Edgar Filing: STEVEN MADDEN, LTD.

SHOO-2014.03.31-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to _____________________

Commission File Number 0-23702

STEVEN MADDEN, LTD.

(Exact name of registrant as specified in its charter)



Delaware		13-3588231
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)



52-16 Barnett Avenue, Long Island City, New York		11104
(Address of principal executive offices)		(Zip Code)

(718) 446-1800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (do not check if smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of May 7, 2014, the latest practicable date, there were 66,235,073 shares of the registrant’s common stock, $.0001 par value, outstanding.

STEVEN MADDEN, LTD.

FORM 10-Q

QUARTERLY REPORT

March 31, 2014

TABLE OF CONTENTS



PART I – FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Income	2

	Condensed Consolidated Statements of Comprehensive Income	3

	Condensed Consolidated Statements of Cash Flows	4

	Notes to Condensed Consolidated Financial Statements - Unaudited	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	22

ITEM 4.	Controls and Procedures	22

PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings	23

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

ITEM 6.	Exhibits	24

	Signatures	25

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)



	March 31, 2014			December 31, 2013			March 31, 2013
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	153,070		$	180,275		$	154,697
Accounts receivable, net of allowances of $2,584, $2,594 and $3,816	63,796			89,200			94,868
Factor accounts receivable, net of allowances of $14,115, $17,818 and $15,248	139,174			96,223			75,228
Inventories	58,301			73,696			58,586
Marketable securities – available for sale	30,714			20,591			21,731
Prepaid expenses and other current assets	16,597			17,194			17,541
Prepaid taxes	—			7,199			—
Deferred taxes	12,179			12,267			10,371
Total current assets	473,831			496,645			433,022
Notes receivable	2,461			3,171			3,085
Note receivable – related party	3,581			3,581			3,600
Property and equipment, net	58,432			56,606			46,190
Other assets	6,227			3,276			2,302
Marketable securities – available for sale	91,945			91,267			101,478
Goodwill – net	95,842			96,132			96,631
Intangibles – net	131,577			129,563			133,914
Total Assets	$	863,896		$	880,241		$	820,222
LIABILITIES
Current liabilities:
Accounts payable	$	89,073		$	99,126		$	69,380
Accrued expenses	34,775			37,099			37,238
Income taxes payable	84			—			7,203
Contingent payment liability – current portion	9,761			10,695			14,409
Accrued incentive compensation	2,444			7,583			1,699
Total current liabilities	136,137			154,503			129,929
Contingent payment liability	25,156			24,100			32,401
Deferred rent	9,736			9,435			8,172
Deferred taxes	14,781			13,224			4,941
Other liabilities	139			139			114
Total Liabilities	185,949			201,401			175,557
Commitments, contingencies and other
STOCKHOLDERS’ EQUITY
Preferred stock – $.0001 par value, 5,000 shares authorized; none issued; Series A Junior Participating preferred stock – $.0001 par value, 60 shares authorized; none issued	—			—			—
Common stock – $.0001 par value, 135,000 shares authorized, 83,084, 82,941 and 82,317 shares issued, 66,628, 67,336 and 69,334 shares outstanding	8			8			8
Additional paid-in capital	253,933			247,857			224,094
Retained earnings	695,681			672,044			563,437
Accumulated other comprehensive (loss) income	(8,217		)	(6,677		)	857
Treasury stock – 16,456, 15,605, and 12,983 shares at cost	(264,051		)	(234,715		)	(143,683		)
Total Steven Madden, Ltd. stockholders’ equity	677,354			678,517			644,713
Non-controlling interests	593			323			(48		)
Total stockholders’ equity	677,947			678,840			644,665
Total Liabilities and Stockholders’ Equity	$	863,896		$	880,241		$	820,222

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(unaudited)

(in thousands, except per share data)



	Three Months Ended March 31,
	2014			2013
Net sales	$	304,624		$	278,916
Cost of sales	196,276			176,318
Gross profit	108,348			102,598

Commission and licensing fee income – net	3,171			4,366
Operating expenses	(75,526		)	(70,525		)
Income from operations	35,993			36,439
Interest and other income – net	1,033			913
Income before provision for income taxes	37,026			37,352
Provision for income taxes	12,996			13,820
Net income	24,030			23,532
Net income attributable to non-controlling interests	393			132
Net income attributable to Steven Madden, Ltd.	$	23,637		$	23,400


Basic net income per share	$	0.38		$	0.36

Diluted net income per share	$	0.36		$	0.35

Basic weighted average common shares outstanding	62,822			65,228
Effect of dilutive securities – options/restricted stock	2,315			1,962
Diluted weighted average common shares outstanding	65,137			67,190

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)



	Three Months Ended March 31, 2014
	Pre-tax amounts			Tax benefit/(expense)			After-tax amounts
Net income							$	24,030
Other comprehensive (loss) income:
Foreign currency translation adjustment	$	(2,979	)	$	—		(2,979		)
Gain (loss) on cash flow hedging derivatives	317			(122		)	195
Unrealized gain (loss) on marketable securities	2,038			(795		)	1,243
Total other comprehensive (loss) income	$	(624	)	$	(917	)	(1,541		)

Comprehensive income							22,489
Comprehensive income attributable to non-controlling interests							393
Comprehensive income attributable to Steven Madden, Ltd.							$	22,096

	Three Months Ended March 31, 2013
	Pre-tax amounts			Tax benefit/(expense)			After-tax amounts
Net income							$	23,532
Other comprehensive (loss) income:
Foreign currency translation adjustment	$	(1,430	)	$	—		(1,430		)
Gain (loss) on cash flow hedging derivatives	1,743			(671		)	1,072
Unrealized gain (loss) on marketable securities	(374		)	146			(228		)
Total other comprehensive (loss) income	$	(61	)	$	(525	)	(586		)

Comprehensive income							22,946
Comprehensive income attributable to non-controlling interests							132
Comprehensive income attributable to Steven Madden, Ltd.							$	22,814

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)



	Three Months Ended March 31,
	2014			2013
Cash flows from operating activities:
Net income	$	24,030		$	23,532
Adjustments to reconcile net income to net cash provided by operating activities:
Tax benefit from the exercise of stock options	(631		)	(658		)
Depreciation and amortization	3,374			3,363
Loss on disposal of fixed assets	62			920
Deferred taxes	524			—
Stock-based compensation	4,924			5,151
Accrued interest on note receivable – related party	—			(19		)
Deferred rent expense	301			651
Realized gain on sale of marketable securities	2			89
Changes in:
Accounts receivable, net of allowances	25,404			(21,930		)
Due from factor, net of allowances	(42,951		)	19,535
Inventories	15,395			5,097
Prepaids and other assets	8,436			5,187
Accounts payable and other accrued expenses	(17,310		)	(14,568		)
Net cash provided by operating activities	21,560			26,350

Cash flows from investing activities:
Purchases of property and equipment	(4,392		)	(4,226		)
Purchases of marketable securities	(9,969		)	(29,590		)
Sales of marketable securities	530			3,218
Acquisitions, net of cash acquired	(6,750		)	—
Net cash used for investing activities	(20,581		)	(30,598		)

Cash flows from financing activities:
Common stock repurchases for treasury	(29,336		)	(11,141		)
Proceeds from exercise of stock options	521			651
Tax benefit from the exercise of stock options	631			658
Net cash used for financing activities	(28,184		)	(9,832		)
Net decrease in cash and cash equivalents	(27,205		)	(14,080		)
Cash and cash equivalents – beginning of period	180,275			168,777
Cash and cash equivalents – end of period	$	153,070		$	154,697

See accompanying notes to condensed consolidated financial statements - unaudited.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ 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 the 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) which are considered necessary for a fair presentation of the financial position of the Company and the results of its operations and cash flows for the periods presented. Certain adjustments were made to prior years' amounts to conform to the 2014 presentation and to reflect the 2013 three-for-two stock split which was announced on August 20, 2013. The stock split occurred and the additional shares were distributed to shareholders on October 1, 2013. All share and per share data herein gives effect to the stock split, applied retroactively. The results of operations for the three month period ended March 31, 2014 are not necessarily indicative of the operating results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and related disclosures for the year ended December 31, 2013 included in the Annual Report of Steven Madden, Ltd. on Form 10-K filed with the SEC on February 27, 2014.

Note B – Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Significant areas involving management estimates include allowances for bad debts, returns and customer chargebacks, inventory valuation, valuation of intangible assets, litigation reserves and contingent payment liabilities. The Company provides reserves on trade accounts receivables and factor receivables for future customer chargebacks and markdown allowances, discounts, returns and other miscellaneous compliance related deductions that relate to the current period sales. The Company evaluates anticipated chargebacks by reviewing several performance indicators of its major customers. These performance indicators, which include retailers’ inventory levels, sell-through rates and gross margin levels, are analyzed by management to estimate the amount of the anticipated customer allowance.

Note C – Factor Receivable

The Company has a collection agency agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”) that became effective on September 15, 2009. The agreement can be terminated by the Company or Rosenthal at any time upon 60 days prior written notice. Under the agreement, the Company can request advances from Rosenthal of up to 85% of aggregate receivables submitted to Rosenthal. The agreement provides the Company with a $30 million credit facility with a $15 million sub-limit for letters of credit at an interest rate based, at the Company’s election, upon either the prime rate or LIBOR. The Company also pays a fee based on a percentage of the gross invoice amount submitted to Rosenthal. With respect to receivables related to our private label business, the fee is 0.14% of the gross invoice amount. With respect to all other receivables, the fee is 0.25% of the gross invoice amount. Rosenthal assumes the credit risk on a substantial portion of the receivables that the Company submits to it and, to the extent of any loans made to the Company, Rosenthal maintains a lien on all of the Company’s receivables to secure the Company’s obligations.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note D – Notes Receivable

As of March 31, 2014 and December 31, 2013, Notes Receivable were comprised of the following:



	March 31, 2014	December 31, 2013
Note receivable from seller of SM Canada	$2,461	$3,171

In connection with the Company's February 21, 2012 acquisition of all of the assets comprising the footwear, handbags and accessories wholesale and retail businesses of Steve Madden Canada Inc., Steve Madden Retail Canada Inc., Pasa Agency Inc. and Gelati Imports Inc. (collectively, "SM Canada"), the Company's sole distributor in Canada since 1994, the Company provided an interest-free loan to the seller of SM Canada in the principal amount of $3,107 Canadian dollars (which converted to approximately $3,085 in U.S. dollars at the time of acquisition). The note will be paid in five annual installments which are due on the dates that the five annual earn-out payments are paid. The note was recorded net of the imputed interest, which will be amortized to income over the term of the note.

The first payment of principal was made in January 2014. To the extent that the contingent consideration in the form of the earn-out is not achieved, the repayment of the note may result in less than the entire principal amount of the loan being repaid. In such event the unpaid principal of the note will be forgiven.

Note E – Marketable Securities

Marketable securities consist primarily of corporate bonds and certificates of deposit with maturities greater than three months and up to ten years at the time of purchase as well as marketable equity securities. 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). For the three months ended March 31, 2014, gains of $2 were reclassified from accumulated other comprehensive income and recognized in the income statement in other income compared to losses of $89 for the comparable period in 2013. 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. For the three months ended March 31, 2014, the amortization of bond premiums totals $137 compared to $187 for the comparable period in 2013. The values of these securities may fluctuate as a result of changes in equity values, market interest rates and credit risk.

Note F – Fair Value Measurement

The accounting guidance under Accounting Standards Codification “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.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note F – Fair Value Measurement (continued)

The Company’s financial assets and liabilities subject to fair value measurements as of March 31, 2014 and December 31, 2013 are as follows:



			March 31, 2014
			Fair Value Measurements
	Fair value		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	94,075	$	94,075	$	—	$	—
Current marketable securities – available for sale (a)	30,714		30,714		—		—
Note receivable – related party	3,581		—		—		3,581
Note receivable from seller of SM Canada	2,461		—		—		2,461
Long-term marketable securities – available for sale (b)	91,945		91,945		—		—
Total assets	$	222,776	$	216,734	$	—	$	6,042
Liabilities:
Forward contracts	$	111	$	—	$	111	$	—
Contingent consideration	34,917		—		—		34,917
Total liabilities	$	35,028	$	—	$	111	$	34,917
(a) Current marketable securities includes unrealized gains of $419 and unrealized losses of $135.
(b) Long-term marketable securities includes unrealized gains of $1,274 and unrealized losses of $2,604.



			December 31, 2013
			Fair Value Measurements
	Fair value		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	102,247	$	102,247	$	—	$	—
Current marketable securities – available for sale (a)	20,591		20,591		—		—
Note receivable – related party	3,581		—		—		3,581
Note receivable from seller of SM Canada	3,171		—		—		3,171
Long-term marketable securities – available for sale (b)	91,267		91,267		—		—
Total assets	$	220,857	$	214,105	$	—	$	6,752
Liabilities:
Forward contracts	$	460	$	—	$	460	$	—
Contingent consideration	34,795		—		—		34,795
Total liabilities	$	35,255	$	—	$	460	$	34,795
(a) Current marketable securities includes unrealized gains of $59.
(b) Long-term marketable securities includes unrealized gains of $1,387 and unrealized losses of $4,530.

Forward contracts are entered into to manage the risk associated with the volatility of future cash flows denominated in Mexican pesos. Fair value of these instruments is based on observable market transactions of spot and forward rates.

For the notes receivable due from related party (see Note I) and from the seller of SM Canada (see Note D), the carrying value was determined to be the fair value, based upon their imputed or actual interest rates, which approximate current market interest rates.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note F – Fair Value Measurement (continued)

The Company has recorded a liability for potential contingent consideration in connection with the February 21, 2012 acquisition of SM Canada. Pursuant to the terms of an earn-out agreement between the Company and the seller of SM Canada, earn-out payments will be due annually to the seller of SM Canada based on the financial performance of SM Canada for each of the twelve-month periods ending on March 31, 2013 through 2017, inclusive. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of SM Canada during the earn-out period. The current portion of the earn-out due based on the twelve-month period ended March 31, 2014 approximates the recorded value.

The Company has recorded a liability for potential contingent consideration in connection with the May 25, 2011 acquisition of Cejon Inc., Cejon Accessories, Inc. and New East Designs, LLC (collectively "Cejon"). Pursuant to the terms of an earn-out agreement between the Company and the sellers of Cejon, earn-out payments will be made annually to the sellers of Cejon, based

on the financial performance of Cejon for each of the twelve-month periods ending on June 30, 2012 through 2016, inclusive. The fair value of the remaining contingent payments was estimated using the present value of management’s projections of the financial results of Cejon during the earn-out period.

Accounting guidance permits entities to choose to measure financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The accounting guidance also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that chose different measurement attributes for similar assets and liabilities. The Company has elected not to measure any eligible items at fair value.

The carrying value of certain financial instruments such as accounts receivable, due from factor and accounts payable approximates their fair values due to the short-term nature of their underlying terms. The fair values of investment in marketable securities available for sale are determined by reference to market data and other valuation techniques, as appropriate.

Note G – Revenue Recognition

The Company recognizes revenue on wholesale sales when products are shipped pursuant to its standard terms, which are freight on board (“FOB”) Company warehouse, or when products are delivered to the consolidators, or any other destination, as per the terms of the customers’ purchase order, persuasive evidence of an arrangement exists, the price is fixed or determinable and collection is reasonably assured. Sales reductions on wholesale sales for anticipated discounts, allowances and other deductions are recognized during the period when sales are recorded. Customers retain the right to replacement of the product for poor quality or improper or short shipments, which have historically been immaterial. Retail sales are recognized when the payment is received from customers and are recorded net of estimated returns. The Company also generates commission income acting as a buying agent by arranging to manufacture private label shoes to the specifications of its clients. The Company’s commission revenue includes fees charged for its design, product and development services provided to certain suppliers in connection with the Company’s private label business. Commission revenue and product and development fees are recognized as earned when title to the product transfers from the manufacturer to the customer and collections are reasonably assured and are reported on a net basis after deducting related operating expenses.

The Company licenses its Steve Madden® and Steven by Steve Madden® trademarks for use in connection with the manufacture, marketing and sale of sunglasses, eyewear, outerwear, bedding, hosiery, women's fashion apparel, jewelry, watches and luggage. In addition, the Company licenses the Betsey Johnson® and Betseyville® trademarks for use in connection with the manufacture, marketing and sale of apparel, jewelry, swimwear, eyewear, watches, fragrances and outerwear. The license agreements require the licensee to pay the Company a royalty and, in substantially all of the agreements, an advertising fee based on the higher of a minimum or a net sales percentage as defined in the various agreements. In addition, under the terms of retail selling agreements, most of the Company’s international distributors are required to pay the Company a royalty based on a percentage of net sales, in addition to a commission and a design fee on the purchases of the Company’s products. Licensing revenue is recognized on the basis of net sales reported by the licensees, or the minimum guaranteed royalties, if higher. In substantially all of the Company’s license agreements, the minimum guaranteed royalty is earned and payable on a quarterly basis.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note H – Sales Deductions

The Company supports retailers’ initiatives to maximize sales of the Company’s products on the retail floor by subsidizing the co-op advertising programs of such retailers, providing them with inventory markdown allowances and participating in various other marketing initiatives of its major customers. In addition, the Company accepts returns for damaged products for which the Company’s costs are normally charged back to the responsible third-party factory. Such expenses are reflected in the financial statements as deductions to net sales.

Note I – Note Receivable – Related Party

On June 25, 2007, the Company made a loan to Steve Madden, its Creative and Design Chief and a principal stockholder of the Company, in the amount of $3,000 in order for Mr. Madden to satisfy a personal tax obligation resulting from the exercise of stock options that were due to expire and to retain the underlying Company common stock, which common stock he pledged to the Company as collateral to secure the loan. Mr. Madden executed a secured promissory note in favor of the Company bearing interest at an annual rate of 8%, which was due on the earlier of the date Mr. Madden ceases to be employed by the Company or December 31, 2007. The note was amended and restated as of December 19, 2007 to extend the maturity date to March 31, 2009, and amended and restated again as of April 1, 2009 to change the interest rate to 6% and the maturity date to June 30, 2015 at which time all principal and accrued interest would become due. On January 3, 2012, in connection with an amendment of Mr. Madden’s employment contract, the note was again amended and restated (the “Third Amended and Restated Note”) to extend the maturity date to December 31, 2023 and eliminate the accrual of interest after December 31, 2011. In addition, the Third Amended and Restated Note provides that, commencing on December 31, 2014, and annually on each December 31 thereafter through the maturity date, one-tenth of the principal amount thereof, together with accrued interest, will be cancelled by the Company, provided that Mr. Madden continues to be employed by the Company on each such December 31. As of December 31, 2011, $1,090 of interest has accrued on the principal amount of the loan related to the period prior to the elimination of the accrual of interest and has been reflected on the Company’s Condensed Consolidated Financial Statements. Based upon the increase in the market value of the Company’s common stock since the inception of the loan, on July 12, 2010, the Company released from its security interest a portion of the shares of the Company’s common stock, pledged by Mr. Madden as collateral for the loan. The number of shares of the Company's common stock currently securing the repayment of the loan is 472,500 shares. On March 31, 2014, the total market value of these shares was $17,001. Pursuant to the elimination of further interest accumulation under the Third Amended and Restated Note, the outstanding principal and the accrued interest has been discounted to reflect imputed interest.

Note J – Share Repurchase Program

The Company's Board of Directors authorized a share repurchase program (the “Share Repurchase Program”), effective as of January 1, 2004, originally providing for share repurchases in the aggregate amount of $20,000. The Share Repurchase Program does not have a fixed expiration or termination date and may be modified or terminated by the Board of Directors at any time. On several occasions the Board of Directors has increased the amount authorized for repurchase. The Share Repurchase Program permits the Company to effect repurchases from time to time through a combination of open market repurchases or in privately negotiated transactions at such prices and times as are determined to be in the best interest of the Company. During the three months ended March 31, 2014, an aggregate of 850,935 shares of the Company's common stock was repurchased, in the open market, under the program, at an average price per share of $34.48, for an aggregate purchase price of approximately $29,336. As of March 31, 2014, approximately $40,582 remained available for future repurchases under the Share Repurchase Program. Subsequent to the end of the quarter, on April 29, 2014, the Board of Directors approved the continuation of the Company's Share Repurchase Program for up to $150,000 in repurchases of the Company's common stock which includes amounts remaining under the prior authorization.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note K – Net Income Per Share of Common Stock

Basic net income per share is based on the weighted average number of shares of common stock outstanding during the period, which does not include unvested restricted common stock subject to forfeiture of 4,179,000 and 4,312,500 shares for the three months ended March 31, 2014, and 2013, respectively. Diluted net income per share reflects: a) the potential dilution assuming shares of common stock were issued upon the exercise of outstanding in-the-money options and the proceeds thereof were used to purchase shares of the Company’s common stock at the average market price during the period, and b) the vesting of granted nonvested restricted stock awards for which the assumed proceeds upon vesting are deemed to be the amount of compensation cost not yet recognized attributable to future services using the treasury stock method, to the extent dilutive. For both the three months ended March 31, 2014 and 2013, options to purchase approximately 107,000 and 127,500 shares of common stock, respectively, have been excluded in the calculation of diluted net income per share as the result would have been antidilutive. For the three months ended March 31, 2014 and 2013, all unvested restricted stock awards were dilutive.

Note L – Stock-Based Compensation

In March 2006, the Board of Directors approved the Steven Madden, Ltd. 2006 Stock Incentive Plan (the “Plan”) under which nonqualified stock options, stock appreciation rights, performance shares, restricted stock, other stock-based awards and performance-based cash awards may be granted to employees, consultants and non-employee directors. The stockholders approved the Plan on May 26, 2006. On May 25, 2007, the stockholders approved an amendment to the Plan to increase the maximum number of shares that may be issued under the Plan from 4,050,000 to 5,231,250. On May 22, 2009, the stockholders approved a second amendment to the Plan that increased the maximum number of shares that may be issued under the Plan to 13,716,000. On May 25, 2012, the stockholders approved a third amendment to the Plan that increased the maximum number of shares that may be issued under the Plan to 23,466,000. The following table summarizes the number of shares of common stock authorized for use under the Plan, the number of stock-based awards granted (net of expired or cancelled awards) under the Plan and the number of shares of common stock available for the grant of stock-based awards under the Plan:



Common stock authorized	23,466,000
Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled	(18,465,930	)
Common stock available for grant of stock-based awards as of March 31, 2014	5,000,070

Total equity-based compensation for the three months ended March 31, 2014 and 2013 is as follows:



	Three Months Ended March 31,
	2014		2013
Restricted stock	$	3,785	$	3,615
Stock options	1,139		1,536
Total	$	4,924	$	5,151

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

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note L – Stock-Based Compensation (continued)

Stock Options

Cash proceeds and intrinsic values related to total stock options exercised during the three months ended March 31, 2014 and 2013 are as follows:



	Three Months Ended March 31,
	2014		2013
Proceeds from stock options exercised	$	521	$	651
Intrinsic value of stock options exercised	$	586	$	728

During the three months ended March 31, 2014, options to purchase approximately 237,510 shares of common stock with a weighted average exercise price of $22.63 vested. During the three months ended March 31, 2013, options to purchase approximately 247,155 shares of common stock with a weighted average exercise price of $18.56 vested. As of March 31, 2014, there were unvested options relating to 1,243,464 shares of common stock outstanding with a total of $9,331 of unrecognized compensation cost and an average vesting period of 2.92 years.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of options granted, which requires several assumptions. The expected term of the options represents the estimated period of time until exercise and is based on the historical experience of similar awards. Expected volatility is based on the historical volatility of the Company’s common stock. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. With the exception of special dividends paid in November of 2005 and 2006, the Company historically has not paid regular cash dividends and thus the expected dividend rate is assumed to be zero. The following weighted average assumptions were used for stock options granted during the three months ended March 31, 2014 and 2013:



	2014	2013
Volatility	29.7% to 31.8%	38.2% to 44.8%
Risk free interest rate	1.06% to 1.72%	0.37% to 0.76%
Expected life in years	4.1 to 5.1	4.1 to 5.1
Dividend yield	0.00%	0.00%
Weighted average fair value	$10.04	$9.91

Activity relating to stock options granted under the Company’s plans and outside the plans during the three months ended March 31, 2014 is as follows:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2014	3,373,000		$	17.01
Granted	341,000		35.18
Exercised	(31,000	)	17.05
Cancelled/Forfeited	(70,000	)	27.64
Outstanding at March 31, 2014	3,613,000		$	18.51	3.6 years	$	63,120
Exercisable at March 31, 2014	2,370,000		$	13.81	2.7 years	$	52,542

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note L – Stock-Based Compensation (continued)

Restricted Stock

The following table summarizes restricted stock activity during the three months ended March 31, 2014 and 2013:



	2014				2013
	Number of Shares		Weighted Average Fair Value at Grant Date		Number of Shares		Weighted Average Fair Value at Grant Date
Non-vested at January 1	4,257,000		$	24.24	4,333,500		$	23.16
Granted	112,000		35.78		375,000		28.57
Vested	(116,000	)	24.54		(212,250	)	23.94
Forfeited	(2,000	)	27.03		(24,000	)	20.54
Non-vested at March 31	4,251,000		$	24.54	4,472,250		$	24.49

As of March 31, 2014, the Company had $86,826 of total unrecognized compensation cost related to restricted stock awards granted under the Plan. This cost is expected to be recognized over a weighted average of 8.50 years. The Company determines the fair value of its restricted stock awards based on the market price of its common stock on the date of grant.

On January 3, 2012, the Company and its Creative and Design Chief, Steven Madden, entered into an amendment of Mr. Madden’s existing employment agreement, pursuant to which, on February 8, 2012, Mr. Madden was granted 1,463,057 restricted shares of the Company’s common stock at the then market price of $27.34, which will vest in equal annual installments over a seven-year period commencing on December 31, 2017 and, thereafter, on each December 31 through December 31, 2023, subject to Mr. Madden’s continued employment on each such vesting date. Pursuant to the contract, on June 30, 2012, Mr. Madden exercised his right to receive an additional restricted stock award, and on July 3, 2012 he was granted 1,893,342 restricted shares of the Company's common stock at the then market price of $21.13, which will vest in the same manner as the aforementioned grant.

Note M – Acquisitions

Brian Atwood

In March 2014, the Company, acting through its newly-formed subsidiary BA Brand Holdings LLC (“BA Brands”), purchased the intellectual property and related assets of Brian Atwood® from Brian Atwood IP Company LLC, for a purchase price of approximately $6,750, in cash, and a 20% ownership interest in BA Brands. The acquired intellectual property portfolio includes the Brian Atwood® designer brand and the B Brian Atwood® contemporary brand. In connection with the acquisition, the Company has licensed the Brian Atwood® designer brand to Brian K. Atwood (“Atwood”), who will have full operational and creative control in the design, production and distribution of the designer brand. The Company will manage the B Brian Atwood® brand and collaborate with Atwood on the design, production, marketing and distribution of B Brian Atwood® brand footwear and handbags. The purchase price for the acquired assets has primarily been allocated to the trademarks and to the Company's preferred interest in BAI Holding, LLC., which controls the operating company that will sell the Brian Atwood® designer brand.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note N – Goodwill and Intangible Assets

The following is a summary of the carrying amount of goodwill by segment as of March 31, 2014:



	Wholesale								Net Carrying Amount
	Footwear			Accessories		Retail			Net Carrying Amount
Balance at January 1, 2014	$	37,591		$	49,324	$	9,217		$	96,132
Translation and other	(280		)	—		(10		)	(290		)
Balance at March 31, 2014	$	37,311		$	49,324	$	9,207		$	95,842

The following table details identifiable intangible assets as of March 31, 2014:



	Estimated Lives	Cost Basis		Accumulated Amortization (1)		Net Carrying Amount
Trade names	6–10 years	$	4,590	$	2,169	$	2,421
Customer relationships	10 years	27,339		11,204		16,135
License agreements	3–6 years	5,600		5,600		—
Non-compete agreement	5 years	2,440		1,950		490
Other	3 years	14		14		—
		39,983		20,937		19,046
Re-acquired right	indefinite	35,200		3,607		31,593
Trade names	indefinite	80,938		—		80,938
		$	156,121	$	24,544	$	131,577

(1) Includes the effect of foreign currency translation related primarily to the movements of the Canadian dollar in relation to the U.S. dollar.

The estimated future amortization expense of purchased intangibles as of March 31, 2014 is as follows:



2014 (remaining nine months)	$	2,403
2015	3,047
2016	2,746
2017	2,510
2018	2,370
Thereafter	5,970
	$	19,046

Note O – Derivative Instruments

The Company uses derivative instruments, specifically, forward foreign exchange contracts, to manage the risk associated with the volatility of future cash flows denominated in Mexican pesos. The foreign exchange contracts are used to mitigate the impact of exchange rate fluctuations on forecasted purchases of inventory from Mexico and are designated as cash flow hedging instruments. As of March 31, 2014, the fair value of the Company's foreign currency derivatives, which is included on the Condensed Consolidated Balance Sheets in accrued expenses, is $111. As of March 31, 2014, $88 of losses related to cash flow hedges are recorded in accumulated other comprehensive income, net of taxes and are expected to be recognized in earnings at the same time the hedged items affect earnings. As of March 31, 2013, $1,159 of gains related to cash flow hedges were recorded in accumulated other comprehensive income, net of taxes. As of March 31, 2014, the Company's hedging activities were considered effective

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note O – Derivative Instruments (continued)

and, thus, no ineffectiveness from hedging activities were recognized in the Condensed Consolidated Statements of Income. For the three months ended March 31, 2014 and 2013, losses of $13 and $0 were reclassified from accumulated other comprehensive income and recognized in the income statement in cost of sales.

Note P – Commitments, Contingencies and Other

Legal proceedings:

Information regarding certain specific legal proceedings in which the Company is involved is contained in Part 1, Item 3, and in Note O to the notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated therein as having been concluded, remain outstanding as of March 31, 2014.

The Company has been named as a defendant in certain other lawsuits in the normal course of business. In the opinion of management, after consulting with legal counsel, the liabilities, if any, resulting from these matters should not have a material effect on the Company's financial position or results of operations. It is the policy of management to disclose the amount or range of reasonably possible losses in excess of recorded amounts.

Note Q – Operating Segment Information

The Company operates the following business segments: Wholesale Footwear, Wholesale Accessories, Retail, First Cost and Licensing. The Wholesale Footwear segment, through sales to department stores, mid-tier retailers, mass-market merchants and specialty stores, derives revenue, both domestically and worldwide through our International business, from sales of branded and private label women’s, men’s, girls’ and children’s footwear. The Wholesale Accessories segment, which includes branded and private label handbags, belts and small leather goods as well as cold weather and selected other fashion accessories, derives revenue, both domestically and worldwide through our International business, from sales to department stores, mid-tier retailers, mass-market merchants and specialty stores. Our Wholesale Footwear and Wholesale Accessories segments, through our International business, derive revenue from Canada and, under special distribution arrangements, from Asia, Europe, the Middle East, Mexico, Australia, India, South Africa and Central and South America. The Retail segment, through the operation of Company-owned retail stores in the United States and Canada and the Company’s websites, derives revenue from sales of branded women’s, men’s and children’s footwear, accessories and licensed products to consumers. The First Cost segment represents activities of a subsidiary which earns commissions and design fees for serving as a buying agent of footwear products to mass-market merchandisers, mid-tier department stores and other retailers with respect to their purchase of footwear. The Company's Licensing segment generates revenue by licensing its Steve Madden® and Steven by Steve Madden® trademarks and other trademark rights for use in connection with the manufacture, marketing and sale of sunglasses, eyewear, outerwear, bedding, hosiery and women's fashion apparel, jewelry, watches and luggage. In addition, this segment licenses the Betsey Johnson® and Betseyville® trademarks for use in connection with the manufacture, marketing and sale of apparel, jewelry, swimwear, eyewear, watches, fragrances and outerwear.

STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements – Unaudited

March 31, 2014

($ in thousands except share and per share data)

Note Q – Operating Segment Information (continued)



As of and three months ended,	Wholesale Footwear		Wholesale Accessories		Total Wholesale		Retail			First Cost		Licensing		Consolidated
March 31, 2014
Net sales to external customers	$	219,739	$	45,281	$	265,020	$	39,604						$	304,624
Gross profit	69,033		17,264		86,297		22,051							108,348
Commissions and licensing fees – net	—		—		—		—			$	1,412	$	1,759	3,171
Income (loss) from operations	31,071		5,958		37,029		(4,207		)	1,412		1,759		35,993
Segment assets	$	568,740	$	155,492	724,232		114,128			25,536		—		863,896
Capital expenditures					$	2,213	$	2,179		$	—	$	—	$	4,392
March 31, 2013
Net sales to external customers	$	189,181	$	44,681	$	233,862	$	45,054						$	278,916
Gross profit	57,862		17,569		75,431		27,167							102,598
Commissions and licensing fees – net	—		—		—		—			$	2,282	$	2,084	4,366
Income from operations	22,582		7,492		30,074		1,999			2,282		2,084		36,439
Segment assets	$	531,943	$	140,943	672,886		106,176			41,160		—		820,222
Capital expenditures					$	927	$	3,299		$	—	$	—	$	4,226

Revenues by geographic area for the three months ended March 31, 2014 and 2013 are as follows:



	Three Months Ended March 31,
	2014		2013
Domestic (a)	$	281,382	$	255,626
International	23,242		23,290
Total	$	304,624	$	278,916
(a) Includes revenues of $82,958 and $74,292 for the periods ended March 31, 2014 and 2013 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.

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 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," 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 in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, forward-looking statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may”, “will”, “expect”, “believe”, “anticipate”, “project”, “plan”, “intend”, “estimate”, and “continue”, and their opposites and similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect our results include, but are not limited to, the risks and uncertainties discussed in our Annual Report on Form 10-K for the year ended December 31, 2013. Any one or more of these uncertainties, risks 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. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.

Overview:

($ in thousands, except retail sales data per square foot, earnings per share and per share data)

Steven Madden, Ltd. and its subsidiaries (collectively, the “Company”) design, source, market and sell fashion-forward name brand and private label footwear for women, men and children and name brand and private label fashion handbags and accessories. We also license our trademarks for use in connection with the manufacture, marketing and sale of various products to our licensees. Our products are marketed through our retail stores and our e-commerce websites, as well as better department stores, major department stores, mid-tier department stores, specialty stores, luxury retailers, value priced retailers, national chains, mass market merchants and catalog retailers throughout the United States and Canada. In addition, we have special distribution arrangements for the marketing of our products in Asia, Europe, the Middle East, Mexico, Australia, South Africa, Central and South America and India. We offer a broad range of updated styles designed to establish or complement and capitalize on market trends. We have established a reputation for design creativity and our ability to offer quality products in popular styles at affordable prices, delivered in an efficient manner and time frame.

During the first quarter of 2014, we continued our trend of positive sales and earnings growth. Net sales for the quarter ended March 31, 2014 increased 9.2% to $304,624 from $278,916 in the same period of last year. Net income attributable to Steven Madden, Ltd. increased 1.0% to $23,637 in the first quarter of 2014 compared to $23,400 in the same period of last year. The effective tax rate for the first quarter of 2014 decreased to 35.1% compared to 37.0% in the first quarter of last year due primarily to an increase in the planned reinvestment of foreign earnings in foreign locations as well as a benefit in our overall state tax rate. Diluted earnings per share increased to $0.36 per share on 65,137 diluted weighted average shares outstanding compared to $0.35 per share on 67,190 diluted weighted average shares outstanding in the first quarter of last year.

Our inventory turnover (calculated on a trailing twelve month average) for the quarter ended March 31, 2014 and 2013 was flat at 10.5 times. Our accounts receivable average collection days was 63 days in the first quarter of 2014 compared to 67 days in the same period of 2013. As of March 31, 2014, we had $275,729 in cash, cash equivalents and marketable securities, no short or long-term debt and total stockholders’ equity of $677,947. Working capital increased to $337,694 as of March 31, 2014, compared to $303,093 on March 31, 2013.

The following tables set forth information on operations for the periods indicated:

Selected Financial Information

Three Months Ended March 31,

($ in thousands)



	2014					2013
CONSOLIDATED:
Net sales	$	304,624		100.0	%	$	278,916	100.0	%
Cost of sales	196,276			64.4	%	176,318		63.2	%
Gross profit	108,348			35.6	%	102,598		36.8	%
Other operating income – net of expenses	3,171			1.0	%	4,366		1.6	%
Operating expenses	75,526			24.8	%	70,525		25.3	%
Income from operations	35,993			11.8	%	36,439		13.1	%
Interest and other income – net	1,033			0.3	%	913		0.3	%
Income before income taxes	37,026			12.2	%	37,352		13.4	%
Net income attributable to Steven Madden, Ltd.	23,637			7.8	%	23,400		8.4	%

By Segment:
WHOLESALE FOOTWEAR SEGMENT:
Net sales	$	219,739		100.0	%	$	189,181	100.0	%
Cost of sales	150,706			68.6	%	131,319		69.4	%
Gross profit	69,033			31.4	%	57,862		30.6	%
Operating expenses	37,962			17.3	%	35,280		18.6	%
Income from operations	31,071			14.1	%	22,582		11.9	%

WHOLESALE ACCESSORIES SEGMENT:
Net sales	$	45,281		100.0	%	$	44,681	100.0	%
Cost of sales	28,017			61.9	%	27,112		60.7	%
Gross profit	17,264			38.1	%	17,569		39.3	%
Operating expenses	11,306			25.0	%	10,077		22.6	%
Income from operations	5,958			13.2	%	7,492		16.8	%

RETAIL SEGMENT:
Net sales	$	39,604		100.0	%	$	45,054	100.0	%
Cost of sales	17,553			44.3	%	17,887		39.7	%
Gross profit	22,051			55.7	%	27,167		60.3	%
Operating expenses	26,258			66.3	%	25,168		55.9	%
Income from operations	(4,207		)	(10.6	)%	1,999		4.4	%
Number of stores	123					110

FIRST COST SEGMENT:
Other commission income – net of expenses	$	1,412		100.0	%	$	2,282	100.0	%

LICENSING SEGMENT:
Licensing income – net of expenses	$	1,759		100.0	%	$	2,084	100.0	%

RESULTS OF OPERATIONS

($ in thousands)

Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Consolidated:

Net sales for the three months ended March 31, 2014 increased 9.2% to $304,624 compared to $278,916 in the same period of last year. Gross margin decreased to 35.6% from 36.8% due primarily to increased promotional activity in the Retail segment. Operating expenses increased in the first quarter of this year to $75,526 from $70,525 in the first quarter of last year primarily due to the increase in stores in our Retail segment; however, operating expenses as a percentage of sales were 24.8% for the first quarter of 2014 compared to 25.3% in the first quarter of 2013 due to operating expense leverage on sales growth. Commission and licensing fee income for the first quarter of 2014 decreased to $3,171 compared to $4,366 achieved in the first quarter of 2013. The effective tax rate for the first quarter of 2014 decreased to 35.1% compared to 37.0% in the first quarter of last year due primarily to an increase in the planned reinvestment of foreign earnings in foreign locations as well as a benefit in our overall state tax rate. Net income attributable to Steven Madden, Ltd. for the first quarter of 2014 increased to $23,637 compared to net income for the first quarter of 2013 of $23,400.

Wholesale Footwear Segment:

Net sales from the Wholesale Footwear segment accounted for $219,739, or 72.1%, and $189,181, or 67.8%, of our total net sales for the first quarter of 2014 and 2013, respectively, which represents a $30,558, or 16.2%, increase. This increase is due to growth in our branded footwear business of $19,087, or 17.6%, which included double-digit percentage gains in our Steve Madden Women's, Madden Girl and Steve Madden Men's divisions, as well as growth of $11,471, or 14.3%, in our private label footwear business primarily driven by continued growth with Target.

Gross profit margin in the Wholesale Footwear segment was 31.4% for the first quarter of 2014 compared to 30.6% for the first quarter of 2013 reflecting margin improvement in both the branded and private label businesses. Operating expenses increased to $37,962 in the first quarter of 2014 from $35,280 in the same period of last year. As a percentage of net sales, operating expenses decreased to 17.3% in the first quarter of 2014 compared to 18.6% in the same period of 2013 due to operating expense leverage on sales growth. Income from operations for the Wholesale Footwear segment increased to $31,071 for the quarter ended March 31, 2014 compared to $22,582 for the same period of last year.

Wholesale Accessories Segment:

Net sales generated by the Wholesale Accessories segment accounted for $45,281, or 14.9%, and $44,681, or 16.0%, of total net sales for the Company in the first quarters of 2014 and 2013, respectively. This 1.3% increase in net sales in the first quarter of 2014 is attributable to growth in our handbag business partially offset by declines in belts and sunglasses.

Gross profit margin in the Wholesale Accessories segment decreased to 38.1% in the first quarter of this year from 39.3% in the same period in 2013, primarily due to a sales mix shift. In the first quarter of 2014, operating expenses increased to $11,306 compared to $10,077 in the same period of last year. As a percentage of net sales, operating expenses increased to 25.0% in the first quarter of 2014 from 22.6% in the same period of 2013, resulting from increases in payroll related and legal settlement costs. Income from operations for the Wholesale Accessories segment decreased 20.5% to $5,958 for the first quarter of 2014 compared to $7,492 for the same period of last year.

Retail Segment:

In the first quarter of 2014, net sales from the Retail segment accounted for $39,604, or 13.0%, of our total net sales compared to $45,054, or 16.2%, of our total net sales in the same period last year, which represents a $5,450, or 12.1%, decrease. The decrease in net sales reflects a decline in comparable store sales driven by a lack of fashion footwear trends and the soft overall retail environment. We added sixteen new stores, including FREEBIRD by Steven e-commerce store, and closed three stores during the twelve months ended March 31, 2014. As a result, we had 123 retail stores as of March 31, 2014 compared to 110 stores as of March 31, 2013, in each case including our e-commerce stores. The 123 stores currently in operation include 97 Steve Madden® stores, 20 Steve Madden® outlet stores, 1 Steven® store, 1 Superga store and 4 e-commerce websites. Comparable store sales (sales of those stores, including the e-commerce websites, that were open throughout the first quarter of 2014 and 2013) decreased 17.2% on a constant currency basis. 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 first quarter of

2014, gross margin decreased to 55.7% from 60.3% in the same period of 2013, primarily due to increased promotional activity. In the first quarter of 2014, operating expenses increased to $26,258, or 66.3%, of net sales compared to $25,168, or 55.9%, of net sales in the first quarter of last year. The increase reflects the net year-over-year increase in new store openings, as well as the deleverage on lower sales. Income from operations for the Retail segment decreased to a loss of $4,207 in the first quarter of this year from income of $1,999 in the same period of last year.

First Cost Segment:

The First Cost segment which includes net commission income and design fees decreased to $1,412 for the first quarter of 2014 compared to $2,282 for the comparable period of 2013 primarily due to a decline in sales with certain customers.

Licensing Segment:

Net licensing income was $1,759 and $2,084 for the first quarter ended March 31, 2014 and 2013, respectively. The decrease is primarily due to increased promotional spend as well as the payment of certain obligations on behalf of Betsey Johnson.

LIQUIDITY AND CAPITAL RESOURCES

($ in thousands)

The Company has a collection agency agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”) that became effective on September 15, 2009. The agreement can be terminated by the Company or Rosenthal at any time upon 60 days' prior written notice. Under the agreement, the Company can request advances from Rosenthal of up to 85% of the aggregate receivables submitted to Rosenthal. The agreement provides the Company with a $30 million credit facility with a $15 million sub-limit for letters of credit at an interest rate based, at the Company’s election, upon a calculation that utilizes either the prime rate or LIBOR. The Company also pays a fee based on a percentage of the gross invoice amount submitted to Rosenthal. With respect to receivables related to our First Cost segment and private label business, the fee is 0.14% of the gross invoice amount. For all other receivables, the fee is 0.25% of the gross invoice amount. Rosenthal assumes the credit risk on a substantial portion of the receivables that the Company submits to it. To the extent of any loans made to the Company, Rosenthal maintains a lien on all of the Company’s receivables to secure the Company’s obligations. As of March 31, 2014, we had no borrowing against the credit facility.

As of March 31, 2014, we had working capital of $337,694, cash and cash equivalents of $153,070, investments in marketable securities of $122,659 and no long-term debt.

We believe that based upon our current financial position and available cash, cash equivalents and marketable securities, the Company will meet all of its financial commitments and operating needs for at least the next twelve months.

OPERATING ACTIVITIES

($ in thousands)

Cash provided by operations was $21,560 for the first three months of 2014 compared to cash provided by operations of $26,350 in the same period of last year. The primary sources of cash were net income of $24,030, as well as decreases in accounts receivable, inventory and prepaid expenses, deposits and other assets. The primary uses of cash were net increases in due from factor and accounts payable and other accrued expenses.

INVESTING ACTIVITIES

($ in thousands)

During the three months ended March 31, 2014, we invested $9,969 in marketable securities and received $530 from the maturities and sales of marketable securities. We also made capital expenditures of $4,392, principally for improvements to existing stores, systems enhancements, new stores and leasehold improvements to office space. Additionally, we made payments of $6,750 related to the purchase of the Brian Atwood® intellectual property and related assets (see Note M to the Condensed Consolidated Financial Statements contained in this Quarterly Report).

FINANCING ACTIVITIES

($ in thousands)

During the three months ended March 31, 2014, net cash used for financing activities was $28,184, which consisted of the repurchase of shares of common stock for an aggregate purchase price of approximately $29,336 (see Note J to the Condensed Consolidated Financial Statements contained in this Quarterly Report), offset by the tax benefit from the exercise of stock options of $631 and proceeds from the exercise of stock options of $521.

CONTRACTUAL OBLIGATIONS

($ in thousands)

Our contractual obligations as of March 31, 2014 were as follows:



	Payment due by period
Contractual Obligations	Total		Remainder of 2014		2015-2016		2017-2018		2019 and after
Operating lease obligations	$	242,581	$	25,389	$	67,777	$	57,927	$	91,488
Purchase obligations	292,177		292,177		—		—		—
Contingent payment liabilities	34,824		9,761		20,175		4,888		—
Other long-term liabilities (future minimum royalty payments)	1,533		868		665		—		—
Total	$	571,115	$	328,195	$	88,617	$	62,815	$	91,488

At March 31, 2014, we had open letters of credit for the purchase of inventory of approximately $367.

As previously reported, on January 3, 2012, the Company entered into an amendment, dated as of December 30, 2011, to the employment agreement of the Company's Creative and Design Chief, Steven Madden. The amended employment agreement provides Mr. Madden with a base annual salary of $7,417 in 2013, approximately $9,667 in 2014, approximately $11,917 in 2015 and approximately $10,698 annually for the period between January 1, 2016 through the expiration of the employment agreement on December 31, 2023. As described in Note L to the Condensed Consolidated Financial Statements, in 2012, Mr. Madden also received two restricted stock awards pursuant to his amended employment agreement. The employment agreement further entitles Mr. Madden to an annual life insurance premium payment, an annual stock option grant and the potential for an additional one-time stock option grant based on achievement of certain financial performance criteria, as well as the opportunity for discretionary cash bonuses. On May 22, 2013, Mr. Madden waived his annual stock option grant for 2013, which stock option would have been issued to him on or about the date of the Company's 2013 annual meeting of stockholders. The terms of an outstanding loan in the original principal amount of $3,000 made by the Company to Mr. Madden were amended in connection with the amendment of the employment agreement. The amended terms included the elimination of further interest accumulation on the loan. The outstanding principal amount of the loan, together with all previously accrued interest, has been discounted to reflect imputed interest, which will be amortized over the remaining life of the loan.

The Company has employment agreements with certain executive officers, which provide for the payment of compensation aggregating approximately $2,240 in the remainder of 2014, $1,769 in 2015 and $1,162 in 2016. 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 options.

In connection with our acquisition of SM Canada on February 21, 2012, we are subject to potential earn-out payments to the seller of SM Canada based on the annual performance of SM Canada for each of the twelve-month periods ending on March 31, 2013 through 2017, inclusive. We made the first earn-out payment, based on the performance of SM Canada during the twelve month period ended on March 31, 2013, to the seller of SM Canada during the fourth quarter of 2013. In connection with our acquisition of Cejon Inc, Cejon Accessories, Inc. and New East Designs, LLC (collectively "Cejon") on May 25, 2011, we are subject to potential earn-out payments to the seller of Cejon based on the annual performance of Cejon for each of the twelve-month periods ending on June 30, 2012 through 2016, inclusive. The first such payment was made to the seller of Cejon in the third quarter of 2012. A second earn-out payment based on the performance of Cejon for the twelve-month period ending on June 30, 2013 was made in the third quarter of 2013. In connection with our acquisition of Big Buddha, Inc., which closed in the first fiscal quarter

of 2010, we made a final earn-out payment to the seller of Big Buddha, Inc. in the third quarter of 2013 based on the performance of Big Buddha for the twelve month period ended on March 31, 2013.

Virtually all of our products are manufactured at overseas locations, the majority of which are located in China, with a small and growing percentage located in Mexico in addition to smaller amounts produced in Brazil, Italy and India. 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. We currently make approximately 95% of our purchases in U.S. dollars.

INFLATION

We do not believe that inflation had a significant effect on our sales or profitability in the three months ended March 31, 2014. 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 has no off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. Estimates by their nature are based on judgments and available information. Our estimates are made based upon historical factors, current circumstances and the experience and judgment of management. Assumptions and estimates are evaluated on an ongoing basis and we may employ outside experts to assist in evaluations. Therefore, actual results could materially differ from those estimates under different assumptions and conditions. Management believes the following critical accounting estimates are more significantly affected by judgments and estimates used in the preparation of our Condensed Consolidated Financial Statements: allowance for bad debts, returns, and customer chargebacks; inventory valuation; valuation of intangible assets, litigation reserves, and contingent payment liabilities.

Allowances for bad debts, returns and customer chargebacks. We provide reserves against our trade accounts receivables for future customer chargebacks, co-op advertising allowances, discounts, returns and other miscellaneous deductions that relate to the current period. The reserve against our non-factored trade receivables also includes estimated losses that may result from customers' inability to pay. The amount of the reserve for bad debts, returns, discounts and compliance chargebacks are determined by analyzing aged receivables, current economic conditions, the prevailing retail environment and historical dilution levels for customers. We evaluate anticipated customer markdowns and advertising chargebacks by reviewing several performance indicators for our major customers. These performance indicators (which include inventory levels at the retail floors, sell through rates and gross margin levels) are analyzed by management to estimate the amount of the anticipated customer allowance. Failure to correctly estimate the amount of the reserve could materially impact our results of operations and financial position.

Inventory valuation. Inventories are stated at lower-of-cost or market, on a first-in, first-out basis. We review inventory on a regular basis for excess and slow moving inventory. The review is based on an analysis of inventory on hand, prior sales, and expected net realizable value through future sales. The analysis includes a review of inventory quantities on hand at period-end in relation to year-to-date sales and projections for sales in the foreseeable future as well as subsequent sales. We consider quantities on hand in excess of estimated future sales to be at risk for market impairment. The net realizable value, or market value, is determined based on the estimate of sales prices of such inventory through off-price or discount store channels. The likelihood of any material inventory write-down is dependent primarily on the expectation of future consumer demand for our product. A misinterpretation or misunderstanding of future consumer demand for our product, the economic conditions, or other failure to estimate correctly, in addition to abnormal weather patterns, could result in inventory valuation changes, compared to the valuation determined to be appropriate as of the balance sheet date.

Valuation of intangible assets. Accounting Standards Codification (“ASC”) Topic 350, “Intangible - Goodwill and Other”, requires that goodwill and intangible assets with indefinite lives no longer be amortized, but rather be tested for impairment at least annually. This pronouncement also requires that intangible assets with finite lives be amortized over their respective lives to their estimated

residual values, and reviewed for impairment in accordance with ASC Topic 360, “Property, Plant and Equipment” (“ASC Topic 360”). In accordance with ASC Topic 360, long-lived assets, such as property, equipment, leasehold improvements and intangible assets subject to amortization, are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Litigation reserves. Estimated amounts for litigation claims that are probable and can be reasonably estimated are recorded as liabilities in our Condensed Consolidated Financial Statements. The likelihood of a material change in these estimated reserves would be dependent on new claims as they may arise and the favorable or unfavorable events of a particular litigation. As additional information becomes available, management will assess the potential liability related to the pending litigation and revise its estimates. Such revisions in management's estimates of a contingent liability could materially impact our results of operation and financial position.

Contingent payment liabilities. Since February 2010, the Company has completed four acquisitions, three of which continue to require the Company to potentially make contingent payments to the sellers of the acquired businesses based on the future financial performance of the acquired businesses over a period of one to five years, as applicable. The fair value of the contingent payments was estimated using the present value of management's projections of the financial results of the acquired business. Failure to correctly project the financial results of the acquired businesses could materially impact our results of operations and financial position.

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 C to the Condensed Consolidated Financial Statements included in this Quarterly Report.

As of March 31, 2014, we held marketable securities valued at $122,659, which consist primarily of corporate bonds and marketable equity securities. The values of these securities may fluctuate as a result of changes in equity values, market interest rates and credit risk. 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.

ITEM 4. 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.

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. Based on that evaluation, there has been no such change during the quarter covered by this Quarterly Report.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents the total number of shares of the Company's common stock, $.0001 par value, purchased by the Company in the three months ended March 31, 2014, the average price paid per share and the approximate dollar value of shares that still could have been purchased at the end of the fiscal period, pursuant to the Company's Share Repurchase Program. See also Note J to the Condensed Consolidated Financial Statements.



Period	Total Number of Shares Purchased	Average Price Paid per Share		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
1/1/2014 - 1/31/2014	293,341	$	33.33	293,341	$	60,140
2/1/2014 - 2/28/2014	274,750	$	33.50	274,750	$	50,936
3/1/2014 - 3/31/2014	282,844	$	36.61	282,844	$	40,582
Total	850,935	$	34.48	850,935	$	40,582

ITEM 6. EXHIBITS



10.1	Employment Agreement dated January 10, 2014 between the Company and Amelia Newton Varela (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on January 16, 2014)#
10.2	Employment Agreement dated January 10, 2014 between the Company and Awadhesh Sinha (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on January 16, 2014)#
31.1	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
31.2	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
32.1	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*
32.2	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*
101	The following materials from Steven Madden, Ltd.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text*



*	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.
#	Indicates management contract or compensatory plan or arrangement required to be identified pursuant to Item 6 of this Quarterly Report on Form 10-Q.

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.

DATE: May 8, 2014

STEVEN MADDEN, LTD.

/s/ EDWARD R. ROSENFELD

Edward R. Rosenfeld

Chairman and Chief Executive Officer

/s/ ARVIND DHARIA

Arvind Dharia

Chief Financial Officer and Chief Accounting Officer

Exhibit Index



10.1	Employment Agreement dated January 10, 2014 between the Company and Amelia Newton Varela (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on January 16, 2014)#
10.2	Employment Agreement dated January 10, 2014 between the Company and Awadhesh Sinha (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on January 16, 2014)#
31.1	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
31.2	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
32.1	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*
32.2	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*
101	The following materials from Steven Madden, Ltd.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text*



*	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.
#	Indicates management contract or compensatory plan or arrangement required to be identified pursuant to Item 6 of this Quarterly Report on Form 10-Q.