133,172  154,643  
Deferred taxes 4,041
 4,041
 3,602
Deferred taxes3,128  5,877  4,041  
Other liabilities 13,101
 13,372
 3,594
Other liabilities7,793  7,979  13,101  
Total Liabilities 454,004
 257,888
 257,349
Total Liabilities365,272  437,423  454,004  
Commitments, contingencies and other (Note N) 

 

 

Commitments, contingencies and other (Note Q)Commitments, contingencies and other (Note Q)
STOCKHOLDERS’ EQUITY  
  
  
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 —
 —
 —
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, 132,681, 131,991 and 131,778 shares issued, 84,821, 85,715 and 87,726 shares outstanding 6
 6
 6
Common stock – $.0001 par value, 245,000 shares authorized, 133,173, 132,754 and 132,681 shares issued, 83,035, 83,520 and 84,821 shares outstandingCommon stock – $.0001 par value, 245,000 shares authorized, 133,173, 132,754 and 132,681 shares issued, 83,035, 83,520 and 84,821 shares outstanding6  6  6  
Additional paid-in capital 438,242
 424,835
 412,073
Additional paid-in capital466,384  454,217  438,242  
Retained earnings 1,264,631
 1,217,521
 1,173,310
Retained earnings1,263,910  1,310,406  1,264,631  
Accumulated other comprehensive loss (29,449) (32,628) (28,669)Accumulated other comprehensive loss(39,850) (30,440) (29,449) 
Treasury stock 47,860, 46,276 and 44,052 shares at cost (855,076) (803,920) (733,098)
Treasury stock – 50,138, 49,234 and 47,860 shares at costTreasury stock – 50,138, 49,234 and 47,860 shares at cost(935,366) (905,688) (855,076) 
Total Steven Madden, Ltd. stockholders’ equity 818,354
 805,814
 823,622
Total Steven Madden, Ltd. stockholders’ equity755,084  828,501  818,354  
Noncontrolling interest 9,202
 8,868
 6,671
Noncontrolling interest12,036  12,723  9,202  
Total stockholders’ equity 827,556
 814,682
 830,293
Total stockholders’ equity767,120  841,224  827,556  
Total Liabilities and Stockholders’ Equity $1,281,560
 $1,072,570
 $1,087,642
Total Liabilities and Stockholders’ Equity$1,132,392  $1,278,647  $1,281,560  

See accompanying notes to condensed consolidated financial statements - unaudited.

1
1



STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of (Loss)/Income
(unaudited)
(in thousands, except per share data)
 
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net sales$141,363  $444,974  $497,047  $855,914  
Commission and licensing fee income1,449  4,655  4,933  9,503  
Total revenue142,812  449,629  501,980  865,417  
Cost of sales86,924  279,629  312,628  533,572  
Gross profit55,888  170,000  189,352  331,845  
Operating expenses79,590  121,317  229,784  238,502  
Impairment of intangibles—  4,050  9,518  4,050  
(Loss)/income from operations(23,702) 44,633  (49,950) 89,293  
Interest and other income – net357  1,262  1,403  2,454  
(Loss)/income before provision for income taxes(23,345) 45,895  (48,547) 91,747  
(Benefit)/provision for income taxes (Note M)(6,201) 9,784  (13,602) 20,371  
Net (loss)/income(17,144) 36,111  (34,945) 71,376  
Less: net (loss)/income attributable to noncontrolling interest(558) (461) (908) 279  
Net (loss)/income attributable to Steven Madden, Ltd.$(16,586) $36,572  $(34,037) $71,097  
Basic net (loss)/income per share$(0.21) $0.46  $(0.43) $0.89  
Diluted net (loss)/income per share$(0.21) $0.44  $(0.43) $0.85  
Basic weighted average common shares outstanding78,517  79,951  78,696  80,241  
Effect of dilutive securities – options/restricted stock—  3,918  —  3,823  
Diluted weighted average common shares outstanding78,517  83,869  78,696  84,064  
Cash dividends declared per common share$—  $0.14  $0.15  $0.28  
  Three Months Ended June 30, Six Months Ended June 30,
  2019 2018 2019 2018
Net sales $444,974
 $395,753
 $855,914
 $784,767
Cost of sales 279,629
 247,979
 533,572
 496,260
Gross profit 165,345
 147,774
 322,342
 288,507
Commission and licensing fee income – net 3,147
 2,244
 4,374
 5,903
Operating expenses 119,809
 108,434
 233,373
 216,269
Impairment charges 4,050
 —
 4,050
 —
Income from operations 44,633
 41,584
 89,293
 78,141
Interest and other income – net 1,262
 1,033
 2,454
 1,630
Income before provision for income taxes 45,895
 42,617
 91,747
 79,771
Provision for income taxes (Note J) 9,784
 10,172
 20,371
 18,128
Net income 36,111
 32,445
 71,376
 61,643
Less: net (loss)/income attributable to noncontrolling interest (461) 35
 279
 560
Net income attributable to Steven Madden, Ltd. $36,572
 $32,410
 $71,097
 $61,083
         
         
Basic net income per share $0.46
 $0.40
 $0.89
 $0.75
         
Diluted net income per share $0.44
 $0.38
 $0.85
 $0.71
         
Basic weighted average common shares outstanding 79,951
 81,681
 80,241
 81,885
Effect of dilutive securities – options/restricted stock 3,918
 4,577
 3,823
 4,238
Diluted weighted average common shares outstanding 83,869
 86,258
 84,064
 86,123
         
Cash dividends declared per common share $0.14
 $0.13
 $0.28
 $0.26

See accompanying notes to condensed consolidated financial statements - unaudited.

2
2



STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss)/Income
(unaudited)
(in thousands)
 
Three Months Ended June 30, 2020Six Months Ended June 30, 2020
 Pre-tax amountsTax benefitAfter-tax amountsPre-tax amountsTax (expense)After-tax amounts
Net (loss)$(17,144) $(34,945) 
Other comprehensive income/(loss):  
      Foreign currency translation adjustment$5,770  $—  5,770  $(9,880) $—  (9,880) 
      (Loss)/gain on cash flow hedging derivatives(797) 240  (557) 879  (249) 630  
Total other comprehensive income/(loss)$4,973  $240  5,213  $(9,001) $(249) (9,250) 
Comprehensive (loss)(11,931) (44,195) 
Less: comprehensive (loss) attributable to noncontrolling interests(740) (748) 
Comprehensive (loss) attributable to Steven Madden, Ltd.$(11,191) $(43,447) 
Three Months Ended June 30, 2019Six Months Ended June 30, 2019
Pre-tax amountsTax benefit/(expense)After-tax amountsPre-tax amountsTax benefit/(expense)After-tax amounts
Net income$36,111  $71,376  
Other comprehensive income:
      Foreign currency translation adjustment$1,362  $—  1,362  $3,617  $—  3,617  
      (Loss) on cash flow hedging derivatives(567) 136  (431) (816) 196  (620) 
      Unrealized gain on marketable securities18  (4) 14  88  (21) 67  
Total other comprehensive income$813  $132  945  $2,889  $175  3,064  
Comprehensive income37,056  74,440  
Less: comprehensive (loss)/income attributable to noncontrolling interests(536) 164  
Comprehensive income attributable to Steven Madden, Ltd.$37,592  $74,276  
  Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
  Pre-tax amounts Tax benefit/(expense) After-tax amounts Pre-tax amounts Tax benefit/(expense) After-tax amounts
Net income     $36,111
     $71,376
Other comprehensive income:  
  
        
      Foreign currency translation adjustment $1,362
 $—
 1,362
 $3,617
 $—
 3,617
     (Loss) on cash flow hedging derivatives (567) 136
 (431) (816) 196
 (620)
      Unrealized gain on marketable securities 18
 (4) 14
 88
 (21) 67
Total other comprehensive income $813
 $132
 945
 $2,889
 $175
 3,064
             
Comprehensive income     37,056
     74,440
Less: comprehensive (loss)/income attributable to noncontrolling interests     (536)     164
Comprehensive income attributable to Steven Madden, Ltd.     $37,592
     $74,276
             
  Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
  Pre-tax amounts Tax (expense) After-tax amounts Pre-tax amounts Tax (expense) After-tax amounts
Net income     $32,445
     $61,643
Other comprehensive (loss):            
      Foreign currency translation adjustment $(4,668) $—
 (4,668) $(4,281) $—
 (4,281)
      Gain on cash flow hedging derivatives 568
 (136) 432
 1,538
 (369) 1,169
      Unrealized gain on marketable securities 86
 (21) 65
 75
 (18) 57
Total other comprehensive (loss) $(4,014) $(157) (4,171) $(2,668) $(387) (3,055)
             
Comprehensive income     28,274
     58,588
Less: comprehensive income attributable to noncontrolling interests     35
     560
Comprehensive income attributable to Steven Madden, Ltd.     $28,239
     $58,028

See accompanying notes to condensed consolidated financial statements - unaudited.

3
3


STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
(in thousands)

Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive (Loss)Treasury StockNon-Controlling InterestTotal Stockholders' Equity
SharesAmountSharesAmount
Balance - March 31, 202083,046  $6  $460,777  $1,280,496  $(45,245) 50,113  $(934,827) $12,417  $773,624  
Share repurchases(25) —  —  —  —  25  (539) —  (539) 
Exercise of stock options4  —  86  —  —  —  —  —  86  
Issuance of restricted stock, net of forfeitures10  —  —  —  —  —  —  —  —  
Stock-based compensation—  —  5,521  —  —  —  —  —  5,521  
Foreign currency translation adjustment—  —  —  —  5,952  —  —  (182) 5,770  
Cash flow hedge (net of tax benefit of $240)—  —  —  —  (557) —  —  —  (557) 
Investment of noncontrolling interest—  —  —  —  —  —  —  359  359  
Net (loss)—  —  —  (16,586) —  —  —  (558) (17,144) 
Balance - June 30, 202083,035  $6  $466,384  $1,263,910  $(39,850) 50,138  $(935,366) $12,036  $767,120  
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive (Loss)Treasury StockNon-Controlling InterestTotal Stockholders' Equity
SharesAmountSharesAmount
Balance - December 31, 201983,520  6  454,217  1,310,406  (30,440) 49,234  (905,688) 12,723  841,224  
Share repurchases(904) —  —  —  —  904  (29,678) —  (29,678) 
Exercise of stock options52  —  960  —  —  —  —  —  960  
Issuance of restricted stock, net of forfeitures367  —  —  —  —  —  —  —  —  
Stock-based compensation—  —  11,207  —  —  —  —  —  11,207  
Foreign currency translation adjustment—  —  —  —  (10,040) —  —  160  (9,880) 
Cash flow hedge (net of tax expense of $249)—  —  —  —  630  —  —  —  630  
Dividends on common stock ($0.15 per share)—  —  —  (12,459) —  —  —  —  (12,459) 
Investment of noncontrolling interest—  —  —  —  —  —  —  359  359  
Acquisition adjustment of noncontrolling interest—  —  —  —  —  —  —  (298) (298) 
Net (loss)—  —  —  (34,037) —  —  —  (908) (34,945) 
Balance - June 30, 202083,035  $6  $466,384  $1,263,910  $(39,850) 50,138  $(935,366) $12,036  $767,120  







4
  Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Treasury Stock Non-Controlling Interest Total Stockholders' Equity
  Shares AmountShares Amount
Balance - March 31, 2019 85,729
 $6
 $431,228
 $1,240,004
 $(30,469) 46,801
 $(821,074) $10,851
 $830,546
Share repurchases (1,059) —
 —
 —
 —
 1,059
 (34,002) —
 (34,002)
Exercise of stock options 48
 —
 1,077
 —
 —
 —
 —
 —
 1,077
Issuance of restricted stock, net of forfeitures 103
 —
 —
 —
 —
 —
 —
 —
 —
Stock-based compensation —
 —
 5,937
 —
 —
 —
 —
 —
 5,937
Foreign currency translation adjustment —
 —
 —
 —
 1,437
 —
 —
 (75) 1,362
Unrealized holding gain on securities (net of tax expense of $4) —
 —
 —
 —
 14
 —
 —
 —
 14
Cash flow hedge (net of tax benefit of $136) —
 —
 —
 —
 (431) —
 —
 —
 (431)
Dividends on common stock ($0.14 per share) —
 —
 —
 (11,945) —
 —
 —
 —
 (11,945)
Distributions to non-controlling interests, net —
 —
 —
 —
 —
 —
 —
 (1,113) (1,113)
Net income/(loss) —
 —
 —
 36,572
 —
 —
 —
 (461) 36,111
Balance - June 30, 2019 84,821
 $6
 $438,242
 $1,264,631
 $(29,449) 47,860
 $(855,076) $9,202
 $827,556
  Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Treasury Stock Non-Controlling Interest Total Stockholders' Equity
  Shares AmountShares 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 (1,584) —
 —
 —
 —
 1,584
 (51,156) —
 (51,156)
Exercise of stock options 80
 —
 1,799
 —
 —
 —
 —
 —
 1,799
Issuance of restricted stock, net of forfeitures 610
 —
 —
 —
 —
 —
 —
 —
 —
Stock-based compensation —
 —
 11,608
 —
 —
 —
 —
 —
 11,608
Foreign currency translation adjustment —
 —
 —
 —
 3,732
 —
 —
 (115) 3,617
Unrealized holding gain on securities (net of tax expense of $21) —
 —
 —
 —
 67
 —
 —
 —
 67
Cash flow hedge (net of tax benefit of $196) —
 —
 —
 —
 (620) —
 —
 —
 (620)
Dividends on common stock ($0.28 per share) —
 —
 —
 (23,987) —
 —
 —
 —
 (23,987)
Distributions to non-controlling interests, net —
 —
 —
 —
 —
 —
 —
 (1,113) (1,113)
Non-controlling investment in JV —
 —
 —
 —
 —
 —
 —
 1,283
 1,283
Net income —
 —
 —
 71,097
 —
 —
 —
 279
 71,376
Balance - June 30, 2019 84,821
 $6
 $438,242
 $1,264,631
 $(29,449) 47,860
 $(855,076) $9,202
 $827,556



4



STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
(in thousands)

Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive (Loss)Treasury StockNon-Controlling InterestTotal Stockholders' Equity
SharesAmountSharesAmount
Balance - March 31, 201985,729  $6  $431,228  $1,240,004  $(30,469) 46,801  $(821,074) $10,851  $830,546  
Share repurchases(1,059) —  —  —  —  1,059  (34,002) —  (34,002) 
Exercise of stock options48  —  1,077  —  —  —  —  —  1,077  
Issuance of restricted stock, net of forfeitures103  —  —  —  —  —  —  —  —  
Stock-based compensation—  —  5,937  —  —  —  —  —  5,937  
Foreign currency translation adjustment—  —  —  —  1,437  —  —  (75) 1,362  
Unrealized holding gain on securities (net of tax expense of $4)—  —  —  —  14  —  —  —  14  
Cash flow hedge (net of tax benefit of $136)—  —  —  —  (431) —  —  —  (431) 
Dividends on common stock ($0.14 per share)—  —  —  (11,945) —  —  —  —  (11,945) 
Distributions to non-controlling interests, net—  —  —  —  —  —  —  (1,113) (1,113) 
Net income/(loss)—  —  —  36,572  —  —  —  (461) 36,111  
Balance - June 30, 201984,821  $6  $438,242  $1,264,631  $(29,449) 47,860  $(855,076) $9,202  $827,556  
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive (Loss)Treasury StockNon-Controlling InterestTotal Stockholders' Equity
SharesAmountSharesAmount
Balance - December 31, 201885,715  6  424,835  1,217,521  (32,628) 46,276  (803,920) 8,868  814,682  
Share repurchases(1,584) —  —  —  —  1,584  (51,156) —  (51,156) 
Exercise of stock options80  —  1,799  —  —  —  —  —  1,799  
Issuance of restricted stock, net of forfeitures610  —  —  —  —  —  —  —  —  
Stock-based compensation—  —  11,608  —  —  —  —  —  11,608  
Foreign currency translation adjustment—  —  —  —  3,732  —  —  (115) 3,617  
Unrealized holding gain on securities (net of tax expense of $21)—  —  —  —  67  —  —  —  67  
Cash flow hedge (net of tax benefit of $196)—  —  —  —  (620) —  —  —  (620) 
Dividends on common stock ($0.28 per share)—  —  —  (23,987) —  —  —  —  (23,987) 
Distributions to non-controlling interests, net—  —  —  —  —  —  —  (1,113) (1,113) 
Investment of noncontrolling interest—  —  —  —  —  —  —  1,283  1,283  
Net income—  —  —  71,097  —  —  —  279  71,376  
Balance - June 30, 201984,821  $6  $438,242  $1,264,631  $(29,449) 47,860  $(855,076) $9,202  $827,556  
  Common Stock Additional Paid‑in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Treasury Stock Non-Controlling Interest Total Stockholders' Equity
  Shares AmountShares Amount
Balance - March 31, 2018 87,498
 $6
 $397,135
 $1,152,616
 $(24,498) 43,763
 $(723,673) $6,636
 $808,222
Share repurchases (289) —
 —
 —
 —
 289
 (9,425) —
 (9,425)
Exercise of stock options 432
 —
 9,596
 —
 —
 —
 —
 —
 9,596
Issuance of restricted stock, net of forfeitures 85
 —
 —
 —
 —
 —
 —
 —
 —
Stock-based compensation —
 —
 5,342
 —
 —
 —
 —
 —
 5,342
Foreign currency translation adjustment —
 —
 —
 —
 (4,668) —
 —
 —
 (4,668)
Unrealized holding gain on securities (net of tax expense of $21) —
 —
 —
 —
 65
 —
 —
 —
 65
Cash flow hedge (net of tax expense of $136) —
 —
 —
 —
 432
 —
 —
 —
 432
Dividends on common stock ($0.13 per share) —
 —
 —
 (11,716) —
 —
 —
 —
 (11,716)
Net income —
 —
 —
 32,410
 —
 —
 —
 35
 32,445
Balance - June 30, 2018 87,726
 $6
 $412,073
 $1,173,310
 $(28,669) 44,052
 $(733,098) $6,671
 $830,293
  Common Stock Additional Paid‑in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Treasury Stock Non-Controlling Interest Total Stockholders' Equity
  Shares AmountShares 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 (1,140) —
 —
 —
 —
 1,140
 (35,102) —
 (35,102)
Exercise of stock options 503
 —
 11,115
 —
 —
 —
 —
 —
 11,115
Issuance of restricted stock, net of forfeitures 316
 —
 —
 —
 —
 —
 —
 —
 —
Stock-based compensation —
 —
 10,235
 —
 —
 —
 —
 —
 10,235
Foreign currency translation adjustment —
 —
 —
 —
 (4,281) —
 —
 —
 (4,281)
Unrealized holding gain on securities (net of tax expense of $18) —
 —
 —
 —
 57
 —
 —
 —
 57
Cash flow hedge (net of tax expense of $369) —
 —
 —
 —
 1,169
 —
 —
 —
 1,169
Dividends on common stock ($0.26 per share) —
 —
 —
 (23,474) —
 —
 —
 —
 (23,474)
Net income —
 —
 —
 61,083
 —
 —
 —
 560
 61,643
Balance - June 30, 2018 87,726
 $6
 $412,073
 $1,173,310
 $(28,669) 44,052
 $(733,098) $6,671
 $830,293

See accompanying notes to condensed consolidated financial statements - unaudited.

5

5


STEVEN MADDEN, LTD. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 Six Months Ended June 30,Six Months Ended June 30,
 2019 2018 20202019
Cash flows from operating activities:  
  
Cash flows from operating activities:  
Net income $71,376
 $61,643
Adjustments to reconcile net income to net cash provided by operating activities:    
Net (loss)/incomeNet (loss)/income$(34,945) $71,376  
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Stock-based compensation 11,608
 10,235
Stock-based compensation11,207  11,608  
Depreciation and amortization 10,763
 11,109
Depreciation and amortization9,244  10,763  
Loss/(gain) on disposal of fixed assets 737
 (14)
Impairment of intangible 4,050
 —
Loss on disposal of fixed assetsLoss on disposal of fixed assets305  737  
Impairment of intangiblesImpairment of intangibles9,518  4,050  
Impairment of lease right-of-use assetImpairment of lease right-of-use asset17,986  —  
Impairment of store fixed assetsImpairment of store fixed assets12,012  —  
Deferred taxes 2
 2,001
Deferred taxes(9,109) 2  
Accrued interest on note receivable - related party (21) (24)Accrued interest on note receivable - related party(16) (21) 
Deferred rent benefit —
 (306)
Change in valuation of contingent considerationsChange in valuation of contingent considerations(4,611) —  
Realized loss on sale of marketable securities 5
 182
Realized loss on sale of marketable securities—  5  
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) —
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) —
Recovery, net of provisions for bad debt expense, related to the Payless ShoeSource bankruptcy—  (259) 
Changes, net of acquisitions, in:    Changes, net of acquisitions, in:
Accounts receivable 3,909
 (37)Accounts receivable17,984  3,909  
Factor accounts receivable (43,832) (44,372)Factor accounts receivable92,975  (43,832) 
Notes receivable - related party 204
 205
Notes receivable - related party204  204  
Inventories (8,873) (23,303)Inventories33,614  (8,873) 
Prepaid expenses, prepaid taxes, deposits and other (7,849) 11,182
Prepaid expenses, prepaid taxes, deposits and other(9,247) (7,849) 
Accounts payable and accrued expenses 26,232
 38,092
Accounts payable and accrued expenses(76,183) 26,232  
Accrued incentive compensation (4,974) (6,278)Accrued incentive compensation(8,812) (4,974) 
Lease and other liabilities (1,449) (15,388)Lease and other liabilities(4,259) (1,449) 
Net cash provided by operating activities 59,761
 44,927
Net cash provided by operating activities57,867  59,761  
    
Cash flows from investing activities:    
Cash flows from investing activities: 
Capital expenditures (6,214) (5,251)Capital expenditures(4,320) (6,214) 
Purchases of marketable securities (37,426) (41,738)Purchases of marketable securities(25,818) (37,426) 
Maturity/sale of marketable securities 69,488
 66,634
Maturity/sale of marketable securities25,656  69,488  
Net cash provided by investing activities 25,848
 19,645
Net cash (used in)/provided by investing activitiesNet cash (used in)/provided by investing activities(4,482) 25,848  
    
Cash flows from financing activities:    
Cash flows from financing activities: 
Proceeds from exercise of stock options 1,799
 11,115
Proceeds from exercise of stock options960  1,799  
Investment of noncontrolling interest 1,283
 —
Investment of noncontrolling interest359  1,283  
Distribution of noncontrolling interest earnings (1,113) —
Distribution of noncontrolling interest earnings—  (1,113) 
Payment of contingent liability —
 (7,000)
Common stock purchased for treasury (51,156) (35,102)Common stock purchased for treasury(29,678) (51,156) 
Cash dividends paid on common stock (23,987) (23,474)Cash dividends paid on common stock(12,459) (23,987) 
Net cash (used in) financing activities (73,174) (54,461)
Advances from factorAdvances from factor176,784  —  
Repayments of advances from factorRepayments of advances from factor(134,122) —  
Net cash provided by/(used in) financing activitiesNet cash provided by/(used in) financing activities1,844  (73,174) 
Effect of exchange rate changes on cash and cash equivalents 198
 (340)Effect of exchange rate changes on cash and cash equivalents(1,229) 198  
Net increase in cash and cash equivalents 12,633
 9,771
Net increase in cash and cash equivalents54,000  12,633  
Cash and cash equivalents – beginning of period 200,031
 181,214
Cash and cash equivalents – beginning of period264,101  200,031  
Cash and cash equivalents – end of period $212,664
 $190,985
Cash and cash equivalents – end of period$318,101  $212,664  

See accompanying notes to condensed consolidated financial statements - unaudited.

6
6
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 20192020
($ 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) whichthat 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 adjustmentsreclassifications were made to prior years' amountspresentation to conform to the 2019 presentation and to reflect the three-for-two stock split (see Note B).2020 presentation. The results of operations for the three and six monthsix-month periods ended June 30, 20192020 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, 20182019 included in the Annual Report of Steven Madden, Ltd. on Form 10-K filed with the SEC on February 28, 2019.March 2, 2020.

Note B - COVID-19
Note B – Stock Split
On September 17, 2018,In December 2019, COVID-19 emerged and spread worldwide. The World Health Organization declared COVID-19 a pandemic in March 2020, resulting in federal, state and local governments and private entities mandating various restrictions, including the closure of non-essential businesses, travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining of people who may have been exposed to the virus. After closely monitoring and taking into consideration the guidance from federal, state and local governments, in March 2020, the Company announced that on September 11, 2018temporarily closed all of its Board of Directors declared a three-for-two stock split of the Company's outstanding shares of common stock, effectedbrick-and-mortar stores and its corporate offices in the formU.S. and the vast majority of its brick-and-mortar stores and offices globally. Effective April 1, 2020, the Company temporarily furloughed a stock dividendsignificant number of its employees. Employees with medical benefits will continue to receive those benefits at no personal cost for a duration to be determined by the Company. Remaining employees worked and continue to work remotely. These and other factors have had and may continue to have a material impact on the Company's outstanding common stock. Stockholdersbusiness, results of record atoperations, financial position and cash flow. In response to the closeCOVID-19 pandemic, the Company took precautionary measures to maintain adequate liquidity and financial flexibility by suspending share repurchases and the quarterly cash dividend; suspending salaries of businessour Founder and Creative and Design Chief, Steve Madden, our Chairman and Chief Executive Officer, Edward Rosenfeld, and our Board of Directors; reducing salaries by 30% for our President, Chief Financial Officer, Chief Operating Officer and Chief Merchandising Officer; reducing salaries by graduated amounts for all other employees earning over $100 per year; significantly scaling back on October 1, 2018 received one additional sharenon-essential operating expenses, capital expenditures and planned inventory purchases; and as a precautionary measure, drawing down on the Company's newly amended $50,000 credit facility with Rosenthal & Rosenthal, Inc. The Company experienced other adverse impacts as a result of Steven Madden, Ltd. common stockthe COVID-19 pandemic, including, but not limited to, charges from adjustments to the carrying amount of certain trademarks, long-lived asset impairment charges and restructuring and other related charges.

During the second quarter 2020, the Company recorded a pre-tax charge of $5,414 related to restructuring and other related items. This charge was related to the lay-off of approximately 250 employees. The pre-tax charge of $5,414 comprised of $2,958 recorded in the Footwear segment, $1,678 recorded in the Accessories/Apparel segment, $646 recorded in the Retail segment, $125 recorded in the First Cost segment and $6 recorded in the Licensing segment.


Note C – Reclassification

The Company reclassified commission and licensing fee income into Total Revenue and reclassified the respective expenses into Operating Expenses from previously labeled Commission and Licensing Fee Income - Net on the Company’s Condensed Consolidated Statements of Income for every two shares of common stock owned on that date. The additional shares were distributed on October 11, 2018. Stockholders received cashthe 2019 period.
7
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2020
($ in lieu of any fractional shares of common stock they otherwise would have received in connection with the dividend. Allthousands except share and per share data provided herein gives effect to this stock split, applied retroactively.data)
Note CD – 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 EBITA targets (See Note H - Fair Value Measurements). 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 $14,209, net of cash acquired of approximately $290. The acquisition was funded by cash on hand and adds a new footwear brand with added 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 Retail and Wholesale footwear segments.

The following table summarizes the adjusted fair value of the assets acquired and liabilities assumed in the acquisition:
Cash$290 
Accounts receivable41 
Inventory1,387 
Prepaid and other assets6,447 
Fixed assets200 
Trademark (1)
13,086 
Customer relationships (2)
1,140 
Accounts payable(1,963)
Accrued expenses(1,055)
Deferred tax liabilities long-term(3,463)
Noncontrolling interest(1,611)
Total fair value of assets acquired$14,499 
(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 (See Note H - Fair Value Measurements). In connection therewith, the Company recorded a long-term 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 $29,404, net of cash acquired of approximately $353 and a post-closing capital adjustment of $419. The acquisition was funded by cash on hand and adds new apparel brands with added 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 Wholesale Accessories/Apparel and Retail segments.

8
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2020
($ 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 receivable4,419 
Inventory6,696 
Prepaid and other assets855 
Fixed assets382 
Trademark (1)
9,670 
Customer relationships (2)
2,530 
Accounts payable(2,885)
Accrued expenses(2,893)
Deferred tax liabilities long-term(2,735)
Total fair value excluding goodwill16,392 
Goodwill13,365 
Net assets acquired$29,757 
(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 the BB Dakota acquisition 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 acquisition.

Note E – 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, impairment of long-lived 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 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. While the full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated, the Company has made accounting estimates based on the facts and circumstances available as of the reporting date. Actual amounts could differ from these estimates, and such differences could be material.

Note DF – Factor Receivable

TheDuring the six-month period ending June 30, 2020, the Company hashad 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 canhad the right to request advances from Rosenthal of up to the lower of 85% of aggregate receivables submitted to Rosenthal. The agreement provides the Company withRosenthal or a $30,000$50,000 credit facility with a $15,000$15,000 sub-limit for letters of creditcredit. Advances under the agreement bore interest at an interesta 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 June 30, 2020, $42,662 was outstanding under the credit facility and recorded as advances from factor on the Company's Condensed Consolidated Balance Sheets. As of December 31,
9
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2020
($ in thousands except share and per share data)
2019, and 2018,June 30, 2019 no borrowings were outstanding under the credit facility. As of June 30, 2020 and 2019, as well as December 31, 2019, there were no open letters of credit and as of June 30, 2018 there were open letters of credit of $110.credit. The Company also payspaid Rosenthal a fee based on a percentage of the gross invoice amount submitted to Rosenthal. With respect to receivables related to ourthe Company's private label business, the fee iswas 0.14% of the gross invoice amount. With respect to all other receivables, the fee is was 0.20% of the gross invoice amount. Rosenthal assumesassumed 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.


7
STEVEN MADDEN, LTD. AND SUBSIDIARIES

On July 22, 2020, the Company and Rosenthal entered into an Amended and Restated Deferred Purchase Factoring Agreement, which amended, restated, replaced, and superseded the Rosenthal agreement. At that time, all advances from Rosenthal were repaid. See Note T - Subsequent Events for further information regarding the Amended and Restated Deferred Purchase Factoring Agreement.
Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2019
($ in thousands except share and per share data)

Note EG – Marketable Securities
Marketable securities consist primarily of certificates of deposit andIn the period ended June 30, 2019, the Company held 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). These securities are classified as current and non-current marketable securities based upon their maturities. Amortization of premiums and discounts is included in interest income. As of June 30, 2020, all bonds previously held by the Company reached maturity. For the three and six months ended June 30, 20192020 and 2018,2019, the amortization of bond premiums totaled $0 and $0 compared to $88 and $218, compared to $183 and $382, respectively. The value of these securitiescorporate bonds may fluctuate as a result of changes in market interest rates and credit risk.
As of June 30, 2020 and December 31, 2019, marketable securities consisted of certificates of deposit. These securities are classified as current based upon their maturities.
The schedule of maturities at June 30, 20192020 and December 31, 20182019 is as follows:
 Maturities as of
June 30, 2019		 Maturities as of
December 31, 2018
 1 Year or Less 1 to 4 Years 1 Year or Less 1 to 4 Years
Corporate bonds$2,150
 $—
 $24,617
 $—
Certificates of deposit33,946
 —
 42,351
 —
Total$36,096
 $—
 $66,968
 $—

Maturities as of
June 30, 2020		Maturities as of
December 31, 2019
1 Year or Less1 to 4 Years1 Year or Less1 to 4 Years
Certificates of deposit$38,837  $—  $40,521  $—  
Total$38,837  $—  $40,521  $—  
For the three and six months ended June 30, 2019,2020, losses of $5$0 and $5$0 were reclassified from accumulated other comprehensive income and recognized in the Condensed Consolidated Statements of (Loss)/Income in interest and other income compared to losses of $49$5 and $182$5 for the comparable periods in 2018.2019. As of June 30, 2020, there were no unrealized gains or losses, as all bonds previously held by the Company reached maturity. For the six months ended June 30,comparable period in 2019, current marketable securities included immaterial unrealized losses and no non-current marketable securities were held by the Company. For the comparable period in 2018, current marketable securities included unrealized losses of $114 while non-current marketable securities included unrealized losses of $21.

8
10
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 20192020
($ in thousands except share and per share data)

Note FH – Fair Value Measurement
The accounting guidance under Accounting Standards Codification 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”) requires the Company to make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:
 
•Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.
•Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.
•Level 3: Significant unobservable inputs.

The Company’s financial assets and liabilities subject to fair value measurements as of June 30, 2019 and December 31, 2018 are as follows:

    June 30, 2019
    Fair Value Measurements
  Fair value Level 1 Level 2 Level 3
Assets:  
  
  
  
Cash equivalents $96,781
 $96,781
 $—
 $—
Current marketable securities – available for sale 36,096
 36,096
 —
 —
Total assets $132,877
 $132,877
 $—
 $—
Liabilities:  
  
  
  
Forward contracts $139
 $—
 $139
 $—
Total liabilities $139
 $—
 $139
 $—

    December 31, 2018
    Fair Value Measurements
  Fair value Level 1 Level 2 Level 3
Assets:  
  
  
  
Cash equivalents $77,050
 $77,050
 $—
 $—
Current marketable securities – available for sale 66,968
 66,968
 —
 —
Forward contracts 707
 —
 707
 —
Total assets $144,725
 $144,018
 $707
 $—
Liabilities:  
  
  
  
Contingent consideration $3,000
 $—
 $—
 $3,000
Total liabilities $3,000
 $—
 $—
 $3,000



9
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2019
($ in thousands except share and per share data)

Our level 3 balance consists of contingent consideration related to an acquisition. The changes in our level 3 liabilities for the periods ended June 30, 20192020 and December 31, 20182019 are as follows:
 Balance at January 1, Payments Acquisitions Change in estimate Balance at June 30,
2019         
Liabilities:         
     Contingent consideration$3,000
 —
 —
 (3,000) $—
          
 Balance at January 1, Payments Acquisitions Change in estimate Balance at December 31,
2018         
Liabilities:         
     Contingent consideration$10,000
 (7,000) —
 —
 3,000


  June 30, 2020
  Fair Value Measurements
 Fair valueLevel 1Level 2Level 3
Assets:    
Cash equivalents$192,945  $192,945  $—  $—  
Current marketable securities38,837  38,837  —  —  
Forward contracts565  —  565  —  
Total assets$232,347  $231,782  $565  $—  
Liabilities:    
Contingent consideration$1,829  $—  $—  $1,829  
Total liabilities$1,829  $—  $—  $1,829  

  December 31, 2019
  Fair Value Measurements
 Fair valueLevel 1Level 2Level 3
Assets:    
Cash equivalents$107,535  $107,535  $—  $—  
Current marketable securities40,521  40,521  —  —  
Total assets$148,056  $148,056  $—  $—  
Liabilities:    
Contingent consideration$9,124  $—  $—  $9,124  
Forward contracts495  —  495  —  
Total liabilities$9,619  $—  $495  $9,124  


Forward contracts are entered into to manage the risk associated with the volatility of future cash flows (see Note M P - Derivative Instruments). Fair value of these instruments is based on observable market transactions of spot and forward rates.
11
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2020
($ in thousands except share and per share data)
The Company's level 3 balance consists of contingent consideration related to acquisitions. The changes in the Company's level 3 liabilities for the periods ended June 30, 2020 and December 31, 2019 are as follows:
Balance at January 1,PaymentsAcquisitionsAdjustments (1)Balance at
June 30,
2020
Liabilities:
     Contingent consideration$9,124  —  —  (7,295) $1,829  
Balance at January 1,PaymentsAcquisitionsAdjustments (2)Balance at December 31,
2019
Liabilities:
     Contingent consideration$3,000  —  9,124  (3,000) $9,124  
(1) Amount consists of adjustments of $3,930 and $3,365 to the preliminary purchase accounting of B.B. Dakota, Inc. and GREATS Brand, Inc, respectively. The adjustment of $3,930 was a benefit to operating expenses, related to the change in valuation of the contingent consideration in connection with acquisition of B.B. Dakota, Inc. The adjustment of $3,365, comprises an adjustment of $2,684 to the preliminary fair value, recorded during the first quarter 2020 and a benefit of $681 to operating expenses related to the change in valuation of the contingent consideration in connection with the acquisition of GREATS Brand, Inc., recorded during the second quarter of 2020.

(2) Amount was a benefit of $3,000 to operating expenses related to the Schwartz and Benjamin acquisition.

At June 30, 2020, the liability for potential contingent consideration was $989 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 the present value of the payments based on management’s projections of the financial results of GREATS Brand, Inc. during the earn-out period, utilizing a discount rate of 11.3%.

At June 30, 2020, the liability for potential contingent consideration was $840 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 present value of the payments based on management’s projections of the financial results of B.B. Dakota, Inc. during the earn-out period, utilizing a discount rate of 11.8%.

The Company recorded a liability for potential contingent consideration in connection with the January 30, 2017 acquisition of Schwartz & Benjamin. Pursuant to the terms of an earn-out provision contained in the equity purchase agreement, as amended, between the Company and the sellers of Schwartz & Benjamin, earn-out payments are based on the performance of certain specified license agreements. The fair value of the contingent payments was estimated using the present value of the payments based on management’s projections of the financial results of Schwartz & Benjamin during the earn-out period. An earn-out payment in the aggregate amount of $7,000 was paid to the sellers of Schwartz & Benjamin in the first quarter of 2018, leaving a remaining balance of $3,000 at December 31, 2018, which, in2018. In the first quarter of 2019, the Company reversed the $3,000 balance, because it willdid not needhave to pay based onbe paid due to the termination of the Kate Spade license agreement which will occurheld by Schwartz & Benjamin as of December 31, 2019.

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. During the endfirst quarter, Cejon, GREATS and Jocelyn trademarks with an aggregate carrying amount of $40,598 were written down to their fair values of $31,080, resulting in a pre-tax impairment charge of $9,518. Of the current fiscal year.$9,518 impairment charge, $9,062 and $456 were recorded in impairment of intangibles in the Wholesale Accessories/apparel and Retail segments, respectively.

Accounting guidance permits entities
The fair values of right-of-use lease assets and fixed assets related to choose to measure financial instrumentsCompany-owned retail stores were determined using Level 3 inputs, including estimated discounted future cash flows associated with the assets using sales trends and market participant assumptions. During the first quarter, certain right-of-use lease assets with a carrying amount of $60,661 and certain other items atproperty, plant and equipment with a carrying amount of $12,292 related to retail store fixed assets were written down to a fair value that are not currently requiredof $43,835 and $297, respectively, resulting in impairment charges of $28,821. During the second quarter, the Company
12
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to be measured at fair value.Condensed Consolidated Financial Statements – Unaudited
June 30, 2020
($ in thousands except share and per share data)
recorded an additional impairment charge of $1,161. 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.impairment charges were recorded in operating expenses in the Retail segment.

The carrying value of certain financial instruments such as cash equivalents, certificate of deposits, 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 investments in marketable securities available for sale (corporate bonds) 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. Some assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. 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.
Note GI – Leases
During the first quarter 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date as of January 1, 2019. TheUpon adoption, the Company did not apply the new standard to comparative periodsrecorded $194,100 for right-of-use asset and therefore, those amounts are not presented below.$209,000 for lease liabilities.

The Company elected the package of three practical expedients. As such, the Company did not reassess whether expired or existing contracts are or contain a lease and did not need to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases. The Company did not elect the hindsight practical expedient and the land easement practical expedient, neither of which are applicable to the Company. Also,In addition, the Company has elected to take the practical expedient to not separate lease and non-lease components for all asset classes.


10
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2019
($ in thousands except share and per share data)

The Company leases office space, sample production space, warehouses, showrooms, storage and retail stores under operating leases. The Company’s portfolio of leases is primarily related to real estate and since most ourof its leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing rate to discount the lease payments based on information available at lease commencement.

Lease Position
The table below presents the lease-related assets and liabilities recorded on the balance sheet as of June 30, 2020 and December 31, 2019:
Classification on the Balance Sheet June 30, 2019 Classification on the Balance SheetJune 30, 2020December 31, 2019
Assets  Assets
NoncurrentOperating lease right-of-use asset $179,320
Noncurrent (1) (2)
Noncurrent (1) (2)
Operating lease right-of-use asset$120,489  $155,700  
  
Liabilities  Liabilities
CurrentOperating leases - current portion $38,652
CurrentOperating leases - current portion$36,890  $38,624  
NoncurrentOperating leases - long-term portion 154,643
NoncurrentOperating leases - long-term portion114,630  133,172  
Total operating lease liabilities  $193,295
Total operating lease liabilities$151,520  $171,796  
  
Weighted-average remaining lease term 5.9 years
Weighted-average remaining lease term5.2 years5.5 years
Weighted-average discount rate(1)
 4.4%
Weighted-average discount rateWeighted-average discount rate4.4 %4.4 %
(1) Upon adoptionDuring the first quarter of 2020, the new lease standard, discount rates used for existing leases were established at January 1, 2019.Company recorded a pre-tax impairment charge related to the right-of-use assets of $16,826 and during the second quarter of 2020, the Company recorded a pre-tax impairment charge related to the right-of-use assets of $1,161.

(2) During the third quarter of 2019, the Company recorded a pre-tax impairment charge related to the right-of-use assets of $1,883.

13
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2020
($ in thousands except share and per share data)
Lease Costs
 The table below presents certain information related to lease costs for leases during the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Operating lease cost$9,033  $11,544  $20,416  $22,901  
Short-term lease cost106  9  119  16  
Less: sublease income201  147  402  277  
Total lease cost$8,938  $11,406  $20,133  $22,640  
 Three Months Ended June 30, 2019 Six Months Ended June 30, 2019
Operating lease cost$11,544
 $22,901
Short-term lease cost9
 16
Less: Sublease Income147
 277
Total lease cost$11,406
 $22,640


Other Information
The table below presents supplemental cash flow information related to leases as of the six months ended June 30, 2020 and 2019:
Six Months Ended June 30,
20202019
Cash paid for amounts included in the measurement of lease liabilities
     Operating cash flows used for operating leases$21,772  $22,963  
 Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities 
     Operating cash flows used for operating leases$22,963



11
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2019
($ in thousands except share and per share data)

Undiscounted Cash Flows
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the lease liabilities recorded on the balance sheet as of June 30, 2019:2020:

 Operating Leases
2019 (remaining six months)$23,422
202045,349
202139,084
202230,762
202322,397
Thereafter58,679
Total minimum lease payments219,693
Less: interest26,398
Present value of lease liabilities$193,295


2020 (remaining six months)$22,602  
202139,925  
202230,983  
202322,067  
202418,381  
Thereafter35,789  
Total minimum lease payments169,747  
Less: interest18,227  
Present value of lease liabilities$151,520  

Note HJ – Impairment of Other Long-Lived Assets

Property and equipment and lease-related right-of-use assets, along with other long-lived assets, are evaluated for impairment periodically whenever triggering events or indicators exist that the carrying values may not be fully recoverable. As a result of the COVID-19 pandemic, the Company experienced lower than projected revenues and EBITDA, and identified indicators of impairment for certain stores. The Company performed undiscounted cash flow analyses over the long-lived assets of certain stores with impairment indicators and compared them to the carrying value of those assets. Based on these undiscounted cash flow analyses, the Company determined that certain long-lived assets had carrying values that exceeded their estimated undiscounted cash flows. Fair values of the long-lived assets are estimated using an income approach based on management’s forecast of future cash flows derived from continued retail operations and the fair value of individual operating lease assets determined using estimated market rental rates. Significant estimates are used in determining future cash flows of each store over its remaining lease term including the Company's expectations of future projected cash flows which include revenues, operating expenses, and market conditions. An impairment loss is recorded if the carrying amount of the long-lived asset
14
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2020
($ in thousands except share and per share data)
exceeds its fair value. As a result, the Company recognized a pre-tax charge of $16,826 for impairment of its right-of-use assets and a pre-tax charge of $11,995 for impairment of its stores fixed assets for the three months ended March 31, 2020. During the three months ended June 30, 2020, the Company recorded a pre-tax charge of $1,161 for impairment of its right-of-use assets and a pre-tax charge of $17 for impairment of its stores fixed assets. These charges were recorded in operating expenses in the consolidated statements of operations.

The determination of estimated market rent used in the fair value estimate of the Company’s right-of-use assets included within the respective stores long-lived assets requires significant management judgment. Changes in these estimates could have a significant impact on whether long-lived stores assets should be further evaluated and could have a significant impact on the resulting impairment charge.
Note K – Share Repurchase Program

The Company's Board of Directors authorized a share repurchase program (the “Share Repurchase Program”), effective as of January 1, 2004. The Share Repurchase Program does not have a fixed expiration or termination date and may be modified or terminated by the Board of Directors at any time. On several occasions, the Board of Directors has increased the amount authorized for repurchase of the Company's common stock. Most recently, on April 24, 2019, the Board of Directors approved the extension of the Company's Share Repurchase Program for up to $200,000 in repurchases of the Company's common stock, which includes the amount remaining under the prior authorization. The Share Repurchase Program permits the Company to effect repurchases from time to time through a combination of open market repurchases or in privately negotiated transactions at such prices and times as are determined to be in the best interest of the Company. In the middle of March 2020, in response to the COVID-19 pandemic, as a precautionary measure the Company temporarily suspended the repurchase of the Company's common stock. During the six months ended June 30, 2019,2020, an aggregate of 1,494,171769,526 shares of the Company's common stock were repurchased under the Share Repurchase Program, at a weighted average price per share of $32.26,$32.97, for an aggregate purchase price of approximately $48,206,$25,370, which includes the amount remaining under the prior authorization. As of June 30, 2019,2020, approximately $166,754$111,590 remained available for future repurchases under the Share Repurchase Program.

The Steven Madden, Ltd. 2019 Incentive Compensation Plan provides the Company with the right to deduct or withhold, or require employees to remit to the Company, an amount sufficient to satisfy any applicable tax withholding obligations applicable to stock-based compensation awards. To the extent permitted, employees may elect to satisfy all or part of such withholding obligations by tendering to the Company previously owned shares or by having the Company withhold shares having a fair market value equal to the employee's withholding tax obligation. During the six months ended June 30, 2019,2020, an aggregate of 90,016134,308 shares were withheld in connection with the settlement of vested restricted stock to satisfy tax withholdingtax-withholding requirements, at an average price per share of $32.77,$32.08, for an aggregate purchase price of approximately $2,950.$4,308.

Note IL – Net (Loss)/Income Per Share of Common Stock

Basic net (loss)/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 4,483,000 shares for the period ended June 30, 2020, compared to 5,464,000 shares for the period ended June 30, 2019, compared to 5,918,000 shares for the period ended June 30, 2018. 2019. Diluted net income per share reflects: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. The three and six months ended June 30, 2020 resulted in a net loss; therefore, there was no difference in the weighted average number of common shares for basic and diluted loss per share as the effect of all potentially dilutive shares outstanding was anti-dilutive. For the three and six months ended June 30, 2019,2020, options to purchase approximately 48,0008,000 and 56,000180,000 shares of common stock,

12
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2019
($ in thousands except share and per share data)

respectively, have been excluded from the calculation of diluted net income(loss) per share as compared to approximately 41,00048,000 and 21,00056,000 shares that were excluded from the calculation of diluted net income per share for the three and six months ended June 30, 2018,2019, as the result would have been anti-dilutive. For the three and six months ended June 30, 20192020, 2,477,000 and 2018,2,532,000 restricted shares, respectively, were excluded from the calculation of diluted net (loss) per share, as the result would have been anti-dilutive. At June 30, 2019, all unvested restricted stock awards were dilutive.

15
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2020
($ in thousands except share and per share data)
Note JM – Income Taxes

The Company’s provision for income taxes for the three and six months ended June 30, 20192020 and 2018, respectively,2019 is based on the estimated annual effective tax rate, plus or minus discrete items.

The following table presents theCompany’s provision for income taxes and the effective tax rates for the three and six months ended June 30, 2020 and 2019 and 2018:is presented in the following table:

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(Loss)/income before provision for income taxes$(23,345) $45,895  $(48,547) $91,747  
Income tax (benefit)/expense$(6,201) $9,784  $(13,602) $20,371  
Effective tax rate26.6 %21.3 %28.0 %22.2 %
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
Income before provision for income taxes$45,895
 $42,617
 $91,747
 $79,771
Provision for income taxes$9,784
 $10,172
 $20,371
 $18,128
Effective tax rate21.3% 23.9% 22.2% 22.7%



The primary differencesdifference between the Company’s effective tax rates for the three and six months ended June 30, 2020 and 2019 and 2018 areis primarily due to a decreasethe tax benefit from the 2020 pre-tax loss in jurisdictions with higher tax rates, the amounttax benefit of Global Intangible Low-Taxed Income (“GILTI”) tax incurred, a decreasethe change in the state taxes incurred,valuation of contingent considerations, and a partially offsetting increase in 2019 pre-tax income in jurisdictions with high tax rates.Global Intangible Low Taxed Income.

The Company recognizes interest and penalties, if any, related to uncertain income tax positions in income tax expense. Accrued interest and penalties on unrecognized tax benefits, and interest and penalty expense wasare immaterial to the consolidated financial statements for all periods presented.statements. The unrecognized tax benefits have not materially changed for the six months ended June 30, 2019.2020 from the prior period.

The Company files income tax returns in the U.S., for federal, state, and local purposes, and in certain foreign jurisdictions. The Company's tax years 20152017 through 20182019 remain open to examination by most taxing authorities. During 2017, the U.S. Internal Revenue Service ("IRS") completed its audit of the Company's 2014 U.S. income tax return.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020, which includes significant corporate income tax and payroll tax provisions aimed at providing economic relief. The Company expects to receive favorable cash flow benefits related to the employee retention credit, employer payroll tax deferral, and accelerated depreciation related to qualified improvement property. The Company will continue to assess the impact of the CARES Act and other COVID-19 related incentives.

Note KN – Equity-Based Compensation

In February 2019, the Company's Board of Directors approved the Steven Madden, Ltd. 2019 Incentive Compensation Plan (the “2019 Plan”), under which nonqualifiednon-qualified 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 2019 Plan is the successor to the Company's Amended and Restated 2006 Stock Incentive Plan, as amended (the "2006 Plan"), the term of which expired on April 6, 2019. The Company's stockholders approved the 2019 Plan at the Company's annual meeting of stockholders held on May 24, 2019.

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

Common stock authorized11,000,000
Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled awards(212,425(1,956,852))
Common stock available for grant of stock-based awards as of June 30, 2019202010,787,5759,043,148 




13
16
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 20192020
($ in thousands except share and per share data)

Total equity-based compensation for the three and six months ended June 30, 20192020 and 20182019 is as follows:

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
Restricted stock$4,938
 $4,212
 $9,555
 $8,138
Stock options999
 1,130
 2,053
 2,097
Total$5,937
 $5,342
 $11,608
 $10,235

 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Restricted stock$4,627  $4,938  $9,491  $9,555  
Stock options894  999  1,716  2,053  
Total$5,521  $5,937  $11,207  $11,608  

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 and six months ended June 30, 20192020 and 20182019 are as follows:


 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Proceeds from stock options exercised$86  $1,077  $960  $1,799  
Intrinsic value of stock options exercised$21  $513  $758  $842  
 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
Proceeds from stock options exercised$1,077
 $9,596
 $1,799
 $11,115
Intrinsic value of stock options exercised$513
 $4,902
 $842
 $5,479

During the three and six months ended June 30, 2020, options to purchase approximately 121,683 shares of common stock with a weighted average exercise price of $30.42 and options to purchase approximately 510,162 shares of common stock with a weighted average exercise price of $27.09 vested, respectively. During the three and six months ended June 30, 2019, options to purchase approximately 77,075 shares of common stock with a weighted average exercise price of $33.77 and options to purchase approximately 480,762 shares of common stock with a weighted average exercise price of $27.68 vested, respectively. During the three and six months ended June 30, 2018, options to purchase approximately 79,901 shares of common stock with a weighted average exercise price of $25.94 and options to purchase approximately 566,429 shares of common stock with a weighted average exercise price of $24.62 vested, respectively. As of June 30, 2019,2020, there were unvested options relating to 1,203,775870,188 shares of common stock outstanding with a total of $6,088$5,625 of unrecognized compensation cost and an average vesting period of 2.4.1.6 years.

The Company uses the Black-ScholesBlack-Scholes-Merton option-pricing model to estimate the fair value of options granted, which requires several assumptions. The expected term of the options represents the estimated period of time until exercise and is based on the historical experience of similar awards. Expected volatility is based on the historical volatility of the Company’s common stock. The risk freerisk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The dividend yield is based on the Company's annualized dividend per share amount divided by the Company's stock price. The following weighted average assumptions were used for stock options granted during the six months ended June 30, 20192020 and 2018:2019:

  2019 2018
Volatility 32.0% to 33.4% 25.1% to 27.2%
Risk free interest rate 2.3% to 2.5% 2.1% to 2.7%
Expected life in years 3.0 to 5.0 3.0 to 5.0
Dividend yield 1.7% 1.7%
Weighted average fair value $8.31 $6.45


 20202019
Volatility33.9% to 50.0%32.0% to 33.4%
Risk free interest rate0.2% to 1.6%2.3% to 2.5%
Expected life in years3.0 to 5.03.0 to 5.0
Dividend yield1.3%1.7%
Weighted average fair value$10.16$8.31

14
17
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 20192020
($ in thousands except share and per share data)

Activity relating to stock options granted under the Company’s plans and outside the plans during the six months ended June 30, 20192020 is as follows:

 Number of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding at January 1, 20202,802,000  $26.85    
Granted499,000  34.61    
Exercised(52,000) 20.58    
Forfeited(317,000) 38.94    
Outstanding at June 30, 20202,932,000  $26.97  3.7 years$686  
Exercisable at June 30, 20202,062,000  $27.21  3.6 years$620  
  Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value
Outstanding at January 1, 2019 2,815,000
 $26.03
    
Granted 34,000
 32.46
    
Exercised (80,000) 22.53
    
Outstanding at June 30, 2019 2,769,000
 $26.21
 4.3 years $21,435
Exercisable at June 30, 2019 1,565,000
 $26.15
 3.7 years $12,211


Restricted Stock
 
The following table summarizes restricted stock activity during the six months ended June 30, 20192020 and 2018:2019:

  2019 2018
  Number of Shares Weighted Average Fair Value at Grant Date Number of Shares Weighted Average Fair Value at Grant Date
Outstanding at January 1, 5,135,000
 $18.42
 5,874,000
 $17.37
Granted 625,000
 32.56
 330,000
 30.84
Vested (281,000) 26.03
 (272,000) 23.56
Forfeited (15,000) 26.86
 (14,000) 25.09
Outstanding at June 30, 5,464,000
 $19.60
 5,918,000
 $17.81

 20202019
 Number of SharesWeighted Average Fair Value at Grant DateNumber of SharesWeighted Average Fair Value at Grant Date
Outstanding at January 1,4,427,000  $19.84  5,135,000  $18.42  
Granted402,000  33.63  625,000  32.56  
Vested(311,000) 27.72  (281,000) 26.03  
Forfeited(35,000) 26.40  (15,000) 26.86  
Outstanding at June 30,4,483,000  $20.48  5,464,000  $19.60  

As of June 30, 2019,2020, the Company had $64,058$57,085 of total unrecognized compensation cost related to restricted stock awards granted under the 2019 Plan and the 2006 Plan. This cost is expected to be recognized over a weighted average period of 4.33.8 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 March 25, 2019,June 30, 2020, pursuant to an amendment of thehis employment agreement betweenwith the Company, and its Creative and Design Chief, Steven Madden, which effected the extension of the term of the agreement for three years through December 31, 2026, Mr. Madden was granted 200,000 restrictedan option to purchase 225,000 shares of the Company's common stock. The restricted stock awardat an exercise price of $24.83 per share, which option will vest in three nearlyfour equal annual installments commencing on December 31, 2024.September 30, 2020 and ending on June 30, 2021. As of June 30, 2019,2020, the Company's founder and Creative and Design Chief, Mr. Madden, hashad unvested options unexercised forto purchase 675,000 shares of the Company's common stock and 4,134,2383,347,390 restricted shares of the Company's common stock.

Note LO – Goodwill and Intangible Assets

The following is a summary of the carrying amount of goodwill by segmentreporting unit as of June 30, 2019:2020:
Wholesale  Net Carrying  Amount
 FootwearAccessories/ ApparelRetail
Balance at January 1, 2020$91,572  $62,688  $17,089  $171,349  
Purchase accounting adjustment—  —  (2,591) (2,591) 
Translation and other(1,373) —  (1,052) (2,425) 
Balance at June 30, 2020$90,199  $62,688  $13,446  $166,333  
18
  Wholesale   
 Net Carrying  Amount
  Footwear Accessories Retail 
Balance at January 1, 2019 $84,551
 $49,324
 $14,237
 $148,112
Translation and other 287
 —
 167
 454
Balance at June 30, 2019 $84,838
 $49,324
 $14,404
 $148,566

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STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 20192020
($ in thousands except share and per share data)

The following table details identifiable intangible assets as of June 30, 2019:2020:
 Estimated LivesCost BasisAccumulated Amortization (1)Impairment (2)Net Carrying Amount
Trade names6–10 years$8,770  $8,770  $—  $—  
Customer relationships10–20 years38,980  21,206  —  17,774  
47,750  29,976  —  17,774  
Re-acquired rightindefinite35,200  9,583  —  25,617  
Trademarksindefinite115,481  (55) 9,518  106,018  
 $198,431  $39,504  $9,518  $149,409  
  Estimated Lives Cost Basis Accumulated Amortization (1) Impairment (2) (3) Net Carrying Amount
Trade names 6–10 years $9,220
 $8,168
 $—
 $1,052
Customer relationships 10 years 47,019
 29,508
 —
 17,511
License agreements 3–6 years 5,600
 5,600
 —
 —
Non-compete agreement 5 years 2,440
 2,440
 —
 —
Re-acquired right 2 years 4,200
 4,200
 —
 —
Other 3 years 14
 14
 —
 —
    68,493
 49,930
 —
 18,563
Re-acquired right indefinite 35,200
 8,438
 —
 26,762
Trademarks indefinite 100,333
 —
 8,095
 92,238
    $204,026
 $58,368
 $8,095
 $137,563

(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. Includes acceleration of accumulated amortization of the trade names of $1,132, related to the termination of the Kate Spade license agreement which will occur by the end of the current fiscal year.

(2) An impairment chargeImpairment charges of $3,045 was$8,615, $456 and $447 were recorded in the first quarter of 2015, and a final impairment charge of $1,000 was recorded in the fourth quarter of 20172020 related to the Company's Wild Pair trademark. Cejon, GREATS and Jocelyn trademarks, respectively. As a result of the COVID-19 pandemic and decline in the macroeconomic environment, the Company performed an interim impairment analysis as of March 31, 2020 that resulted in $9,518 of impairment charges.

The Company evaluates its goodwill and intangible assets for indicators of impairment at least annually in the third quarter of each year or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Given the substantial reduction in sales, EBITDA and the reduced cash flow projections as a result of the COVID-19 pandemic, the Company determined that impairment indicators were present and that an impairment assessment was triggered bywarranted for goodwill and indefinite-lived intangible assets. As a lossresult, the Company performed an interim assessment of future anticipatedgoodwill, assigned to its reporting units using a quantitative approach as of March 31, 2020 and an interim assessment of indefinite-lived intangible assets using a quantitative approach as of March 31, 2020. In conducting the interim goodwill assessment, the estimated fair values of the Company's reporting units were determined using discounted cash flows from a significant customer.

(3) An impairment charge of $4,050 was recorded inand market comparisons. Based on the second quarter of 2019 related to the Company's Brian Atwood trademark. The impairment was triggered by the Company's decision to discontinue distributionresults of the brand asimpairment assessment, the Company explores alternatives.


concluded that the fair values of its reporting units significantly exceeded their respective carrying values and therefore no goodwill impairment charges were recorded. In evaluating indefinite-lived intangible assets, estimated fair values were determined using discounted cash flows and supported comparable royalty rates. Based on the results of the quantitative impairment assessment, the Company concluded that the fair values of certain trademarks were below their respective carrying values, which resulted in $9,518 of impairment charges.

The amortization of intangible assets amounted to $895 and $1,786 for the three and six months ended June 30, 2020, respectively, compared to $1,333 and $2,667 for the three and six months ended June 30, 2019 respectively, compared to $1,327 and $2,631 for the three and six months ended June 30, 2018 and is included in operating expenses in the Company's Condensed Consolidated Statements of (Loss)/Income. The estimated future amortization expense of purchasedfor intangibles as of June 30, 20192020 is as follows:

2019 (remaining six months)$2,172
20202,606
20211,933
20221,502
20231,502
Thereafter8,848
 $18,563


2020 (remaining six months)$1,378  
20212,168  
20221,747  
20231,747  
20241,747  
Thereafter8,987  
Total$17,774  

 

19
16
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 20192020
($ in thousands except share and per share data)

Note M P – Derivative Instruments

The Company uses derivative instruments, specifically, forward foreign exchange contracts, to manage the risk associated with the volatility of future cash flows. The foreign exchange contracts are used to mitigate the impact of exchange rate fluctuations on certain forecasted purchases of inventory and are designated as cash flow hedging instruments. As of June 30, 2019,2020, the fair value of the Company's foreign currency derivatives, which is included on the Condensed Consolidated Balance Sheets in other liabilities, is $139.assets, was $565. As of June 30, 2019, $982020, $388 of lossesgains related to cash flow hedges are recorded in accumulated other comprehensive loss,income, before tax, and are expected to be recognized in earnings at the same time the hedged items affect earnings. As of June 30, 2018, $7592019, $98 of gainslosses related to cash flow hedges were recorded in accumulated other comprehensive income,loss, before tax. As ofFor the three months ended June 30, 2019,2020, the Company's hedging activities waswere considered effective and, thus, no ineffectiveness from hedging activities was recognized in the Condensed Consolidated Statements of (Loss)/Income. For the six months ended June 30, 2020, the Company's hedging activities were considered ineffective due to COVID-19, and, thus, gains of $176 related to ineffectiveness from hedging activities were recognized in the Condensed Consolidated Statements of Income.(Loss)/Income during the first quarter of 2020. For the three and six months ended June 30, 2019, losses2020, gains of $8$30 and $8$30 were reclassified from accumulated other comprehensive income and recognized in the income statement in cost of sales as compared to losses of $29$8 and $26$8 for the three and six months ended June 30, 2018.2019.


Note NQ – Commitments, Contingencies and Other
Future Minimum Royalty and Advertising Payments:

The Company has minimum commitments related to the Company’s license agreements. The Company sources, distributes, advertises and sells pursuant to its exclusive license agreements with unaffiliated licensors. Royalty amounts under the license agreements are generally based on a stipulated percentage of sales, although most of these agreements contain provisions for the payment of minimum annual royalty amounts. The license agreements have various terms and some have additional renewal options, provided that minimum sales levels and certain other conditions are achieved. As of June 30, 20192020 the Company had future minimum royalty and advertising payments of $34,150.$26,401.

Legal Proceedings:

The Company has been named as a defendant in certain 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 or cash flows.

Note OR – Operating Segment Information

The Company operates the following business segments: Wholesale Footwear, Wholesale Accessories,Accessories/Apparel, 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 internationally, (via our International business), from sales of branded and private label women’s, men’s, girls’ and children’s footwear. The Wholesale AccessoriesAccessories/Apparel segment, which includes branded and private label handbags, apparel, belts and small leather goods as well as cold weather and selected other fashion accessories, derives revenue, both domestically and internationally, from sales to department stores, mid-tier retailers, mass market merchants, online retailers and specialty stores. Our Wholesale Footwear and Wholesale AccessoriesAccessories/Apparel segments, through our International business, derivederives revenue from certain territories within Asia, Europe, North America (excluding the United States) and Africa and, under special distribution arrangements, in various other territories within Australia, the Middle East, India, South and Central America and New Zealand and pursuant to a partnership agreement in Singapore. The Retail segment, through the operation of Company-owned retail stores in the United States, Canada and Mexico, our joint ventures in South Africa, China, Taiwan and Israel and the Company’s websites, derives revenue from sales of branded women’s, men’s and children’s footwear, accessories, apparel 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,mass-merchants, 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® and Madden Girl® trademarks and other trademark rights for use in connection with the manufacture, marketing and sale of eyewear, outerwear, hosiery, activewear, sleepwear, jewelry, watches, hair accessories, umbrellas, bedding, luggage fragrance and men’s leather accessories.fragrance. In addition, this segment licenses the Betsey Johnson® trademark for use in connection with the manufacture, marketing and sale of women's and children's apparel, hosiery, outerwear,

1720
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 20192020
($ in thousands except share and per share data)

sleepwear, activewear, jewelry, watches, bedding, luggage, umbrellas and household goods. The Licensing segment also licenses the Dolce Vita® trademark for use in connection with the manufacture, marketing and sale of swimwear.

As of and for the three months ended, Wholesale Footwear Wholesale Accessories Total Wholesale Retail First Cost Licensing Consolidated
June 30, 2019  
  
  
  
  
  
  
Net sales to external customers $286,237
 $77,265
 $363,502
 $81,472
 $—
 $—
 $444,974
Gross profit 94,657
 22,012
 116,669
 48,676
 —
 —
 165,345
Commissions and licensing fees – net —
 —
 —
 —
 951
 2,196
 3,147
Income/(loss) from operations 38,429
 4,750
 43,179
 (1,693) 951
 2,196
 44,633
Segment assets $911,077
 $101,041
 1,012,118
 253,025
 8,721
 7,696
 1,281,560
Capital expenditures  
  
 $1,273
 $1,542
 $—
 $—
 $2,815
June 30, 2018  
  
 

  
  
  
 

Net sales to external customers $252,134
 $69,271
 $321,405
 $74,348
 $—
 $—
 $395,753
Gross profit 78,956
 22,045
 101,001
 46,773
 —
 —
 147,774
Commissions and licensing fees – net —
 —
 —
 —
 623
 1,621
 2,244
Income from operations 28,916
 6,517
 35,433
 3,907
 623
 1,621
 41,584
Segment assets $769,028
 $179,716
 948,744
 120,352
 18,546
 —
 1,087,642
Capital expenditures  
  
 $1,247
 $1,058
 $—
 $—
 $2,305
               
As of and for the six months ended, Wholesale Footwear Wholesale Accessories Total Wholesale Retail First Cost Licensing Consolidated
June 30, 2019  
  
  
  
  
  
  
Net sales to external customers $562,825
 $148,772
 $711,597
 $144,317
 $—
 $—
 $855,914
Gross profit 192,978
 43,928
 236,906
 85,436
 —
 —
 322,342
Commissions and licensing fees – net —
 —
 —
 —
 535
 3,839
 4,374
Income/(loss) from operations 86,701
 9,617
 96,318
 (11,399) 535
 3,839
 89,293
Segment assets $911,077
 $101,041
 1,012,118
 253,025
 8,721
 7,696
 1,281,560
Capital expenditures     $2,965
 $3,249
 $—
 $—
 $6,214
June 30, 2018              
Net sales to external customers $527,190
 $125,370
 $652,560
 $132,207
 $—
 $—
 $784,767
Gross profit 169,244
 39,660
 208,904
 79,603
 —
 —
 288,507
Commissions and licensing fees – net —
 —
 —
 —
 1,491
 4,412
 5,903
Income/(loss) from operations 67,293
 8,926
 76,219
 (3,981) 1,491
 4,412
 78,141
Segment assets $769,028
 $179,716
 948,744
 120,352
 18,546
 —
 1,087,642
Capital expenditures     $2,772
 $2,479
 $—
 $—
 $5,251
               

As of and for the three months ended,Wholesale FootwearWholesale Accessories/ApparelTotal WholesaleRetailFirst CostLicensingConsolidated
June 30, 2020   
Total revenue$77,966  $22,018  $99,984  $41,379  $252  $1,197  $142,812  
Gross profit21,744  4,806  26,550  27,889  252  1,197  55,888  
(Loss)/income from operations(10,699) (4,404) (15,103) (8,933) (172) 506  (23,702) 
Segment assets$822,087  $112,917  935,004  183,657  7,290  6,441  1,132,392  
Capital expenditures  $767  $252  $—  $—  $1,019  
June 30, 2019     
Total revenue$286,237  $77,265  $363,502  $81,472  $1,576  $3,079  $449,629  
Gross profit94,657  22,012  116,669  48,676  1,576  3,079  170,000  
Income/(loss) from operations38,429  4,750  43,179  (1,693) 951  2,196  44,633  
Segment assets$911,077  $101,041  1,012,118  253,025  8,721  7,696  1,281,560  
Capital expenditures  $1,273  $1,542  $—  $—  $2,815  
As of and for the six months ended,Wholesale FootwearWholesale Accessories/ApparelTotal WholesaleRetailFirst CostLicensingConsolidated
June 30, 2020       
Total revenue$313,035  $89,690  $402,725  $94,322  $1,502  $3,431  $501,980  
Gross profit101,528  23,318  124,846  59,573  1,502  3,431  189,352  
Income/(loss) from operations18,392  (15,025) 3,367  (54,736) (24) 1,443  (49,950) 
Segment assets$822,087  $112,917  935,004  183,657  7,290  6,441  1,132,392  
Capital expenditures$3,417  $903  $—  $—  $4,320  
June 30, 2019
Total revenue$562,825  $148,772  $711,597  $144,317  $3,934  $5,569  $865,417  
Gross profit192,978  43,928  236,906  85,436  3,934  5,569  331,845  
Income/(loss) from operations86,701  9,617  96,318  (11,399) 535  3,839  89,293  
Segment assets$911,077  $101,041  1,012,118  253,025  8,721  7,696  1,281,560  
Capital expenditures$2,965  $3,249  $—  $—  $6,214  

Revenues by geographic area are as follows:

Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Domestic (a)$126,130  $403,977  $444,067  $772,410  
International16,682  45,652  57,913  93,007  
Total$142,812  $449,629  $501,980  $865,417  
(a) Includes revenues of $49,659 and $117,984 for the three and six months ended June 30, 2020, respectively, and $101,855 and $178,972 for the comparable periods in 2019 related to sales to U.S. customers where the title is transferred outside the U.S. and the sale is recorded by our international entities.
18
21
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 20192020
($ in thousands except share and per share data)

Revenues by geographic area for the three and six months ended June 30, 2019 and 2018 are as follows:

  Three Months Ended June 30, Six Months Ended June 30,
  2019 2018 2019 2018
Domestic (a) $399,309
 $356,271
 $763,624
 $697,866
International 45,665
 39,482
 92,290
 86,901
Total $444,974
 $395,753
 $855,914
 $784,767
(a) Includes revenues of $99,284 and $174,106 for the three and six months ended June 30, 2019, respectively, and $93,655 and $190,688 for the comparable periods in 2018 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 PS – Recent Accounting Pronouncements

Recently Adopted

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-02 ("ASU 2016-02"), "Leases," as amended, which is effective January 1, 2019. Under ASU 2016-02, lessees will be required to recognize for all leases with terms longer than twelve months, 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. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The Company adopted the new standard on the effective date January 1, 2019. A modified retrospective transition approach was used, applying the new standard to all leases existing at the date of initial application. The Company applied ASC-840, including disclosure requirements, in the comparative periods in the year the Company adopted the new guidance. (See Note G - Leases)

In February 2018, the FASB issued Accounting Standards Update No. 2018-02 ("ASU 2018-02"), "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which allows for stranded tax effects in accumulated other comprehensive income resulting from the U.S. Tax Cuts and Jobs Act to be reclassified to retained earnings. ASU 2018-02 is effective January 1, 2019 and did not have any significant impact on the Company’s financial position or results of operations.

Not Yet Adopted

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” This new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new guidanceASU 2018-15 is effective for the Company on a prospective or retrospective basis beginning on January 1, 2020 with early adoption permitted. While the Company is currently assessing the impact of the new guidance, it isand did not expected to have a materialany significant impact on the Company’s consolidated financial statements.position or results of operations.

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This new guidance removes certain disclosure requirements related to the fair value hierarchy, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements. The new disclosure requirements include disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This new guidanceASU 2018-13 is effective for the Company beginning on January 1, 2020 with early adoption permitted. Certain disclosures in the new guidance will need to be applied on a retrospective basis and others on a prospective basis. While the Company is currently assessing the impact of the new guidance, it isdid not expected to have a materialany significant impact on the Company’s consolidated financial statements.


19
STEVEN MADDEN, LTD. AND SUBSIDIARIES

position or results of operations.
Notes to Condensed Consolidated Financial Statements
 – Unaudited
June 30, 2019
($ in thousands except share and per share data)

In June 2016, the FASB issued Accounting Standards Update 2016-13 ("ASU 2016-13"), "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The newASU 2016-13 is effective January 1, 2020 and did not have any significant impact on the Company’s financial position or results of operations.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal yearsannual periods beginning after December 15, 2019, including2020 and interim periods within those fiscal years.annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. On April 1, 2020, the Company early adopted the new standard, with no impact to its consolidated financial statements and related disclosures.

Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (“ASU No. 2020-04”), which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable the Company's borrowing instruments that use LIBOR as a reference rate, and is effective immediately, but is only available through December 31, 2022. The Company is currently evaluating the effectimpact of ASU 2020-04; however, at the current time the Company does not expect that the new guidanceadoption of this ASU will have a material impact on its condensed consolidated financial statementsstatements.


Note T – Subsequent Events

Credit Agreement

On July 22, 2020, the Company entered into a $150,000 revolving credit agreement (the “Credit Agreement”) with various lenders and related disclosures.Citizens Bank, N.A., as administrative agent (in such capacity, the “Agent”), which replaces the Company’s existing credit facility provided by Rosenthal. The Credit Agreement provides for a revolving credit facility scheduled to mature on July 22, 2025. The initial maximum availability under the revolving credit facility is $150,000 subject to a borrowing base consisting of certain eligible credit card receivables, accounts receivables, inventory, and, subject to the satisfaction of

22
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited
June 30, 2020
($ in thousands except share and per share data)
certain conditions, in-transit inventory. Availability under the revolving credit facility is reduced by outstanding letters of credit. No revolving loans or letters of credit were outstanding under the Credit Agreement.

Borrowings under the Credit Agreement generally bear interest at a variable rate equal to, at the Company’s election, (i) LIBOR for the applicable interest period plus a specified margin, which is based upon average availability under the revolving credit facility from time to time, or (ii) the base rate (which is the highest of (a) the prime rate announced by Citizens Bank, N.A. or its parent company, (b) the sum of the federal funds effective rate plus 0.50%, and (c) the sum of one-month LIBOR plus 1%) plus a specified margin, which is based upon average availability under the revolving credit facility from time to time.

Amended and Restated Deferred Purchase Factoring Agreement

On July 22, 2020, the Company also entered into an Amended and Restated Deferred Purchase Factoring Agreement (the “Factoring Agreement”) between the Company and Rosenthal. Pursuant to the Factoring Agreement, Rosenthal will serve as the collection agent with respect to certain of the Company’s receivables and will be entitled to receive a base commission of 0.20% of the gross invoice amount of each receivable assigned for collection, plus certain additional fees and expenses, subject to certain minimum annual commissions. Rosenthal will generally assume the credit risk resulting from a customer’s financial inability to make payment with respect to credit approved receivables.

Restoration of Salaries

On July 31, 2020, the Company announced that it has restored the full salaries of its employees, including its President, Chief Financial Officer, Chief Operating Officer, and Chief Merchandising Officer, to pre-COVID-19 reduction levels. Steven Madden, the Company’s founder and Creative and Design Chief, and Edward Rosenfeld, its Chairman and Chief Executive Officer, will voluntarily continue to forego their entire salary, and our Board of Directors will continue to forego their cash compensation. Restoration of the employees’ salaries became effective as of August 1, 2020. Effective April 1, 2020, the salaries of the Company’s President, Chief Financial Officer, Chief Operating Officer, and Chief Merchandising Officer were reduced by 30%, and the salaries of all other employees earning more than $100 per year were reduced by graduated amounts.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations for the three and six month periods ended June 30, 20192020 should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
All references in this Quarterly Report to "we," "our," "us" and the "Company,""Company" refer to Steven Madden, Ltd. and its subsidiaries unless the context indicates otherwise.
This Quarterly Report contains certain “forward-looking statements” as that term is defined inwithin the federal securities laws. The events described inmeaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements contained in this Quarterly Report may not occur. Generally, forward-lookinginclude, among others, statements relate to businessregarding revenue and earnings guidance, plans, or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions toobjectives, expectations and intentions. Forward-looking statements can be madeidentified by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words such as: “may”, “will”, “expect”, “believe”, “should”, “anticipate”, “project”, “predict”, “plan”, “intend”, or “estimate”, and “continue”, and their opposites and similar expressions are intended to identify forward-looking statements. We caution you thator the negative of these expressions. Forward-looking statements are not guaranteesneither historical facts nor assurances of future performance orperformance. Instead, they represent our current beliefs, expectations and assumptions regarding anticipated events and trends affecting our business and industry based on information available as of the time such statements are made. Investors are cautioned that such forward-looking statements are inherently subject to a number of uncertainties, risks and other influences,uncertainties, many of which are beyondcannot be predicted with accuracy and some of which may be outside of our control, thatcontrol. Our actual results and financial condition may influencediffer materially from those indicated in these forward-looking statements. As such, investors should not rely upon them. Important risk factors include:

•our ability to maintain adequate liquidity when negatively impacted by unforeseen events such as an epidemic or pandemic (COVID-19), which may cause disruption to our business operations and temporary closure of Company-operated and wholesale partner retail stores, resulting in a significant reduction in revenue for an indeterminable period of time;
•our ability to accurately anticipate fashion trends and promptly respond to consumer demand;
•our ability to compete effectively in a highly competitive market;
•our ability to adapt its business model to rapid changes in the accuracyretail industry;
•our dependence on the retention and hiring of key personnel;
•our ability to successfully implement growth strategies and integrate acquired businesses;
•our reliance on independent manufacturers to produce and deliver products in a timely manner, especially when faced with adversities such as work stoppages, transportation delays, public health emergencies, social unrest, changes in local economic conditions, and political upheavals as well as meet our quality standards;
•changes in trade policies and tariffs imposed by the statementsUnited States government and the projections upongovernments of other nations in which the statements are based. Factorswe manufacture and sell products;
•disruptions to product delivery systems and our ability to properly manage inventory;
•our ability to adequately protect our trademarks and other intellectual property rights;
•legal, regulatory, political and economic risks that may affect our sales in international markets;
•changes in U.S. and foreign tax laws that could have an adverse effect on our financial results;
•additional tax liabilities resulting from audits by various taxing authorities;
•our ability to achieve operating results include, butthat are not limited to, theconsistent with prior financial guidance; and
•other risks and uncertainties discussedindicated from time to time in this Quarterly Report or our Annual Report on Form 10-K forfilings with the year ended December 31, 2018. Any one or more of these uncertainties, risksSecurities and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. Exchange Commission.

We do not undertake noany obligation to publicly update or revise any forward-looking statements,statement, including, without limitation, any guidance regarding revenue or earnings, whether fromas a result of new information, future eventsdevelopments or otherwise.

Overview: 
($ in thousands, except earnings per share and per share data)
 
Steven Madden, Ltd. and its subsidiaries design, source, market and sell fashion-forward branded and private label footwear for women, men and children. In addition, we design, source, market and sell brandbranded fashion handbags, apparel and accessories, as well as private label fashion handbags and accessories. We market and sell our products through better department stores, major department stores, mid-tier department stores, specialty stores, luxury retailers, value priced retailers, national chains, mass merchants, online retailers, and catalogonline retailers, throughout the United States, Canada, Mexico, Italy and certain other European nations and Tunisia.nations. In addition, our products are marketed through our retail stores and our e-commerce websites within the United States, Canada and Mexico, our joint ventures in Europe, South Africa, China,Israel, Taiwan and Israel,China, and under special distribution arrangements in Asia, certain European nations, Australia, India,territories, the Middle East, South and Central America, Oceania and New Zealand and pursuant to a partnership agreementvarious countries in Singapore.Asia. Our product line includeslines include a broad range of contemporary styles designed to establish or capitalize on market trends, complemented by core product offerings. We have established a reputation for design creativity and our ability to offer quality products in popular styles at accessible price points, delivered in an efficient manner and time frame.

On September 11, 2018, the Company's Board of Directors declared a three-for-two stock split of the Company's outstanding shares of common stock, effected in the form of a stock dividend on the Company's outstanding common stock. Stockholders of record at the close of business on October 1, 2018 received one additional share of Steven Madden, Ltd. common stock for every two shares of common stock owned on that date. Stockholders received cash in lieu of any fractional shares of common stock they otherwise would have received in connection with the dividend. The additional shares were distributed to the

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Company's stockholders on October 11, 2018. All share and per share data provided herein gives effect to this stock split, applied retroactively.

Key Performance Indicators and Statistics

The following measurements are among the key business indicators reviewed by various members of our management to measure our consolidated and segment results of the Company:results:

net sales•total revenue
•gross profit margin
•operating expenses
•(loss)/income from operations
•adjusted EBITDA
•adjusted EBIT
•inventory turnover
•accounts receivable average collection days
•cash flow and liquidity determined by the Company’sour working capital and free cash flow
•store metrics, such as same store sales, sales per square foot, average unit retail, conversion, average units per transaction, and contribution margin.
        
While not all of these metrics are disclosed due to the proprietary nature of the information, many of these metrics are disclosed and discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Non-GAAP Financial Measures
The Company’s reported results are presented in accordance with generally accepted accounting principles in the United States ("GAAP"). The Company uses adjusted earnings before interest and taxes ("Adjusted EBIT") and adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), as calculated in the table below, as non-GAAP measures, in internal management reporting and planning processes as well as in evaluating the performance of the Company. Management believes these measures are useful to investors in evaluating the Company’s ongoing operating and financial results. By providing these non-GAAP measures, as a supplement to GAAP information, we believe we are enhancing investors’ understanding of our business and our results of operations. The non-GAAP financial measures are limited in their usefulness and should be considered in addition to, and not in lieu of, U.S. GAAP financial measures. Further, these non-GAAP measures may be unique to the Company, as they may be different from non-GAAP measures used by other companies.


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The table below reconciles these metrics to net income as presented in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018:

 Three Months Ended June 30, Six Months Ended June 30,
 2019 2018 2019 2018
($ in thousands)       
Net Income$36,111
 $32,445
 $71,376
 $61,643
Add back:       
Provision for income taxes9,784
 10,172
 20,371
 18,128
Provision for legal charges—
 —
 —
 2,837
Provision for early lease termination charges1,543
 1,241
 2,292
 1,241
(Recovery) and provisions for bad debt expense, net of recovery related to the Payless ShoeSource bankruptcy (in First Cost segment)(143) —
 1,409
 —
Recovery related to the Payless ShoeSource bankruptcy (in Wholesale Footwear segment)(1,668) —
 (1,668) —
Schwartz & Benjamin acquisition integration charges and related restructuring—
 1,131
 —
 1,381
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) —
Impairment of the Brian Atwood trademark4,050
 —
 4,050
 —
Divisional headquarters relocation expenses669
 —
 669
 —
Deduct:       
Interest and other income – net*1,262
 1,033
 2,454
 1,630
Adjusted EBIT49,084
 43,956
 94,177
 83,600
Add back:       
Depreciation and amortization5,325
 5,385
 10,545
 10,727
Loss/(gain) on disposal of fixed assets412
 (143) 737
 (14)
Adjusted EBITDA$54,821
 $49,198
 $105,459
 $94,313
(*) Includes realized (losses)/gains on marketable securities and foreign exchange (losses)/gains.

Executive Summary

Net salesIn December 2019, COVID-19 emerged and spread worldwide. The World Health Organization declared COVID-19 a pandemic in March 2020, resulting in federal, state and local governments and private entities mandating various restrictions, including the closure of non-essential businesses, travel restrictions, restrictions on public gatherings, stay-at-home orders and advisories and quarantining of people who may have been exposed to the virus. After closely monitoring and taking into consideration the guidance from federal, state and local governments, in March 2020, we temporarily closed all of our stores and our corporate offices in the U.S. and the vast majority of our stores and offices globally. As of July 2020, the vast majority of our stores and corporate offices in the U.S. and globally reopened. Effective April 1, 2020, we temporarily furloughed a significant number of our employees. Employees with medical benefits will continue to receive those benefits at no personal cost for a duration to be determined by us. Remaining employees worked and continue to work remotely. These and other factors have had and may continue to have a material impact on our business, results of operations, financial position and cash flow. In response to the COVID-19 pandemic, we took precautionary measures to maintain adequate liquidity and financial flexibility by suspending share repurchases and the quarterly cash dividend; suspending salaries of our Founder and Creative and Design Chief, Steve Madden, our Chairman and Chief Executive Officer, Edward Rosenfeld, and our Board of Directors; reducing salaries by 30% for our President, Chief Financial Officer, Chief Operating Officer and Chief Merchandising Officer; reducing salaries by graduated amounts for all other employees earning over $100 per year; significantly scaling back on non-essential operating expenses, capital expenditures and planned inventory purchases; and drawing down $42,662 on our newly amended credit facility agreement with Rosenthal & Rosenthal, Inc. We experienced other adverse impacts as a result of the COVID-19 pandemic, including, but not limited to, charges from adjustments to the carrying amount of certain trademarks, long-lived asset impairment charges and restructuring and other related charges.

Total revenue for the quarter ended June 30, 2019 increased 12.4%2020 decreased 68.2% to $444,974 from $395,753$142,812 as compared to $449,629 in the same period of last year. Net (loss)/income attributable to Steven Madden, Ltd. increased 12.8%decreased to $36,572a net loss of $16,586 in the second quarter of 20192020 compared to $32,410net income of $36,572 in the same period of last year. The effective tax rate for the second quarter of 2019 decreased2020 increased to 21.3%26.6% compared to 23.9%21.3% in the second quarter of last year primarily due to the tax benefit from the 2020 pre-tax loss in jurisdictions with higher tax rates and a change to a decreasethe valuation of contingent considerations, partially offset by an increase in the amount of Global Intangible Low-TaxedLow Taxed Income ("GILTI") tax incurred, a decreaseunder the 2017 Tax Cut and Jobs Act. Diluted loss was $0.21 per share on 78,517 diluted weighted average shares outstanding in the state taxes incurred and a partially offsetting increase in 2019 pre-taxsecond quarter of 2020 as compared to income in jurisdictions with high tax rates. Diluted earnings per share increased toof $0.44 per share on 83,869 diluted weighted average shares outstanding compared to $0.38 per share on 86,258 diluted weighted average shares outstanding in the second quarter of last year.

Our inventory turnover (calculated on a trailing twelve-month average) for the quarters ended June 30, 2020 and 2019 was 7.2 times and 2018 was 7.9 times, and 8.6 times, respectively. The change in our inventory turnover is primarily due to the impact of the COVID-19 pandemic on our second quarter sales. Our total company accounts receivable average collection decreasedcollection increased to 141 days in the second quarter of 2020 compared to 65 days in the second quarter of 2019 compared to 68 days in primarily as the second quarterresult of 2018 primarily due toour wholesale customers' cash preservation initiatives as a result of the results of improved collection efforts with respect to the accounts of certain major customers. AsCOVID-19 pandemic. As of June 30, 2019,2020, we had $248,760$356,938 in cash, cash equivalents and marketable securities, advances from factor of $42,662, no long-term debt and total stockholders’ equity of $827,556.$767,120. Working capital decreased to $458,584was $398,029 as of June 30, 2019,2020, as compared to $480,603$458,584 on June 30, 2018.2019. The decrease in working capital was primarily thedue to actions taken as a result of the addition of current operating lease liabilities of $38,652 in accordance with the Company’s adoption of ASU 2016-02, “Leases”.

COVID-19 pandemic.
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The following tables set forth information on operations for the periods indicated:
Selected Financial Information
Three Months Ended June 30,
($ in thousands)
  2019 2018
CONSOLIDATED:  
  
  
  
Net sales $444,974
 100.0 % $395,753
 100.0%
Cost of sales 279,629
 62.8 % 247,979
 62.7%
Gross profit 165,345
 37.2 % 147,774
 37.3%
Commission and licensing fee income – net of expenses 3,147
 0.7 % 2,244
 0.6%
Operating expenses 119,809
 26.9 % 108,434
 27.4%
Impairment charges 4,050
 0.9 % —
 —%
Income from operations 44,633
 10.0 % 41,584
 10.5%
Interest and other income – net 1,262
 0.3 % 1,033
 0.3%
Income before income taxes 45,895
 10.3 % 42,617
 10.8%
Net income attributable to Steven Madden, Ltd. $36,572
 8.2 % $32,410
 8.2%
         
By Segment:    
    
WHOLESALE FOOTWEAR SEGMENT:    
    
Net sales $286,237
 100.0 % $252,134
 100.0%
Cost of sales 191,580
 66.9 % 173,178
 68.7%
Gross profit 94,657
 33.1 % 78,956
 31.3%
Operating expenses 52,178
 18.2 % 50,040
 19.8%
Impairment charges 4,050
 1.4 % —
 —%
Income from operations $38,429
 13.4 % $28,916
 11.5%
         
WHOLESALE ACCESSORIES SEGMENT:    
    
Net sales $77,265
 100.0 % $69,271
 100.0%
Cost of sales 55,253
 71.5 % 47,226
 68.2%
Gross profit 22,012
 28.5 % 22,045
 31.8%
Operating expenses 17,262
 22.3 % 15,528
 22.4%
Income from operations $4,750
 6.1 % $6,517
 9.4%
         
RETAIL SEGMENT:    
    
Net sales $81,472
 100.0 % $74,348
 100.0%
Cost of sales 32,796
 40.3 % 27,575
 37.1%
Gross profit 48,676
 59.7 % 46,773
 62.9%
Operating expenses 50,369
 61.8 % 42,866
 57.7%
(Loss)/income from operations $(1,693) (2.1)% $3,907
 5.3%
Number of stores 224
  
 208
  
         
FIRST COST SEGMENT:    
    
Other commission income – net of expenses $951
 100.0 % $623
 100.0%
         
LICENSING SEGMENT:    
    
Licensing income – net of expenses $2,196
 100.0 % $1,621
 100.0%

 20202019
CONSOLIDATED:    
Net sales$141,363  99.0 %$444,974  99.0 %
Commission and licensing fee income1,449  1.0 %4,655  1.0 %
Total revenue142,812  100.0 %449,629  100.0 %
Cost of sales86,924  60.9 %279,629  62.2 %
Gross profit55,888  39.1 %170,000  37.8 %
Operating expenses79,590  55.7 %121,317  27.0 %
Impairment charges—  — %4,050  0.9 %
(Loss)/income from operations(23,702) (16.6)%44,633  9.9 %
Interest and other income – net357  0.2 %1,262  0.3 %
(Loss)/income before income taxes(23,345) (16.3)%45,895  10.2 %
Net (loss)/income attributable to Steven Madden, Ltd.$(16,586) (11.6)%$36,572  8.1 %
By Segment:    
WHOLESALE FOOTWEAR SEGMENT:    
Net sales$77,966  100.0 %$286,237  100.0 %
Cost of sales56,222  72.1 %191,580  66.9 %
Gross profit21,744  27.9 %94,657  33.1 %
Operating expenses32,443  41.6 %52,178  18.2 %
Impairment charges—  — %4,050  1.4 %
(Loss)/income from operations$(10,699) (13.7)%$38,429  13.4 %
WHOLESALE ACCESSORIES/APPAREL SEGMENT:    
Net sales$22,018  100.0 %$77,265  100.0 %
Cost of sales17,212  78.2 %55,253  71.5 %
Gross profit4,806  21.8 %22,012  28.5 %
Operating expenses9,210  41.8 %17,262  22.3 %
(Loss)/income from operations$(4,404) (20.0)%$4,750  6.1 %
RETAIL SEGMENT:    
Net sales$41,379  100.0 %$81,472  100.0 %
Cost of sales13,490  32.6 %32,796  40.3 %
Gross profit27,889  67.4 %48,676  59.7 %
Operating expenses36,822  89.0 %50,369  61.8 %
(Loss) from operations$(8,933) (21.6)%$(1,693) (2.1)%
Number of stores225   224   
FIRST COST SEGMENT:    
Commission fee income$252  100.0 %$1,576  100.0 %
Gross profit252  100.0 %1,576  100.0 %
Operating expenses424  168.3 %625  39.7 %
(Loss)/income from operations$(172) (68.3)%$951  60.3 %
LICENSING SEGMENT:    
Licensing fee income$1,197  100.0 %$3,079  100.0 %
Gross profit1,197  100.0 %3,079  100.0 %
Operating expenses691  57.7 %883  28.7 %
Income from operations$506  42.3 %$2,196  71.3 %
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Selected Financial Information
Six Months Ended June 30,
($ in thousands)
20202019
CONSOLIDATED:
Net sales$497,047  99.0 %$855,914  98.9 %
Commission and licensing fee income4,933  1.0 %9,503  1.1 %
Total revenue501,980  100.0 %865,417  100.0 %
Cost of sales312,628  62.3 %533,572  61.7 %
Gross profit189,352  37.7 %331,845  38.3 %
Operating expenses229,784  45.8 %238,502  27.6 %
Impairment charges9,518  1.9 %4,050  0.5 %
(Loss)/income from operations(49,950) (10.0)%89,293  10.3 %
Interest and other income – net1,403  0.3 %2,454  0.3 %
(Loss)/income before income taxes(48,547) (9.7)%91,747  10.6 %
Net (loss)/income attributable to Steven Madden, Ltd.$(34,037) (6.8)%$71,097  8.2 %
By Segment:
WHOLESALE FOOTWEAR SEGMENT:
Net sales$313,035  100.0 %$562,825  100.0 %
Cost of sales211,507  67.6 %369,847  65.7 %
Gross profit101,528  32.4 %192,978  34.3 %
Operating expenses83,136  26.6 %102,227  18.2 %
Impairment charges—  — %4,050  0.7 %
Income from operations$18,392  5.9 %$86,701  15.4 %
WHOLESALE ACCESSORIES/APPAREL SEGMENT:
Net sales$89,690  100.0 %$148,772  100.0 %
Cost of sales66,372  74.0 %104,844  70.5 %
Gross profit23,318  26.0 %43,928  29.5 %
Operating expenses29,281  32.6 %34,311  23.1 %
Impairment charges9,062  10.1 %—  — %
(Loss)/income from operations$(15,025) (16.8)%$9,617  6.5 %
RETAIL SEGMENT:
Net sales$94,322  100.0 %$144,317  100.0 %
Cost of sales34,749  36.8 %58,881  40.8 %
Gross profit59,573  63.2 %85,436  59.2 %
Operating expenses113,853  120.7 %96,835  67.1 %
Impairment charges456  0.5 %—  — %
(Loss) from operations$(54,736) (58.0)%$(11,399) (7.9)%
Number of stores225  224  
FIRST COST SEGMENT:
Commission fee income$1,502  100.0 %$3,934  100.0 %
Gross profit1,502  100.0 %3,934  100.0 %
Operating expenses1,526  101.6 %3,399  86.4 %
(Loss)/income from operations$(24) (1.6)%$535  13.6 %
LICENSING SEGMENT:
Licensing fee income$3,431  100.0 %$5,569  100.0 %
Gross profit3,431  100.0 %5,569  100.0 %
Operating expenses1,988  57.9 %1,730  31.1 %
Income from operations$1,443  42.1 %$3,839  68.9 %

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  2019 2018
CONSOLIDATED:  
  
  
  
Net sales $855,914
 100.0 % $784,767
 100.0 %
Cost of sales 533,572
 62.3 % 496,260
 63.2 %
Gross profit 322,342
 37.7 % 288,507
 36.8 %
Commission and licensing fee income – net of expenses 4,374
 0.5 % 5,903
 0.8 %
Operating expenses 233,373
 27.3 % 216,269
 27.6 %
Impairment charges 4,050
 0.5 % —
 — %
Income from operations 89,293
 10.4 % 78,141
 10.0 %
Interest and other income – net 2,454
 0.3 % 1,630
 0.2 %
Income before income taxes 91,747
 10.7 % 79,771
 10.2 %
Net income attributable to Steven Madden, Ltd. $71,097
 8.3 % $61,083
 7.8 %
         
By Segment:    
    
WHOLESALE FOOTWEAR SEGMENT:    
    
Net sales $562,825
 100.0 % $527,190
 100.0 %
Cost of sales 369,847
 65.7 % 357,946
 67.9 %
Gross profit 192,978
 34.3 % 169,244
 32.1 %
Operating expenses 102,227
 18.2 % 101,951
 19.3 %
Impairment charges 4,050
 0.7 % —
 — %
Income from operations $86,701
 15.4 % $67,293
 12.8 %
         
WHOLESALE ACCESSORIES SEGMENT:    
    
Net sales $148,772
 100.0 % $125,370
 100.0 %
Cost of sales 104,844
 70.5 % 85,710
 68.4 %
Gross profit 43,928
 29.5 % 39,660
 31.6 %
Operating expenses 34,311
 23.1 % 30,734
 24.5 %
Income from operations $9,617
 6.5 % $8,926
 7.1 %
         
RETAIL SEGMENT:    
    
Net sales $144,317
 100.0 % $132,207
 100.0 %
Cost of sales 58,881
 40.8 % 52,604
 39.8 %
Gross profit 85,436
 59.2 % 79,603
 60.2 %
Operating expenses 96,835
 67.1 % 83,584
 63.2 %
(Loss) from operations $(11,399) (7.9)% $(3,981) (3.0)%
Number of stores 224
  
 208
  
         
FIRST COST SEGMENT:    
    
Other commission income – net of expenses $535
 100.0 % $1,491
 100.0 %
         
LICENSING SEGMENT:    
    
Licensing income – net of expenses $3,839
 100.0 % $4,412
 100.0 %

In February 2018,At the end of March 2020, in response to the COVID-19 pandemic, as a precautionary measure our Board of Directors temporarily suspended the payment of dividends and the Company approved the initiationrepurchase of the Company's quarterly cash dividend. The quarterly cash dividend of $0.14 per share on the Company's outstanding shares of common stock was approved on April 24, 2019 and paid on June 28, 2019, to stockholders of record as of the close of business on June 18, 2019. The aggregate cash dividends

24

paid for the quarter ended June 30, 2019 was $11,945. The aggregate cash dividends paid for the six months ended June 30, 2019 was $23,987.

In July 2019, the Board of Directors of the Company declared an additional quarterly cash dividend of $0.14 per share on the Company’s outstanding shares of common stock. The dividend will be paid on September 27, 2019 to stockholders of record as of the close of business on September 17, 2019.


RESULTS OF OPERATIONS
($ in thousands)

Three Months Ended June 30, 20192020 Compared to Three Months Ended June 30, 20182019

Consolidated:
Net sales
Total revenue for the three months ended June 30, 2019 increased 12.4%2020 decreased 68.2% to $444,974$142,812 compared to $395,753$449,629 in the same period of last year, with growthdecreases in the Wholesale Footwear, Wholesale AccessoriesAccessories/Apparel and Retail segments.segments as a result of the impact of the COVID-19 pandemic. Gross margin slightly decreasedprofit was $55,888, or 39.1% of total revenue, as compared to 37.2% from 37.3%$170,000, or 37.8% of total revenue, in the prior year period.prior-year period. The decrease of 10 basis pointsincrease in gross marginprofit as a percentage of total revenue was due to the shift in the current period was driven by decreases in gross margin primarily insales to our Wholesale Accessories and Retail segments. higher-margin e-commerce business. Operating expenses increased in the second quarter of this year2020 were $79,590, or 55.7% of total revenue, as compared to $119,809 from $108,434$121,317, or 27.0% of total revenue, in the second quarter of lastthe prior year. In the second quarter of 2019 and 2018 operating expenses included net charges of $544 and $2,372, respectively. (See "Non-GAAP Financial Measures" above for a description of the net benefit and charges.) Excluding these items, The increase in operating expenses as a percentage of total revenue was primarily attributable to a deleverage on a lower sales were 26.8% forbase, in addition to restructuring and other related charges related to the second quarter of 2019 compared to 26.8% in the second quarter of 2018. Excluding these items, theCOVID-19 pandemic, an increase in operatingcosts related to the growth to our e-commerce business and the inclusion of the GREATS and BB Dakota businesses, partially offset by reduced discretionary spending as a result from our initiatives to control expenses, primarily comprised of (i) higher payroll and related expenses, (ii) higher warehouse and distribution expenses, (iii) higher advertising and promotions, and (iv) higher legal charges. Commission and licensing fee income for the second quarter of 2019 increased to $3,147 compared to $2,244 in the second quarter of 2018. The second quarter 2019 Commission and licensing fee income included a $143 recovery associatedalong with the Payless ShoeSource bankruptcy. (See "Non-GAAP Financial Measures" above.)change in valuation of our contingent considerations. The effective tax rate for the second quarter of 2019 decreased2020 increased to 21.3%26.6% compared to 23.9%21.3% in the second quarter of last year. The decreaseincrease in effective tax rate iswas primarily due to a decrease in the amount of GILTI tax incurred, a decrease inbenefit from the state taxes incurred and a partially offsetting increase in 20192020 pre-tax incomeloss in jurisdictions with highhigher tax rates. Net income attributablerates and a change to the valuation of contingent considerations, partially offset by an increase in GILTI tax. Net loss attributable to Steven Madden, Ltd. for the second quarter of 2019 increased to $36,5722020 was $16,586 compared to net income for the second quarter of 20182019 of $32,410. Net income attributable to Steven Madden, Ltd. for the second quarter of 2019 increased to $39,536 (excluding (i) $1,727 after-tax benefit, net of bad debt expense associated with the Payless ShoeSource bankruptcy, (ii) $1,156 after-tax expense in connection with a provision for early lease termination charges, (iii) $501 after-tax expense associated with a divisional headquarters relocation, and (iv) $3,033 after-tax impact of an impairment of the Brian Atwood trademark), as compared to $35,185 (excluding (i) $1,028 tax expense related to an impairment to the preferred interest investment in Brian Atwood Italia Holding, LLC, (ii) $833 after-tax expense in connection with the integration of the Schwartz & Benjamin acquisition and the related restructuring, and (iii) $914 after-tax impact of an expense associated with a warehouse consolidation) for the same period last year.$36,572.

Wholesale Footwear Segment:

Net salesRevenue from the Wholesale Footwear segment in the second quarter of 2020 accounted for $77,966, or 54.6% of total revenue, as compared to $286,237, or 64.3%, and $252,134, or 63.7%, of our total net salesrevenue, for the second quarter of 2019 and 2018, respectively.2019. The increase72.8% decrease in net salesrevenue in the current period is primarily related to strong growth inorder cancellations due to the Steve Madden brand, the additionimpact of the Anne Klein brand, and an increase in the private label business whichCOVID-19 pandemic. Gross profit was mostly offset by no sales to Payless ShoeSource in the current period. Gross margin in the$21,744, or 27.9% of Wholesale Footwear segment was 33.1% for the second quarter of 2019 compared to 31.3% for the second quarter of 2018. Gross margin increased 1.8% primarily resulting from the elimination of sales to the low-margin Payless ShoeSource customer, as well as the strong growth in the Steve Madden brand. Operating expenses increased to $52,178revenue, in the second quarter of 20192020 as compared to $94,657, or 33.1% of Wholesale Footwear revenue, in the second quarter of 2019. The decrease in gross profit as a percentage of Wholesale Footwear revenue was due to a shift in sales mix to the lower-margin private label business. Operating expenses in the second quarter of 2020 were $32,443, or 41.6% of Wholesale Footwear revenue, as compared to $52,178, or 18.2% of Wholesale Footwear revenue, in the second quarter of the prior year. The increase in operating expenses as a percentage of Wholesale Footwear revenue was attributable to a deleverage on a lower sales base, in addition to restructuring and other related charges, partially offset by reduced discretionary spending as a result from $50,040our initiatives to control expenses. Income from operations decreased to a loss from operations of $10,699 in the second quarter of 2020 as compared to income from operations of $38,429 for the comparable period in the prior year.

Wholesale Accessories/Apparel Segment:

Revenue generated by the Wholesale Accessories/Apparel segment in the second quarter of 2020 accounted for $22,018, or 15.4% of total revenue, as compared to $77,265, or 17.2% of total revenue, in the second quarter of 2019. The 71.5% decrease in revenue in the current period is primarily related to order cancellations due to the impact of the COVID-19 pandemic. Gross profit was $4,806, or 21.8% of Wholesale Accessories/Apparel revenue, in the second quarter of 2020 as compared to $22,012, or 28.5% of Wholesale Accessories/Apparel revenue, in the second quarter of the prior year. The decrease in gross profit as a percentage of Wholesale Accessories/Apparel revenue was primarily due to a decline in our branded handbag and fashion accessories business. Operating expenses in the second quarter of 2020 were $9,210, or 41.8% of Wholesale Accessories/Apparel revenue, as compared to $17,262, or 22.3% of Wholesale Accessories/Apparel revenue, in the same period of last year. In the second quarter of 2019, operating expenses included a net benefit of $999, which was comprised of a recovery of $1,668 related to the Payless ShoeSource bankruptcy, partially offset by divisional headquarters relocation expenses of $669. Also recorded in the Wholesale Footwear segment was a $4,050 impairment charge for the Brian Atwood trademark impacting operating income. The impairment was triggered by the Company's decision to discontinue distribution of the brand as the Company explores alternatives. In the second quarter of 2018, operating expenses included a charge of $1,131 related to the integration of the Schwartz & Benjamin acquisition and related restructuring. Excluding these items, operating expenses for the second quarter of 2019 increased, however, as a percentage of sales decreased to 18.6% in the second quarter of 2019 compared to 19.4% in the same period of 2018.year. The increase in operating expenses primarily resulted from higher warehouse and distribution expenses and higher payroll and related expenses associated with higher sales and the addition of the Anne Klein footwear business. Income from

25

operations increased to $38,429 in the second quarter of 2019, compared to $28,916 for the comparable period in 2018. Income from operations, excluding the items mentioned above, increased to $41,479 in the second quarter of 2019 compared to $30,047 for the same period last year.

Wholesale Accessories Segment:

Net sales generated by the Wholesale Accessories segment accounted for $77,265, or 17.4%, and $69,271, or 17.5%, of total net sales for the Company in the second quarter of 2019 and 2018, respectively. The increase in net sales was primarily due to growth in our private label and Steve Madden branded handbags, as well as the addition of Anne Klein handbags. Gross margin in the Wholesale Accessories segment decreased to 28.5% in the second quarter of this year from 31.8% in the same period in 2018. Gross margin decreased 3.3%, resulting from tariffs imposed on accessories and an increase in low-margin private label sales, as well as the addition of Anne Klein handbags when compared to 2018. In the second quarter of 2019, operating expenses increased to $17,262 compared to $15,528 in the same period of last year. In the second quarter of 2018, operating expenses included a charge of $1,241 related to a warehouse consolidation. Excluding this item, operating expenses as a percentage of Wholesale Accessories/Apparel revenue was primarily attributable to a deleverage on a lower sales increasedbase in addition to 22.3%restructuring and other related charges, partially offset by reduced discretionary spending as a result from our initiatives to control expenses, along with a change in the second quartervaluation of 2019 compared to 20.6% in the same period of 2018. The increase in operating expenses in the second quarter of 2019 primarily resulted from higher warehouse and distribution expenses, and higher payroll related expenses associated with the increase in sales, as well as the addition of Anne Klein handbags. Incomea contingent consideration. Loss from operations for the Wholesale AccessoriesAccessories/Apparel segment for the second quarter of 20192020 was $4,750$4,404 as compared to $6,517income from operations of $4,750 for the samecomparable period of 2018. Income from operations, excluding the items mentioned above, decreased to $4,750 in the second quarter of 2019 compared to $7,758 for the same period lastprior year.

28

Retail Segment:

In the second quarter of 2019, net sales2020, revenue from the Retail segment accounted for $41,379, or 29.0% of total revenue, as compared to $81,472, or 18.3%,18.1% of our total net sales compared to $74,348, or 18.8%, of our total net salesrevenue, in the same period last year, which represents a $7,124, or 9.6%, increase.second quarter of 2019. The increase49.2% decrease in net sales isrevenue was primarily due to the net additionclosure of 16substantially all our retail stores fromfor most or all of the prior year period andquarter as a 6.2% increaseresult of the COVID-19 pandemic, partially offset by strong performance in comparable stores sales gain.our e-commerce business. We added 30three stores which included additional stores from the addition of our joint venture in Israel and closed 14two stores duringduring the twelvethree months ended June 30, 2019.2020. As a result,of June 30, 2020, we had 225 retail stores compared to 224 retail stores as of June 30, 2019 compared to 208 stores as of June 30, 2018.2019. The 224225 stores currently in operation include 149 146 Steve Madden® full-price stores, 6668 Steve Madden® outlet stores, 2one Steven® stores, 1store, one Superga® store, one GREATS® store and 6eight e-commerce websites. In addition, the Companyaddition, we operated 3117 concessions in international markets. As a result of the closure of the vast majority of our international markets. Comparablebrick-and-mortar stores for most or all of the quarter, we did not report comparable store sales (sales of those stores, includingfor the e-commerce websites, that were open throughoutquarter. Gross profit in the second quarter of 2019 and 2018) increased 6.2% when2020 was $27,889, or 67.4% of Retail revenue, as compared to the prior year period. The Company excludes new locations from the comparable store base for the first twelve months$48,676, or 59.7% of operations. Stores that are closed for renovations are removed from the comparable store base. InRetail revenue, in the second quarter of 2019,2019. The increase in gross margin decreased to 59.7% from 62.9% in the same periodprofit as a percentage of 2018Retail revenue was primarily due to inventory liquidation and markdownsa shift in connection withsales to the wind-down of the Company's joint venture relationshiphigher-margin e-commerce business. Operating expenses in China as well as aggressive liquidation of slow-moving inventory in the Company’s North American retail operations. In the second quarter of 2019, operating expenses increased2020 were $36,822, or 89.0% of Retail revenue, as compared to $50,369, or 61.8% of net sales, compared to $42,866, or 57.7% of net sales,Retail revenue, in the second quarter of last year,2019. The increase in operating expenses as a percentage of Retail revenue was primarily dueattributable to a deleverage on a lower sales base, an increase in costs related to the growth in the Company'sto our e-commerce business and the operationinclusion of additional stores. In addition,the GREATS business, partially offset by reduced discretionary spending as a result from our initiatives to control expenses, along with the change in the current period, operating expenses includedvaluation of a charge of $1,543 related to early lease terminations. contingent consideration.Loss fromfrom operations for the Retail segment was $1,693$8,933 in the second quarter of this year2020 as compared to a loss from operations of $1,693 in the comparable period last year.

First Cost Segment:

Commission fee income generated by the First Cost segment accounted for $252, or 0.2% of total revenue, in the second quarter of 2020 as compared to $1,576, or 0.4% of total revenue, for the first quarter of 2019. Operating expenses decreased to $424 in the current period as compared to $625 in the same period last year. Loss from operations was $172 in the second quarter of 2020 as compared to income from operations of $3,907$951 in the comparable period of last year.

Licensing Segment:

Licensing fee income generated by the Licensing segment accounted for $1,197, or 0.8% of total revenue, in the second quarter of 2020 as compared to $3,079, or 0.7% of total revenue, for the second quarter of 2019. Operating expenses decreased to $691 in the current period as compared to $883 in the same period of last year. Loss Income from operations, excluding the items mentioned above,Licensing segment was $150$506 as compared to $2,196 in the current period of 2019, compared to income from operations of $3,907 in the samecomparable period last year.

First Cost Segment
:
Income from the First Cost segment, which includes net commission income and fees, increased to $951 for the second quarter of 2019 compared to $623 for the comparable period of 2018. Included in the First Cost segment was a recovery of $143 related to the Payless ShoeSource bankruptcy.

Licensing Segment:
Net licensing income increased to $2,196 for the second quarter of 2019 compared to $1,621 for the comparable period of 2018 primarily due to an increase in royalties in connection with the licensing of our Betsey Johnson® trademark.


26

Six Months Ended June 30, 20192020 Compared to Six Months Ended June 30, 20182019

Consolidated:

Net salesTotal revenue for the six months ended June 30, 2019 increased 9.1%2020 decreased 42.0% to $855,914$501,980 compared to $784,767$865,417 in the same period of last year, with growth decreases in the Wholesale Accessories,Footwear, Wholesale Accessories/Apparel and Retail and Wholesale Footwear segments.segments as a result of the impact of the COVID-19 pandemic. Gross margin increasedprofit was $189,352, or 37.7% of total revenue, as compared to 37.7% from 36.8%$331,845, or 38.3% of total revenue, in the prior yearprior-year period. The increase of 90 basis pointsdecrease in gross margin inprofit as a percentage of total revenue was primarily due to inventory reserves, inclusive of inventory purchase commitments as a result of the current period was driven by gross margin improvements primarily in our Wholesale Footwear segment.COVID-19 pandemic. Operating expenses increased in the six months ended June 30, 20192020 were $229,784, or 45.8% of total revenue, as compared to $233,373 from $216,269$238,502, or 27.6% of total revenue, in the comparablesame period of 2018. In the first six months of 2019 and 2018 operating expenses included a net benefit of $575 and charges of $5,459, respectively. (See "Non-GAAP Financial Measures" above for a description of the net benefit and charges.) Excluding these items,prior year. The increase in operating expenses as a percentage of sales increased to 27.3% for the first six months of 2019 compared to 26.9% in the first six months of 2018. Excluding these items, the increase in operating expensestotal revenue was primarily comprisedattributable to a deleverage on a lower sales base, in addition to the impairment of (i) higher warehouselease right-of-use assets and distributionstore fixed assets, restructuring and other related charges as a result of the COVID-19 pandemic, and the inclusion of the GREATS and BB Dakota businesses, partially offset by reduced discretionary spending as a result from our initiatives to control expenses, (ii) higher payroll and related expenses, (iii) higher advertising and promotions, and (iv) higher legal charges consistingalong with the change in valuation of costs and estimated settlement amounts. Commission and licensing fee incomecontingent considerations. The effective tax rate for the six months ended June 30, 2019 decreased2020 increased to $4,37428.0% compared to $5,903 in the comparable period of 2018, resulting primarily from the provision22.2% for bad debt expenses, net of recovery, associated with the Payless ShoeSource bankruptcy. (See "Non-GAAP Financial Measures" above.) The effective tax rate for the first six months of 2019 decreased to 22.2% compared to 22.7% in the same period of last year. The decreaseincrease in effective tax rate is primarily due to a decrease in the amount of GILTI tax incurred, a decrease inbenefit from the state taxes incurred and a partially offsetting increase in 20192020 pre-tax incomeloss in jurisdictions with highhigher tax rates. Net incomerates and a change to the valuation of contingent considerations, partially offset by an increase in GILTI tax. Net loss attributable to Steven Madden, Ltd. for the six months ended June 30, 2019 increased to $71,0972020 was $34,037 compared to net income of $71,097 for the same period of 2019.

Wholesale Footwear Segment:

Revenue from the Wholesale Footwear segment for the six months ended June 30, 20182020 accounted for $313,035, or 62.4% of $61,083. Net income attributable to Steven Madden, Ltd. for the first six months of 2019 increased to $74,605 (excluding (i) $344 after-tax recovery net of bad debt expense associated with the Payless ShoeSource bankruptcy, (ii) $1,717 after-tax expense in connection with a provision for early lease termination charges, (iii) $1,399 after-tax net benefit associated with the change in a contingent liability, partially offset by the acceleration of amortization related to the termination of the Kate Spade license agreement as of December 31, 2019, (iv) $501 after-tax expense associated with a divisional headquarters relocation and (v) $3,033 after-tax impact of an impairment of the Brian Atwood trademark),total revenue, as compared to $66,181 (excluding (i) $2,135 after-tax expense in connection with a provision for legal charges, (ii) $1,021 after-tax expense in connection with the integration$562,825, or 65.0% of the Schwartz & Benjamin acquisition and the related restructuring, (iii) $914 after-tax impact of expense related to a warehouse consolidation, and (iv) $1,028 tax expense related to an impairment to the preferred interest investment in Brian Atwood Italia Holding, LLC)total revenue, for the same period last year.

of 2019. The 44.4% decrease in revenue in the current period was primarily related to order cancellations due to the impact of the COVID-19 pandemic. Gross profit was $101,528, or 32.4% of Wholesale Footwear Segment:

Net sales from the Wholesale Footwear segment accounted for $562,825, or 65.8%, and $527,190, or 67.2%, of our total net salesrevenue, for the six months ended June 30, 2019 and 2018, respectively. 2020 as compared to $192,978, or 34.3% of Wholesale Footwear revenue, for same period of 2019. The increasedecrease in net sales in the current period isgross profit as a percentage of Wholesale
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Footwear revenue was primarily due to inventory related to strong growth in the Steve Madden brand and the additionreserves taken as a result of the Anne Klein brand which were mostly offset by not recognizing sales to Payless ShoeSource in the current period. Gross margin in the Wholesale Footwear segment was 34.3%COVID-19 pandemic. Operating expenses for the six months ended June 30, 20192020 were $83,136, or 26.6% of Wholesale Footwear revenue, as compared to 32.1%$102,227, or 18.2% of Wholesale Footwear revenue, for the same period of the prior year. The increase in operating expenses as a percentage of Wholesale Footwear revenue was primarily attributable to a deleverage on a lower sales base in addition to restructuring and other related charges as a result of the COVID-19 pandemic, partially offset by reduced discretionary spending as a result from our initiatives to control expenses. Income from operations decreased to $18,392 for the six months end June 30, 2020 as compared to $86,701 for the comparable period in the prior year.

Wholesale Accessories/Apparel Segment:

Revenue generated by the Wholesale Accessories/Apparel segment for six months ended June 30, 2020 accounted for $89,690, or 17.9% of total revenue, as compared to $148,772, or 17.2% of total revenue, for the comparable period of 2018. Gross margin increased 2.2%2019. The 39.7% decrease in revenue in the current period is primarily resulting from not recognizing salesattributable to order cancellations due to the low-margin Payless ShoeSource customer,impact of the COVID-19 pandemic. Gross profit was $23,318, or 26.0% of Wholesale Accessories/Apparel revenue, for the six months ended June 30, 2020 as well as the strong growthcompared to $43,928, or 29.5% of Wholesale Accessories/Apparel revenue, in the Steve Madden brand.prior year. The decrease in gross profit as a percentage of Wholesale Accessories/Apparel revenue was due to inventory related reserves as a result of the COVID-19 pandemic. Operating expenses increased to $102,227 infor the first six months ended June 30, 2020 were $29,281, or 32.6% of 2019 from $101,951Wholesale Accessories/Apparel revenue, as compared to $34,311, or 23.1% of Wholesale Accessories/Apparel revenue, in the same period of last year. In the first six months of 2019, operating expenses included a net benefit of $2,750, comprised of a recovery of $1,668 related to the Payless ShoeSource bankruptcy and a net benefit of $1,868 associated with the change of a contingent liability and the acceleration of amortization related to the termination of the Kate Spade license agreement as of December 31, 2019, partially offset by divisional headquarters relocation expenses of $669 and a charge of $117 related to an early lease termination. Also recorded The increase in the Wholesale Footwear segment was a $4,050 impairment charge for the Brian Atwood trademark impacting operating income. In the first six months of 2018, operating expenses included charges of $2,837 in connection with provisions for legal charges and $1,241 related to a warehouse consolidation, as well as $1,381 related to the integration of the Schwartz & Benjamin acquisition and related restructuring. Excluding these items, operating expenses for the first half of 2019 increased, however, operating expenses as a percentage of Wholesale Accessories/Apparel revenue was primarily attributable to a deleverage on a lower sales decreasedbase, in addition to 17.9% in the first six months of 2019 compared to 18.5% in the same period of 2018. The increase in operating expenses primarily resulted from higher warehouserestructuring and distribution expenses and higher payroll andother related expenses associated with higher sales and the additioncharges as a result of the Anne Klein footwear business. IncomeCOVID-19 pandemic, partially offset by reduced discretionary spending as a result from operations increasedour initiatives to $86,701control expenses, along with a change in the six months ended June 30, 2019, compared to $67,293 for the comparable period in 2018. Income from operations, excluding the items mentioned above, increased to $88,001 in the first six monthsvaluation of 2019 compared to $71,511 for the same period last year.

a contingent consideration. In the Wholesale Accessories Segment:

Net sales generated by the Wholesale AccessoriesAccessories/Apparel segment, accounted for $148,772, or 17.4%, and $125,370, or 16.0%,an impairment of total net sales for the Companycertain trademarks was recorded for the six months ended June 30, 2019 and 2018, respectively. The increase in net sales was primarily

272020. Loss

due to growth in our private label and Steve Madden branded handbags, as well as the addition of Anne Klein handbags. Gross margin in from operations for the Wholesale AccessoriesAccessories/Apparel segment decreased to 29.5% in the first six months of this year from 31.6% in the same period of 2018. The 2.1% decrease in gross margin resulted from tariffs imposed on accessories and an increase in low-margin private label sales as well as the addition of Anne Klein handbags when compared to 2018. In the six-month period ended June 30, 2019, operating expenses increased to $34,311 compared to $30,734 in the same period of last year. Infor the six months ended June 30, 2018, operating expenses included a charge2020 was $15,025 as compared to income from operations of $1,241 related$9,617 for the comparable period of the prior year.

Retail Segment:

For the six months ended June 30, 2020, revenue from the Retail segment accounted for $94,322, or 18.8% of total revenue, as compared to a warehouse consolidation. Excluding this item, operating expenses$144,317, or 16.7% of total revenue, in the firstsame period of 2019. The 34.6% decrease in revenue was primarily due to the closure of all of our brick-and-mortar stores in the U.S. and the vast majority of our brick-and-mortar stores globally from the second half of March through at least the end of May, when we started to reopen some of our stores. We added four stores and closed six stores during the six months ended June 30, 2020. As of 2019 increased, however,June 30, 2020, we had 225 retail stores compared to 224 stores as of June 30, 2019. Gross profit for the six months ended June 30, 2020 was $59,573, or 63.2% of Retail revenue, as compared to $85,436, or 59.2% of Retail revenue, in the comparable period of 2019. The increase in gross profit as a percentage of Retail revenue was primarily due to strong margins from a shift in sales to the higher-margin e-commerce business. Operating expenses for the six months ended June 30, 2020 were $113,853, or 120.7% of Retail revenue, as compared to $96,835, or 67.1% of Retail revenue, in the comparable period of 2019. The increase in operating expenses as a percentage of Retail revenue was primarily attributable to a deleverage on a lower sales decreased to 23.1%base, in the first six months of 2019 compared to 23.5% in the same period of 2018. The increase in operating expenses in the six months ended June 30, 2019 primarily resulted from higher warehouse and distribution expenses associated with an increase in sales. Income from operations for the Wholesale Accessories segment for the first six months of 2019 was $9,617 compared to $8,926 for the same period of 2018. Income from operations, excluding the item mentioned above, decreased to $9,617 in the first six months of 2019 compared to $10,167 for the same period last year.

Retail Segment:
In the six months ended June 30, 2019, net sales from the Retail segment accounted for $144,317, or 16.9%, of our total net sales compared to $132,207, or 16.8%, of our total net sales in the same period last year, which represents a $12,110, or 9.2%, increase. The increase in net sales is primarily dueaddition to the net additionimpairment of 16 stores from the prior year periodlease right-of-use assets and a 6.2% increase in comparable stores sales gain. We added 30 stores, which included additional stores from the addition of our joint venture in Israelstore fixed assets, restructuring and closed 14 stores during the twelve months ended June 30, 2019. Asrelated charges as a result we had 224 retail stores as of June 30, 2019 compared to 208 stores as of June 30, 2018. The 224 stores currently in operation include 149 Steve Madden® stores, 66 Steve Madden® outlet stores, 2 Steven® stores, 1 Superga® store and 6 e-commerce websites. In addition, the Company operated 31 concessions in our international markets. Comparable store sales (sales of those stores, including the e-commerce websites, that were open throughout the first six months of 2019 and 2018) increased 6.2% when compared to the prior year period. The Company excludes new locations from the comparable store base for the first twelve months of operations. Stores that are closed for renovations are removed from the comparable store base. In the six months ended June 30, 2019, gross margin decreased to 59.2% from 60.2% in the same period of 2018primarily due to inventory liquidation and markdowns in connection with the wind-down of the Company's joint venture relationship in China as well as aggressive liquidation of slow-moving inventory in the Company’s North American retail operations. In the first six months of 2019, operating expenses increased to $96,835, or 67.1% of net sales, compared to $83,584, or 63.2% of net sales, in the comparable period of last year, primarily due to the growth in the Company's e-commerce businessCOVID-19 pandemic and the operationinclusion of additional stores. In addition,the GREATS business, partially offset by reduced discretionary spending as a result from our initiatives to control expenses, along with the change in the current period, operating expenses includedvaluation of a charge of $2,175 related to early lease terminations.contingent consideration. Loss from operations for the Retail segment was $11,399 in$54,736 for the six months ended June 30, 20192020 as compared to $3,981$11,399 in the comparable period last year.

First Cost Segment:

Commission fee income generated by the First Cost segment accounted for $1,502, or 0.3% of total revenue, for the six months ended June 30, 2020 as compared to $3,934, or 0.5% of total revenue, for the same period of 2019. Operating expenses decreased to $1,526 in the current period as compared to $3,399 in the same period last year. Loss from operations was $24 for six months ended June 30, 2020 as compared to income from operations of $535 in the comparable period of last year.

Licensing Segment:

Licensing fee income generated by the Licensing segment accounted for $3,431, or 0.7% of total revenue, for six months ended June 30, 2020 as compared to $5,569, or 0.6% of total revenue, for the second quarter of 2019. Operating expenses increased to $1,988 in the current period as compared to $1,730 in the same period of last year. LossIncome from operations, excluding the items mentioned above, resulted in a loss from operations of $9,224Licensing segment was $1,443 as compared to $3,839 in the current period of 2019, compared to $3,981 in the samecomparable period last year.

First Cost Segment:
Income from the First Cost segment, which includes net commission income and fees, decreased to $535 for the six months ended June 
30 2019 compared to $1,491 for the comparable period of 2018, primarily due to a charge of $1,409 for provisions for bad debt, net of recovery related to the Payless ShoeSource bankruptcy.

Licensing Segment:
Net licensing income decreased to $3,839 for the six-month period ended June 30, 2019 compared to $4,412 for the comparable period of 2018 primarily due to a decrease in royalties in connection with the licensing of our Betsey Johnson® trademark.


LIQUIDITY AND CAPITAL RESOURCES
($ in thousands)
Our primary source
We took a number of precautionary but significant measures to preserve liquidity isand enhance financial flexibility as a result of the COVID-19 pandemic. We suspended stock repurchases and our quarterly cash flows generateddividend. We significantly scaled back all non-essential operating expenses, capital expenditures and inventory purchases. We also furloughed a significant portion of our employees, temporarily suspended salaries for our Founder and Creative and Design Chief, Steve Madden, our Chairman and Chief Executive Officer, Edward Rosenfeld, and our Board of Directors, reduced salaries by 30% for our President, Chief Financial Officer, Chief Operating Officer and Chief Merchandising Officer, temporarily reduced the salaries of all employees with salaries greater than $100 per year and drew down from our operations. Our primary useexisting credit facility as of this liquidity is to fund our ongoing cash requirements, including working capital requirements, share repurchases, acquisitions, system enhancements, retail store expansion and remodeling and payment of dividends.March 2020.
Cash, cash equivalents and short-term investmentsmarketable securities totaled $248,760$356,938 and $266,999$304,622 at June 30, 20192020 and December 31, 2018,2019, respectively. Of the total cash, cash equivalents and short-term investmentsmarketable securities at June 30, 2019, $149,781,2020, $138,964, or approximately 60%39%, was held in our foreign subsidiaries and of the total cash, cash equivalents and short-term investmentsmarketable securities at December 31, 2018, $198,110,2019, $137,072, or approximately 74%45%, was held in our foreign subsidiaries.

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The Company hasWe have a collection agency agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”). TheUntil May 6, 2020, the agreement providesprovided us with a credit facility in the amount of $30,000, having a sub-limit of $15,000 on the aggregate face amount of letters of credit, at an interest rate based, at our election, upon either the prime rate or LIBOR. The agreement can be terminated byEffective May 6, 2020, the Company or Rosenthal at any time with 60 days’ prior written notice.credit facility was increased to $50,000 as a precautionary measure in response to the COVID-19 pandemic. As of June 30, 2019 we had no borrowings against2020, the balance drawn on this credit facility.facility was $42,622.
On July 22, 2020, we entered into a new $150,000, five-year, asset-based revolving credit facility, which replaced our credit facility with Rosenthal.
As of June 30, 2019,2020, we had working capital of $458,584,$398,029, cash and cash equivalents of $212,664 and$318,101, investments in marketable securities of $36,096$38,837 and we did not have any long-term debt.had short-term debt of $42,662.
We believe that based uponon our current financial position and available cash, cash equivalents, and marketable securities, the Companywe will meet all of itsour financial commitments and operating needs for at least the next twelve months. In addition, we have an asset-based revolving credit facility, which we can access as a precautionary measure.
OPERATING ACTIVITIES
($ in thousands)
Cash provided by operations was $59,761$57,867 for the six months ended June 30, 20192020 compared to $44,927$59,761 in the same period of last year. The primary sourceCash provided by operations was derived primarily from a change in factor accounts receivables of cash was from net income$92,975 and a decrease in inventory of $71,376 and an increase$33,614, partially offset by a change in accounts payable and accrued expenses of $26,232, partially offset by cash used from the increase in factor accounts receivables of $43,832.$76,183.
INVESTING ACTIVITIES
($ in thousands)

During the six months ended June 30, 2019,2020, we invested $37,426$25,818 in marketable securities andoffset by cash received $69,488of $25,656 from the maturities and sales of marketable securities. We also made capital expenditures of $6,214,$4,320, principally for systems enhancements, leasehold improvements to office space, systems enhancements, improvements to existing stores and new stores.stores, which were committed to and in final stages prior to the COVID-19 pandemic.
FINANCING ACTIVITIES
($ in thousands)
During the six months ended June 30, 2019,2020, net cash used inprovided by financing activities was $73,174,$1,844, which consisted of share repurchases of $51,156,$29,678 and cash dividends paid of $23,987 and distribution of noncontrolling interest earnings of $1,113. These payments were$12,459, partially offset by an investment in noncontrolling interestnet proceeds from advances from factor of $1,283$42,662 and proceeds from the exercise of stock options of $1,799.$960.
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CONTRACTUAL OBLIGATIONS
($ in thousands)
Our contractual obligations as of June 30, 20192020 were as follows:
 Payment due by period Payment due by period
Contractual Obligations Total 
Remainder of
2019
 2020-2021 2022-2023 2024 and afterContractual ObligationsTotalRemainder of 20202021-20222023-20242025 and after
Operating lease obligations $219,693
 $23,422
 $84,433
 $53,159
 $58,679
Operating lease obligations$169,747  $22,602  $70,908  $40,448  $35,789  
Purchase obligations 91,099
 91,099
 —
 —
 —
Purchase obligations52,790  52,790  —  —  —  
Future minimum royalty and advertising payments 34,150
 5,355
 16,910
 11,885
 —
Future minimum royalty and advertising payments26,401  4,363  16,600  5,438  —  
Transition tax 17,973
 1,563
 3,126
 4,493
 8,791
Transition tax16,410  1,563  3,126  6,837  4,884  
Total $362,915
 $121,439
 $104,469
 $69,537
 $67,470
Total$265,348  $81,318  $90,634  $52,723  $40,673  
At June 30, 2019,2020, we had no open letters of credit for the purchase of inventory.
VirtuallySubstantially all of our products are produced by independent manufacturers at overseas locations, the majority of which are located in China, with a small and growing percentage located in Cambodia, Mexico, Brazil, Italy, Mexico,India, Vietnam and Cambodia and smaller volumes in Brazil, India, The Netherlands, The Dominican Republic, Spain and South Korea.some other European nations. We have not entered into any long-term manufacturing or supply contracts with any of these foreign manufacturers. We believe that a sufficient number of alternative sources exist outside of the United States for the manufacture of our products. Purchases are made primarily in United States dollars.

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The Company hasWe have employment agreements with itsour Creative and Design Chief, Steven Madden, and certain executive officers, which provide for the payment of compensation aggregating approximately $5,553$3,276 in the remainder of 2019, $9,378 in 2020, $8,668$10,150 in 2021, $7,026$8,366 in 2022 and $7,026$7,174 in 2023. In addition, some of these employment agreements provide for discretionary bonuses and some provide for incentive compensation based on various performance criteria as well as other benefits, including stock-related compensation.
Transition tax of $17,973$16,410 was the result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). Excluded from the contractual obligations table above are long-term taxes payable of $1,511$1,150 as of June 30, 20192020 primarily related to uncertain tax positions, for which we are unable to make a reasonably reliable estimate of the timing of payments in individual years beyond one year due to uncertainties in the timing of tax audit outcomes.
DIVIDENDS

In April 2019,At the end of March 2020, in response to the COVID-19 pandemic, as a precautionary measure our Board of Directors temporarily suspended the payment of dividends and the repurchase of the Company declared a quarterly cash dividend of $0.14 per share on the Company’s outstanding shares ofCompany's common stock. The dividend was paid on June 28, 2019 to stockholders of record as of the close of business on June 18, 2019. The total cash dividends paid for the three months ended June 30, 2019 was $11,945.

In July 2019, the Board of Directors of the Company declared an additional quarterly cash dividend of $0.14 per share on the Company’s outstanding shares of common stock. The dividend will be paid on September 27, 2019 to stockholders of record as of the close of business on September 17, 2019.
Future quarterly cash dividend payments are also subject to the discretion of our Board of Directors and contingent upon future earnings, our financial condition, capital requirements, general business conditions, and other factors. Therefore, we can give no assurance that cash dividends of any kind will be paid to holders of our common stock in the future.
INFLATION

We do not believe that inflation and price changes have had a significant effect on our sales or profitability in the three months ended June 30, 2019.2020. Historically, we have minimized the impact of product cost increases by increasing prices, changing suppliers and by improving operating efficiencies. However, no assurance can be given that we will be able to offset any such inflationary cost increases in the future.
OFF-BALANCE SHEET ARRANGEMENTS

The Company hasWe have no off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES
There have been no material changes to our critical accounting policies and the use of estimates from these disclosures reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 filed with the Securities and Exchange Commission on February 28, 2019.March 2, 2020.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
($ in thousands)

We do not engage in the trading of market risk sensitive instruments in the normal course of business. Our financing arrangements are subject to variable interest rates, primarily based on the prime rate and LIBOR. The terms of our collection agency agreements with Rosenthal & Rosenthal, Inc. can be found in the Liquidity and Capital Resources section of Item 2 and in Note DF to the Condensed Consolidated Financial Statements included in this Quarterly Report. The terms of our new $150 million asset-based revolving credit agreement can be found in Note T to the Condensed Consolidated Financial Statements included in this Quarterly Report.
As of June 30, 2019,2020, we held marketable securities valued at $36,096,$38,837, which consist of certificates of deposit and corporate bonds. The values of these securities may fluctuate as a result of changes in values, market interest rates and credit risk.deposit. We have the ability to hold these investments until maturity. In addition, any decline in interest rates would be expected to reduce our interest income.
We face market risk to the extent that our U.S. or foreign operations involve the transaction of business in foreign currencies. Also,In addition, our inventory purchases are primarily done in foreign jurisdictions and inventory purchases may be impacted by fluctuations in

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the exchange rates between the U.S. dollar and the local currencies of our contract manufacturers, which could have the effect of increasing the cost of goods sold in the future. We manage these risks primarily by denominating these purchases in U.S. dollars. To mitigate the risk of purchases that are denominated in foreign currencies we may enter into forward foreign exchange contracts for terms of no more than two years. A description of our accounting policies for derivative financial instruments is included in Note P Note M to the Condensed Consolidated Financial Statements.
In the first six months of 2019, the Company2020, we entered into forward foreign exchange contracts with notional amounts totaling $29,280.$16,121. We performed a sensitivity analysis based on a model that measures the impact of a hypothetical change in foreign currency exchange raterates to determine the effects that market risk exposures may have on the fair values of our forward foreign exchange contracts that were outstanding as of June 30, 2019.2020. As of June 30, 2019,2020, a 10% appreciationincrease or depreciationdecrease of the U.S. dollar against the exchange rates for foreign currencies under forward foreign exchange contracts would result in a net increase or decrease, respectively, in the fair value of our derivatives portfolio of approximately $2,754.$1,599.
In addition, we are exposed to translation risk in connection with our foreign operations in Canada, Mexico, Europe, South Africa, China, Taiwan and Israel because our subsidiaries and joint ventures in these countries utilize the local currency as their functional currency, and those financial results must beare translated into U.S. dollars. As currency exchange rates fluctuate, foreign currency exchange rate translation adjustments reflected in our financial statements with respect to our foreign operations affects the comparability of financial results between years.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter covered by this Quarterly Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were, as of the end of the fiscal quarter covered by this Quarterly Report, effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal controls over financial reporting to determine whether any changes occurred during the quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. BasedThere were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the effects that the COVID-19 pandemic may have on our internal controls to minimize the impact on their design and operating effectiveness.

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On August 9, 2019 and August 12, 2019, we acquired GREATS Brand, Inc. and B.B. Dakota, Inc., respectively.  In conducting our evaluation of the effectiveness of internal controls over financial reporting as of June 30, 2020, we excluded GREATS Brand, Inc. and B.B. Dakota, Inc. from that evaluation there has been no such change duringin accordance with the quarter covered by this Quarterly Report.rules relating to recently acquired entities.

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

The Company hasWe have been named as a defendant in certain 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 effectimpact on the Company'sour financial position, or results of operations or cash flows. It is the policy of management to disclose the amount or range of reasonably possible losses in excess of recorded amounts.


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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
($ in thousands, except share and per share data)

The following table presents the total number of shares of the Company'sour common stock, $.0001 par value, purchased by the Companyus in the three months ended June 30, 2019,2020, the average price paid per share and the approximate dollar value of the shares that still could have been purchased at the end of the fiscal period pursuant to our Share Repurchase Program. In the middle of March 2020, in response to the COVID-19 pandemic, as a precautionary measure, the Company temporarily suspended the repurchase of the Company's common stock under the Share Repurchase Program. See also Note HK to the Condensed Consolidated Financial Statements. During the three months ended June 30, 2019,2020, there were no sales by the Companyus of unregistered shares of the Company's common stock.
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share (1)
Maximum Dollar Amount of Shares that May Yet Be Purchased Under the Plans or Programs
4/1/2020 - 4/30/202015,304  $19.70  $111,590  
5/1/2020 - 5/31/20202,554  25.07  111,590  
6/1/2020 - 6/30/20207,159  24.33  111,590  
Total25,017  $21.57  
Period
Total Number of Shares Purchased (1)
 
Average Price Paid per Share (1)
 Total Number of Shares Purchased as part of Publicly Announced Plans or Programs Maximum Dollar Amount of Shares that May Yet Be Purchased Under the Plans or Programs
4/1/2019 - 4/30/20199,415
 $33.99
 —
 $200,000
5/1/2019 - 5/31/2019568,011
 $32.28
 565,695
 $181,751
6/1/2019 - 6/30/2019481,270
 $31.89
 470,333
 $166,754
Total1,058,696
 $32.12
 1,036,028
 $166,754
        

(1) The Steven Madden, Ltd. 2019 Incentive Compensation Plan and its predecessor plan, the Steven Madden, Ltd. Amended and Restated 2006 Stock Incentive Plan, each provide the Companyus with the right to deduct or withhold, or require employees to remit to the Company,us, an amount sufficient to satisfy all or part of the tax withholdingtax-withholding obligations applicable to stock-based compensation awards. To the extent permitted, employeesparticipants may elect to satisfy all or part of such withholding obligations by tendering to the Companyus previously owned shares or by having the Companyus withhold shares having a fair market value equal to the employee's withholding tax obligation.minimum statutory tax-withholding rate that could be imposed on the transaction. Included in this table are shares withheld during the second quarter of 20192020 in connection with the settlement of vested restricted stock to satisfy tax withholdingtax-withholding requirements in addition to the shares repurchased pursuant to the Share Repurchase Program. Of the total number of shares repurchased by the Company in the second quarter of 2019, 22,668 shares were withheld at an average price per share of $33.36, forwith an aggregate purchase price of approximately $756, in connection with the settlement of vested restricted stock to satisfy tax withholding requirements.$540.

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ITEM 6. EXHIBITS
 
Certificate of Incorporation of Steven Madden, Ltd., as amended †
3.2
Amended & Restated By-Laws of Steven Madden, Ltd., as further amendedEmployment Agreement dated May 11, 2020 between the Company and Karla Frieders (incorporated by reference to Exhibit 3.110.1 to the Company's QuarterlyCompany’s Current Report on Form 10-Q for the quarterly period ended June 30, 20178-K filed with the SEC on August 4, 2017)May 14, 2020)#
Steven Madden, Ltd. 2019 Incentive Compensation Plan, as adoptedAmendment to Collection Agency Agreement dated May 6, 2020 between Rosenthal & Rosenthal, Inc. and the Company (incorporated by reference to Exhibit 10.1 to the Board of DirectorsCompany's Current Report on February 25, 2019 and approved byForm 8-K filed with the stockholdersSEC on May 24, 2019 †#28, 2020)
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 †
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 †
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 †*
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 †*
101The following materials from Steven Madden, Ltd.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019,2020, formatted in XBRL (ExtensibleiXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of (Loss)/Income, (iii) the Condensed Consolidated Statements of Comprehensive (Loss)/Income, (iv) the Condensed Consolidated Statements of Changes in Stockholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text*
104Cover Page Interactive Data File, formatted in Inline Extensible Business Reporting Language (iXBRL).*



 
†#Filed herewith
#Indicates management contract or compensatory plan or arrangement required to be identified pursuant to Item 6 15(b)
of this Quarterly Report on Form 10-Q.
*†Filed herewith
*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filing, except to the extent the Company specifically incorporates it by reference.




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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
 
Dated: August 5, 20194, 2020
 
STEVEN MADDEN, LTD.
/s/ EDWARD R. ROSENFELD
Edward R. Rosenfeld
Chairman and Chief Executive Officer
/s/ ARVIND DHARIA
Arvind Dharia
Chief Financial Officer

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