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EX-31.1 - EXHIBIT 31.1 - STEVEN MADDEN, LTD.ex31_1.htm
EX-32.1 - EXHIBIT 32.1 - STEVEN MADDEN, LTD.ex32_1.htm
EX-32.2 - EXHIBIT 32.2 - STEVEN MADDEN, LTD.ex32_2.htm
EX-31.2 - EXHIBIT 31.2 - STEVEN MADDEN, LTD.ex31_2.htm
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 June 30, 2010

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
incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
52-16 Barnett Avenue, Long Island City, New York
 
11104
(Address of principal executive offices)
 
(Zip Code)
     
Registrant’s telephone number, including area code
 
(718) 446-1800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 website, 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 o 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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer x
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 August 4, 2010, the latest practicable date, there were 27,673,699 shares of common stock, $.0001 par value, outstanding.

 
 

 

STEVEN MADDEN, LTD.
FORM 10-Q
QUARTERLY REPORT
 June 30, 2010

TABLE OF CONTENTS

   
       
   
       
  1
 
       
 
2
 
       
 
3
 
       
 
4
 
       
17
 
       
27
 
       
27
 
       
   
       
28
 
       
29
 
       
 
Signatures
30
 

 
(in thousands)

   
June 30,
   
December 31,
   
June 30,
 
   
2010
   
2009
   
2009
 
   
(unaudited)
         
(unaudited)
 
ASSETS
                 
Current assets:
                 
Cash and cash equivalents
  $ 42,807     $ 69,266     $ 53,276  
Accounts receivable, net of allowances of $1,939, $1,195 and $1,127
    11,942       11,071       9,320  
Due from factor, net of allowances of $10,758, $12,487 and $10,357
    73,145       47,534       48,536  
Inventories
    44,466       30,453       29,025  
Marketable securities – available for sale
    21,972       17,971       10,520  
Prepaid expenses and other current assets
    13,716       6,295       7,743  
Deferred taxes
    8,809       8,779       8,006  
                         
Total current assets
    216,857       191,369       166,426  
                         
Note receivable – related party
    3,733       3,568       3,491  
Property and equipment, net
    21,297       23,793       25,562  
Deferred taxes
    7,053       7,543       6,895  
Deposits and other
    1,787       1,844       1,942  
Marketable securities – available for sale
    99,183       67,713       47,839  
Goodwill – net
    36,613       24,313       23,472  
Intangibles – net
    14,831       6,716       7,257  
                         
Total Assets
  $ 401,354     $ 326,859     $ 282,884  
                         
LIABILITIES
                       
Current liabilities:
                       
Accounts payable
  $ 44,309     $ 24,544     $ 22,880  
Accrued expenses
    20,323       15,338       19,679  
Income taxes payable
    3,300       166        
Accrued incentive compensation
    7,447       12,314       5,836  
                         
Total current liabilities
    75,379       52,362       48,395  
                         
Contingent payment liability
    12,000              
Deferred rent
    5,240       5,044       4,925  
Other liabilities
    1,564       1,666       311  
                         
Total Liabilities
    94,183       59,072       53,631  
                         
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, 60,000 shares authorized; 36,075, 35,687 and 35,387 shares issued, 27,672, 27,425 and 27,125 outstanding
    4       3       3  
Additional paid-in capital
    155,803       147,703       141,353  
Retained earnings
    282,551       247,365       215,978  
Other comprehensive income (loss):
                       
Unrealized gain (loss) on marketable securities
    1,356       700       (97 )
Treasury stock – 8,403, 8,262 and 8,262 shares at cost
    (132,543 )     (127,984 )     (127,984 )
                         
Total stockholders’ equity
    307,171       267,787       229,253  
                         
Total Liabilities and Stockholders’ Equity
  $ 401,354     $ 326,859     $ 282,884  

See accompanying notes to condensed consolidated financial statements - unaudited
 
1

 
 
STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
(unaudited)
(in thousands, except per share data)

   
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
 
 
2010
   
2009
   
2010
   
2009
 
                         
Net sales
    158,664       116,472       290,272       223,901  
                                 
Cost of sales
    89,815       66,909       161,486       130,851  
                                 
Gross profit
    68,849       49,563       128,786       93,050  
                                 
Commission and licensing fee income – net
    5,229       7,362       11,413       10,267  
Operating expenses
    (42,025 )     (37,553 )     (83,287 )     (73,641 )
                                 
Income from operations
    32,053       19,372       56,912       29,676  
Interest and other income, net
    942       368       1,726       764  
                                 
Income before provision for income taxes
    32,995       19,740       58,638       30,440  
Provision for income taxes
    13,196       7,596       23,454       11,719  
                                 
Net income
  $ 19,799     $ 12,144     $ 35,184     $ 18,721  
                                 
Basic income per share
  $ 0.72     $ 0.45     $ 1.28     $ 0.70  
                                 
Diluted income per share
  $ 0.70     $ 0.44     $ 1.25     $ 0.69  
                                 
Basic weighted average common shares outstanding
    27,628       27,021       27,542       26,928  
Effect of dilutive securities – options/restricted stock
    675       420       687       272  
                                 
Diluted weighted average common shares outstanding
    28,303       27,441       28,229       27,200  

See accompanying notes to condensed consolidated financial statements unaudited
 
2

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
(unaudited)
(in thousands)

   
Six Months Ended
 
   
June 30,
 
   
2010
   
2009
 
             
Cash flows from operating activities:
           
Net income
  $ 35,184     $ 18,721  
Adjustments to reconcile net income to net cash used in operating activities:
               
Excess tax benefit from the exercise of options
    (2,512 )     (7 )
Depreciation and amortization
    5,022       4,828  
Loss on disposal of fixed assets
    543       560  
Deferred taxes
          191  
Non-cash compensation
    3,676       2,774  
Provision for bad debts
    (985 )     183  
Deferred rent expense
    196       (862 )
Realized (gain) loss on marketable securities
    (32 )     55  
Changes in:
               
Accounts receivable
    (947 )     (3,350 )
Due from factor
    (23,882 )     (14,811 )
Note receivable – related party
    (165 )     (121 )
Inventories
    (13,713 )     2,572  
Prepaid expenses, deposits and other assets
    (6,350 )     289  
Accounts payable and other accrued expenses
    24,816       10,845  
                 
Net cash provided by operating activities
    20,851       21,867  
                 
Cash flows from investing activities:
               
Purchase of property and equipment
    (1,232 )     (1,644 )
Purchase of marketable securities
    (44,917 )     (33,736 )
Sale/redemption of marketable securities
    10,092       10,678  
Acquisitions, net of cash acquired *
    (11,119 )     (4,526 )
                 
Net cash used in investing activities
    (47,176 )     (29,228 )
                 
Cash flows from financing activities:
               
Repayment of advances from factor
          (30,168 )
Proceeds from options exercised
    1,913       1,210  
Tax benefit from exercise of options
    2,512       7  
Common stock purchased for treasury
    (4,559 )      
                 
Net cash used in financing activities
    (134 )     (28,951 )
                 
Net decrease in cash and cash equivalents
    (26,459 )     (36,312 )
Cash and cash equivalents – beginning of period
    69,266       89,588  
                 
Cash and cash equivalents end of period
  $ 42,807     $ 53,276  
 
* The amount for 2009 was accrued at December 31, 2008.
 
See accompanying notes to condensed consolidated financial statements unaudited
3

 
 
STEVEN MADDEN, LTD. AND SUBSIDIARIES

June 30, 2010
($ 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. The results of its operations for the three- and six-month periods ended June 30, 2010 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, 2009 included in the Annual Report of Steven Madden, Ltd. on Form 10-K filed with the SEC on March 12, 2010.

Note BStock Split

On March 24, 2010, the Board of Directors declared a 3-for-2 stock split of the Company’s outstanding shares of common stock, to be effected in the form of a stock dividend on the Company’s outstanding common stock. Stockholders of record at the close of business on April 20, 2010 received one additional share of Steven Madden, Ltd. common stock for every two shares of common stock owned on this date. The additional shares were distributed on May 3, 2010. Stockholders received cash in lieu of any fractional shares of common stock they otherwise would have received in connection with the dividend. All share and per share data provided herein gives effect to this stock split, applied retroactively.

Note C – Recently Adopted Accounting Standards

In January 2010, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance which expands disclosure requirements relating to fair value measurements. The guidance adds requirements for disclosing amounts of and reasons for significant transfers into and out of Levels 1 and 2 and requires gross rather than net disclosures about purchases, sales, issuance and settlements relating to Level 3 measurements. The guidance also provides clarification that fair value measurement disclosures are required for each class of assets and liabilities. Disclosures about the valuation techniques and inputs used to measure fair value for measurements that fall in either Level 2 or Level 3 are also required. The Company adopted the provisions of the guidance as of March 31, 2010, except for disclosure about purchases, sales, issuance and settlements in the roll forward of activity in Level 3 fair value measurement, which is effective for fiscal years beginning after December 15, 2010. Disclosures are not required for earlier periods presented for comparative purposes. The new guidance affects disclosures only and, therefore, the adoption had no impact on the Company’s results of operation or financial position.

A new accounting pronouncement amending the consolidation guidance relating to variable interest entities (“VIE”) became effective for the Company on January 1, 2010. The new guidance replaces the current quantitative model for determining the primary beneficiary of a VIE with a qualitative approach that considers which entity has the power to direct activities that most significantly impact the VIE’s performance and whether the entity has an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The adoption of the accounting pronouncement had no material impact on the Company’s Condensed Consolidated Financial Statements.

Note D – Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
 
 
4

 
STEVEN MADDEN, LTD. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)
 
Note D – Use of Estimates (continued)

 Significant areas involving management estimates include allowances for bad debts, returns and customer chargebacks, and deferred tax asset valuation allowance. The Company provides reserves on trade accounts receivable and due from factors 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 E Due To and From Factor
 
The Company has a collection agency agreement with Rosenthal & Rosenthal, Inc. (“Rosenthal”). Under the agreement, the Company can request advances from Rosenthal of up to 85% of aggregate receivables factored by Rosenthal. The agreement provides the Company 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 that, at the Company’s election, is tied to either the prime rate or LIBOR.

Note F – 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 options that were due to expire and retain the underlying Company common stock, which 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. An amendment to the note dated December 19, 2007 extended the due date to March 31, 2009, and a second amendment dated April 1, 2009 changed the interest rate to 6% and extended the due date of both principal and interest to June 30, 2015. As of June 30, 2010, $733 of interest has accrued on the note and has been reflected on the Company’s Condensed Consolidated Financial Statements. Due to the 3-for-2 stock split effected on May 3, 2010 (see Note B above) the number of shares securing the loan increased from 510,000 shares to 765,000 shares. 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 determined to release from its security interest 555,000 shares of the Company’s common stock, retaining 210,000 shares with a total market value on that date of $6,798, as collateral for the loan.

Note G Marketable Securities

Marketable securities consist primarily of corporate and U.S. government and federal agency bonds with maturities greater than three months and up to six 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). 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- and six-month periods ended June 30, 2010, the amortization of bond premiums totals $269 and $502, respectively, compared to $35 and $167 for the comparable periods in 2009. The values of these securities may fluctuate as a result of changes in market interest rates and credit risk.
 
 
 
5

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)

Note H – Fair Value Measurement
 
The Company adopted the provisions of FASB ASC 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”) for financial assets and liabilities effective January 1, 2008, and adopted ASC 820-10 for non-financial assets and non-financial liabilities effective January 1, 2009. 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 subject to fair value measurements as of June 30, 2010 are as follows:

         
Fair Value Measurements
Using Fair Value Hierarchy
 
 
 
Fair value
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                               
Cash equivalents
  $ 25,006     $ 25,006              
Current marketable securities – available for sale
    21,972       21,972              
Long-term marketable securities – available for sale
    99,183       99,183              
                                 
Total assets
  $ 146,161     $ 146,161              
                                 
Liabilities:
                               
Contingent consideration
  $ 12,000                 $ 12,000  
                                 
Total liabilities
  $ 12,000        —        —     $ 12,000  
 
The Company’s financial assets subject to fair value measurements as of December 31, 2009 are as follows:
 
         
Fair Value Measurements
Using Fair Value Hierarchy
 
   
Fair value
   
Level 1
   
Level 2
   
Level 3
 
Cash equivalents
  $ 30,962     $ 30,962              
Current marketable securities – available for sale
    17,971       17,971              
Long-term marketable securities – available for sale
    67,713       67,713              
                                 
Total
  $ 116,646     $ 116,646        —        —  
 
During the six months ended June 30, 2010, the Company had no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3). No gains or losses resulting from the fair value measurement of financial assets were included in the Company’s earnings. The Company has recorded a contingent consideration as a result of the February 10, 2010 acquisition of Big Buddha, Inc. (see Note R). The contingent consideration may be paid to the seller of Big Buddha based on the financial performance of Big Buddha for each of the twelve-month periods ending on March 31, 2011, 2012 and 2013. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of Big Buddha during the earn-out period.

 
 
6

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)

Note H – Fair Value Measurement (continued)
 
In April 2009, the FASB issued additional guidance for estimating fair value in accordance with ASC Topic 820. The additional guidance addresses determining fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly. The adoption of this guidance did not have a material effect on the Company’s Condensed Consolidated Financial Statements.

The Company adopted the provisions of FASB ASC 825-10, “Financial Instruments” (“ASC 825-10”) on January 1, 2008. ASC 825-10 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. ASC 825-10 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.
 
Note I – Fair Value of Financial Instruments

The carrying value of certain financial instruments such as accounts receivable, due from factors and accounts payable, approximate their fair values due to their short-term nature of their underlying terms. The fair values of the financial instruments and investments are determined by reference to market data and other valuation techniques, as appropriate. Fair value of the note receivable approximates its carrying value based upon its interest rate, which approximates current market interest rates.
 
Note J – Inventories

Inventories, which consist of finished goods on hand and in transit, are stated at the lower of cost (first-in, first-out method) or market.
 
Note K – Revenue Recognition

The Company recognizes revenue from wholesale sales when products are shipped pursuant to its standard terms, which are freight on board (FOB) warehouse, or when products are delivered to the consolidators as per the terms of the customers’ purchase order. Sales reductions for anticipated discounts, allowances and other deductions are recognized during the period when sales are recorded. Customers retain the right to return/credit 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 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 partial recovery of its design, product and development costs for the services provided to certain suppliers in connection with the Company’s private label business. Commission revenue and product and development cost recoveries are recognized as earned when title of the product transfers from the manufacturer to the customer and are reported on a net basis after deducting related operating expenses.

The Company licenses its trademarks for use in connection with the manufacturing, marketing and sale of cold weather accessories, sunglasses, eyewear, outerwear, bedding, hosiery, women’s fashion apparel and jewelry. 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. 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 in advance on a quarterly basis, and offset against earned royalties at the end of each quarter. 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 based on a percentage of the purchases of the Company’s products. For the Company’s international distributors, licensing income is recognized when earned and commissions are recognized when title of the product transfers to the customer.

 
 
7

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)
 
Note L – Taxes Collected From Customers

The Company accounts for certain taxes collected from its customers in accordance with the FASB ASC 605-45-50, “Revenue Recognition – Principal Agent Considerations – Disclosure” (“ASC 605-45-50”). ASC 605-45-50 allows companies to adopt a policy of presenting taxes in the income statement on either a gross basis (included in revenues and costs) or net basis (excluded from revenues). Taxes within the scope of ASC 605-45-50 would include taxes that are imposed on a revenue transaction between a seller and a customer, for example, sales taxes, use taxes, value-added taxes and some types of excise taxes. The Company has consistently recorded all taxes within the scope of ASC 605-45-50 on a net basis.
 
Note M – Sales Deductions
 
The Company supports retailers’ initiatives to maximize the sales of its 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. Such expenses are reflected in the Condensed Consolidated Statement of Income as deductions from sales. For the three- and six-month periods ended June 30, 2010, the deduction to sales for these expenses as a total dollar amount and as a percentage of gross sales was $8,311or 6.4% and $14,351 or 6.2%, respectively, as compared to $7,567 or 8.6% and $12,240 or 7.2%, for the comparable periods in 2009.
 
Note N – Cost of Sales

All costs incurred to bring finished products to the Company’s distribution center and, in the Retail segment, the costs to bring products to the Company’s stores, are included in the cost of sales line on the Condensed Consolidated Statement of Income. These include the cost of finished products, purchase commissions, letter of credit fees, brokerage fees, sample expenses, custom duty, inbound freight, royalty payments on licensed products, labels and product packaging. All warehouse and distribution costs related to the Wholesale segments and freight to customers, if any, are included in the operating expenses line item of the Company’s Condensed Consolidated Statement of Income. The Company’s gross margins may not be comparable to those of other companies in the industry because some companies may include warehouse and distribution costs, as well as other costs excluded from cost of sales by the Company, as a component of cost of sales, while other companies report on the same basis as the Company and include them in operating expenses.
 
Note O – Income Taxes

The Company’s effective income tax rate for the six months ended June 30, 2010 and 2009 was 40.0% and 38.5%, respectively. The increase in the effective income tax rate is due to increases in state and local taxes, among other matters, including revisions of allocation formulas by some tax jurisdictions resulting in the Company having higher taxable income in those jurisdictions.
 
Note P – Net Income Per Share of Common Stock

Basic income per share is based on the weighted average number of shares of common stock outstanding during the period. Diluted 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 treasury 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 grant are deemed to be the amount of compensation cost attributable to future services and are not yet recognized using the treasury stock method, to the extent dilutive. For both the three- and six-month periods ended June 30, 2010, options to purchase 236,000 shares of the Company’s common stock have been excluded from the calculation because inclusion of such shares would be anti-dilutive as compared with options to purchase 155,000 shares of the Company’s common stock that have been excluded from the calculation for the three and six months ended June 30, 2009.

 
 
8

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)
 
Note Q – 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 1,800,000 to 2,325,000. 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 6,096,000. The following table summarizes the number of shares of common stock authorized for issuance under the Plan, the amount of stock-based awards issued (net of expired or cancelled) 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
    6,096,000  
Stock-based awards, including restricted stock and stock options, granted net of expired or cancelled
    3,355,000  
         
Common Stock available for grant of stock-based awards as of June 30, 2010
    2,741,000  

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


   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Stock options
  $ 816     $ 472     $ 1,346     $ 593  
Restricted stock
    1,043       1,127       2,330       2,181  
                                 
Total
  $ 1,859     $ 1,559     $ 3,676     $ 2,774  

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 both the three- and six-month periods ended June 30, 2010 and 2009 are as follows:

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Proceeds from stock options exercised
  $ 1,581     $ 1,210     $ 1,913     $ 1,210  
Intrinsic value of stock options exercised
  $ 4,026     $ 1,161     $ 4,614     $ 1,161  
 

 
 
9

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)

Note Q Stock-Based Compensation (continued)
 
During the three and six months ended June 30, 2010, approximately 233,000 options with a weighted average exercise price of $14.32 and approximately 265,000 options with a weighted average exercise price of $14.04 vested, respectively. During the three and six months ended June 30, 2009, approximately 75,000 options with a weighted average exercise price of $12.38 and approximately 99,000 options with a weighted average exercise price of $12.20 vested, respectively. As of June 30, 2010, there were 1,500,000 unvested options with a total of $10,506 of unrecognized compensation cost and an average vesting period of 3.6 years. As of June 30, 2009, there were 1,202,000 unvested options with a total of $5,372 of unrecognized compensation cost and an average vesting period of 3.6 years.

The Company estimates the fair value of options granted using the Black-Scholes option-pricing model, 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 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 a special dividend paid in November of 2005 and 2006, the Company historically has not paid dividends and thus the expected dividend rate is assumed to be zero. The following weighted average assumptions were used for stock options granted:

   
Six months ended June 30,
 
   
2010
 
2009
 
Expected volatility
 
47.5% to 52.4%
 
49.9% to 52.1%
 
Risk-free interest rate
 
1.62% to 2.16%
 
1.39% to 1.71%
 
Expected life (in years)
 
2.8 to 4.4
  3.9  
Expected dividend yield
 
None
 
None
 
Weighted average fair value
 
$12.72
  $5.60  

 
Activity relating to stock options granted under the Company’s plans and outside the plans during the six months ended June 30, 2010 is as follows:

   
Number of Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Term
   
Aggregate Intrinsic Value
 
                             
Outstanding at January 1, 2010
    1,615,000     $ 13.68    
 
       
Granted
    503,000       33.02    
 
   
 
 
Exercised
    (197,000 )     10.20    
 
       
Cancelled/Forfeited
    (18,000 )     15.47          
 
 
                             
Outstanding at June 30, 2010
    1,903,000     $ 19.14       5.4     $ 24,871  
                                 
Exercisable at June 30, 2010
    403,000     $ 12.11       4.2     $ 7,851  

 
 
10

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)
 
Note Q Stock-Based Compensation (continued)
 
Restricted Stock

The following table summarizes restricted stock activity during the six months ended June 30, 2010 and 2009:

   
2010
   
2009
 
   
 
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
    447,000     $ 20.97       537,000     $ 19.69  
Granted
    118,000       30.50       35,000       14.79  
Vested
    (178,000 )     20.01       (178,000 )     19.89  
Forfeited
    (3,000 )     22.70       (2,000 )     22.70  
                                 
Non-vested at June 30
    384,000     $ 28.44       392,000     $ 19.14  
 
As of June 30, 2010, there was $7,181 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 2.5 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.
 
Note R – Acquisition

Big Buddha

On February 10, 2010, the Company acquired all of the outstanding shares of stock of privately held Big Buddha, Inc. (“Big Buddha”) from its sole stockholder (“Seller”). Founded in 2003, Big Buddha designs and markets fashion-forward handbags to specialty retailers and better department stores. Management believes that Big Buddha is a strategic fit for the Company. The acquisition was completed for consideration of $11,119 in cash, net of cash acquired, plus contingent payments pursuant to an earn-out agreement with the Seller. The earn-out agreement provides for potential payments to the Seller based on the financial performance of Big Buddha handbags for each of the twelve-month periods ending on March 31, 2011, 2012 and 2013. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of Big Buddha during the earn-out period. As of June 30, 2010, the Company estimates the fair value of the contingent consideration to be $12,000.

 
 
11

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)
 
Note R – Acquisition (continued)
 
The transaction was accounted for using the acquisition method required by GAAP. Accordingly, the assets and liabilities of Big Buddha were adjusted to their fair values, and the excess of the purchase price over the fair value of the assets acquired, including identified intangible assets, was recorded as goodwill. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, which are subject to change. The purchase price has been preliminarily allocated as follows:
 
Accounts receivable
  $ 668  
Inventory
    1,212  
Prepaid expenses and other current assets
    102  
Trade name
    4,100  
Customer relationships
    4,900  
Non-compete agreement
    450  
Accounts payable
    (171 )
Accrued expenses
    (442 )
Total fair value excluding goodwill
    10,819  
Goodwill
    12,300  
         
Net assets acquired
  $ 23,119  
 
The purchase price and related allocation are preliminary and may be revised as a result of adjustments made to the purchase price as additional information regarding assets and liabilities require. Contingent consideration classified as a liability will be remeasured at fair value at each reporting date, until the contingency is resolved, with changes recognized in earnings. The goodwill related to this transaction is expected to be deductible for tax purposes over 15 years.
 
The Company incurred approximately $430 in acquisition related costs applicable to the Big Buddha transaction during the period ended June 30, 2010. These expenses are included in operating expenses in the Company’s Condensed Consolidated Statements of Income.
 
The results of operations of Big Buddha have been included in the Company’s Condensed Consolidated Statements of Income from the date of the acquisition. Unaudited pro forma information related to this acquisition is not included, as the impact of this transaction is not material to the Company’s consolidated results.
 
Zone 88 and Shakedown Street
 
On July 8, 2009, the Company acquired certain of the assets constituting the Zone 88 and Shakedown Street (together “Zone 88”) lines of SML Brands, LLC, a subsidiary of Aimee Lynn, Inc. SML Brands designs, sources and markets primarily private label accessories and licensed brands, principally handbags, belts and small leather goods, for mass merchants and mid-tier retailers. Management believes that Zone 88 is a strategic fit for the Company. The acquisition was completed for $1,348 in cash. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates. The Company allocated $220 to current assets, $409 to the value of customer relationships, $841 to goodwill and $122 to liabilities assumed. The value of customer relationships is being amortized over ten years. The results of operations of Zone 88 have been included in the Company’s Condensed Consolidated Statements of Income from the date of the acquisition. Unaudited pro forma information related to this acquisition is not included, as the impact of this transaction is not material to the Company’s consolidated results.

 
 
12

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)

Note S – Goodwill and Intangible Assets

The following is a summary of the carrying amount of goodwill by segment for the six months ended June 30, 2010:
 
       
    Wholesale           Net Carrying  
   
Footwear
   
Accessories
   
Retail
   
Amount
 
Balance at January 1, 2010
  $ 1,547     $ 17,265     $ 5,501     $ 24,313  
Acquisition of Big Buddha
    0       12,300       0       12,300  
                                 
Balance at June 30, 2010
  $ 1,547     $ 29,565     $ 5,501     $ 36,613  
 
The following table details identifiable intangible assets as of June 30, 2010:
 
   
Estimated lives
 
Cost basis
   
Accumulated Amortization
   
Net carrying amount
 
Trade name
 
610 years
  $ 4,300     $ 320     $ 3,980  
Customer relationships
 
10 years
    11,709       2,564       9,145  
License agreements
 
36 years
    5,600       4,591       1,009  
Non-compete agreement
 
5 years
    1,380       683       697  
Other
 
3 years
    14       14        
                             
        $ 23,003     $ 8,172     $ 14,831  
 
The estimated future amortization expense of purchased intangibles as of June 30, 2010 is as follows:

2010 (remaining six months)
  $ 1,470  
2011
    2,412  
2012
    1,673  
2013
    1,673  
2014
    1,673  
Thereafter
    5,930  
         
    $ 14,831  
 
Note T – Comprehensive Income

Comprehensive income for the three- and six-month periods ended June 30, 2010, after considering other comprehensive income including unrealized gain on marketable securities of $436 and $656, was $20,235 and $35,840, respectively. For the comparable periods ended June 30, 2009, after considering other comprehensive gain on marketable securities of $261 and $299, comprehensive income was $12,405 and $19,020, respectively.

 
 
13

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)
 
Note U – Commitments, Contingencies and Other

Legal proceedings:

(a)  
On June 24, 2009, The Center For Environmental Health filed a lawsuit, Center for Environmental Health v. Lulu NYC, LLC, Steve Madden, Ltd., Steve Madden Retail, Inc., et al., Case No. RG09459448, in California Superior Court, Alameda County, against the Company and dozens of other California retailers and vendors of leather, vinyl and/or imitation leather handbags, belts and shoes alleging that the retailers and vendors failed to warn that certain of such products may expose California citizens to lead and lead compounds. The parties have been in negotiations to resolve the matters informally and have finalized the substance of a consent judgment, the terms of which are not material to the Company’s Condensed Consolidated Financial Statements.

(b)  
On June 24, 2009, a class action lawsuit, Shahrzad Tahvilian, et al. v. Steve Madden Retail, Inc. and Steve Madden, Ltd., Case No. BC 414217, was filed in the Superior Court of California, Los Angeles County, against the Company and its wholly-owned subsidiary, Steven Madden Retail, Inc. The complaint, which seeks unspecified damages, alleges violations of California labor laws, including, among other things, that the Company failed to provide mandated meal breaks to its employees and failed to provide overtime pay as required. The Company filed an answer in the litigation denying all allegations stated in the complaint. In March of 2010, the parties submitted the claim to private mediation and a resolution has been delayed until August 2010 pending further discovery. The Company, with the advice of legal counsel, has evaluated the liability in this case and believes that it is not likely to exceed $1,000. Accordingly, the Company accrued $1,000 in the fiscal year 2009. The accrual is subject to change to reflect the status of this matter.

(c)  
On August 10, 2005, following the conclusion of an audit of the Company conducted by auditors for U.S. Customs and Border Protection (“U.S. Customs”) during 2004 and 2005, U.S. Customs issued a report that asserts that certain commissions that the Company treated as “buying agents’ commissions” (which are non-dutiable) should be treated as “selling agents’ commissions” and hence are dutiable. In September of 2007, U.S. Customs notified the Company that it had finalized its assessment of the underpaid duties at $1,400. On October 20, 2005, U.S. Immigration and Customs Enforcement notified the Company’s legal counsel that a formal investigation of the Company’s importing practices had been commenced as a result of the audit. The Company has contested the conclusions of the U.S. Customs audit and filed a request for review and issuance of rulings thereon by U.S. Customs Headquarters, Office of Regulations and Rulings, under internal advice procedures. On November 28, 2007, U.S. Customs Headquarters informed the Company that its request for internal advice had been accepted and was under review. All efforts by U.S. Customs to collect additional duties, fees, interest or penalties have been stayed pending final decision of U.S. Customs Headquarters. In the event that the U.S. Customs auditors’ position is ultimately upheld, the Company may be subject to monetary penalties. A final determination of the matter may not occur for several months or even years. The Company, with the advice of legal counsel, evaluated the liability in the case, including additional duties, interest and penalties, and believes that it is not likely to exceed $2,700. Therefore, as of December 31, 2007, the Company had recorded a total reserve of $2,700 that was increased by $256 in 2008 and $89 in 2009 to reflect anticipated additional interest costs, bringing the reserve as of December 31, 2009 and 2008 to $3,045 and $2,956, respectively. Such reserve is subject to change to reflect the status of this matter.
 
(d)  
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.

 
 
14

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)
 
Note V – 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 and specialty stores worldwide, derives revenue 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, derives revenue from sales to department, mid-tier and specialty stores worldwide. The Retail segment, through the operation of Company owned retail stores and the Company’s website, derives revenue from sales of branded women’s, men’s and children’s footwear, accessories and licensed products. The First Cost segment represents activities of a subsidiary which earns commissions for serving as a buying agent and as a selling agent of footwear products to mass-market merchandisers, mid-tier department stores and other retailers with respect to their purchase of footwear. In the License segment, the Company licenses its Steve Madden® and Steven by Steve Madden® trademarks for use in connection with the manufacturing, marketing and sale of cold weather accessories, sunglasses, eyewear, outerwear, bedding, hosiery and women’s fashion apparel and jewelry.
 
 
 
Wholesale
Footwear
   
Wholesale Accessories
   
Total
Wholesale
   
Retail
   
First Cost
   
Licensing
   
Consolidated
 
 
                                         
As of and three months ended, June 30, 2010:
                                                   
Net sales to external customers
  $ 104,170     $ 25,023     $ 129,193     $ 29,471                 $ 158,664  
Gross profit
    40,135       9,875       50,010       18,839                   68,849  
Commissions and licensing fees - net
                          $ 4,413     $ 816       5,229  
Income from operations
    20,442       4,430       24,872       1,952       4,413       816       32,053  
Segment assets
  $ 228,039     $ 77,702       305,741       55,468       40,145             401,354  
Capital expenditures
                  $ 213     $ 351     $     $     $ 564  
June 30, 2009:
                                                       
Net sales to external customers
  $ 74,204     $ 13,993     $ 88,197     $ 28,275                     $ 116,472  
Gross profit
    28,345       4,134       32,479       17,084                       49,563  
Commissions and licensing fees - net
                          $ 6,389     $ 973       7,362  
Income (loss) from operations
    10,803       754       11,557       453       6,389       973       19,372  
Segment assets
  $ 183,252     $ 45,484       228,736       44,907       9,241             282,884  
Capital expenditures
                  $ 212     $ 250     $     $     $ 462  


 
 
15

 

STEVEN MADDEN, LTD. AND SUBSIDIARIES
 
Notes to Condensed Consolidated Financial Statements - Unaudited
June 30, 2010
($ in thousands except share and per share data)
 
Note V – Operating Segment Information (continued)
 
 
 
Wholesale Footwear
   
Wholesale Accessories
   
Total Wholesale
   
Retail
   
First Cost
   
Licensing
   
Consolidated
 
 
                                         
As of and six months ended, June 30, 2010:                                                    
Net sales to external customers
  $ 186,925     $ 45,360     $ 232,285     $ 57,987                 $ 290,272  
Gross profit
    75,567       18,213       93,780       35,006                   128,786  
Commissions and licensing fees - net
                          $ 9,359     $ 2,054       11,413  
Income (loss) from operations
    37,183       7,485       44,668       831       9,359       2,054       56,912  
Segment assets
  $ 228,039     $ 77,702       305,741       55,468       40,145             401,354  
Capital expenditures
                  $ 477     $ 755     $     $     $ 1,232  
                                                         
June 30, 2009:
                                                       
Net sales to external customers
  $ 139,405     $ 30,077     $ 169,482     $ 54,419                     $ 223,901  
Gross profit
    54,147       9,310       63,457       29,593                       93,050  
Commissions and licensing fees - net
                          $ 8,457     $ 1,810       10,267  
Income (loss) from operations
    21,665       2,800       24,465       (5,056 )     8,457       1,810       29,676  
Segment assets
  $ 183,252     $ 45,484       228,736       44,907       9,241             282,884  
Capital expenditures
                  $ 403     $ 1,241     $     $     $ 1,644  
 
Revenues by geographic area for the three- and six-month periods ended June 30, 2010 are as follows:
 
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                                 
Domestic
  $ 150,662     $ 111,307     $ 276,659     $ 213,552  
International
    8,002       5,165       13,613       10,349  
                                 
Total
  $ 158,664     $ 116,472     $ 290,272     $ 223,901  
 
 
16

 
 
 
The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the unaudited Financial Statements and Notes thereto appearing elsewhere in this Quarterly Report.
 
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, 2009. 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 and earnings per share)

Steven Madden, Ltd. and its subsidiaries (the “Company”) designs, sources, markets and retails fashion-forward footwear and accessories for women, men and children. We distribute products through department stores, specialty stores, luxury retailers, national chains, mass merchants, our retail stores and our e-commerce website throughout the United States as well as through special distribution arrangements in Canada, Europe, Central and South America, Australia and Asia. Our product line includes a broad range of updated styles which are designed to establish or capitalize on market trends, complemented by core products. We have established a reputation for our creative designs, popular styles and quality products at affordable price points.

On March 24, 2010, the Board of Directors declared a 3-for-2 stock split of the Company’s outstanding shares of common stock, to be effected in the form of a stock dividend on the Company’s outstanding common stock. Stockholders of record at the close of business on April 20, 2010 received one additional share of Steven Madden Ltd. common stock for every two shares of common stock owned on this date. The additional shares were distributed on May 3, 2010. Stockholders received cash in lieu of any fractional shares of common stock they otherwise would have received in connection with the dividend. All share and per share data provided herein gives effect to this stock split, applied retroactively.

Regarding our financial results, we achieved the highest quarterly sales and earnings results in the Company’s history. Our consolidated net sales increased 36% to $158,664 in the second quarter of 2010 when compared to consolidated net sales of $116,472 achieved in the same period of last year. Net income increased 63% in the second quarter of this year to $19,799, compared with $12,144 in the same period last year. As a percentage of net sales, our net income improved to 12% in the second quarter of 2010 from 10% in the same period of last year. Diluted earnings per share for the second quarter of 2010 increased 59% to $0.70 per share on 28,303,000 diluted weighted average shares outstanding compared to $0.44 per share on 27,441,000 diluted weighted average shares outstanding in the second quarter of last year.

 
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Our recent diversification into new brands and product lines has partially contributed to the revenue growth achieved in this quarter. Elizabeth and James, introduced in May of 2009, continues to grow its business with retailers including Neiman Marcus, Saks Fifth Avenue, Nordstrom and others. We introduced Olsenboye, our new collaboration with Mary-Kate and Ashley Olson, in the first quarter of this year. We are producing footwear and accessories under the Olsenboye brand name. Olsenboye is distributed exclusively at JC Penney. Our new men’s line, Madden, has contributed to the sales growth in our Men’s division. The Madden brand offers fashionable products for men at more moderate prices than the Steve Madden brand. In our accessories segment, our two recent acquisitions, Madden Zone, which we acquired in July of last year, and Big Buddha, which we acquired in February of 2010, have both contributed to the revenue growth in our accessories division.

In our retail segment, same store sales (sales of those stores, including the e-commerce website, that were in operation throughout the second quarters of 2010 and 2009) increased 7.4%. As of June 30, 2010, we had 84 stores in operation, compared to 92 stores as of June 30, 2009. During the twelve months ended June 30, 2010, sales per square foot improved to $690 compared to $627 achieved in the same period of 2009.

Our annualized inventory turnover improved to 9.9 times in the second quarter of 2010 from 8.6 times in the second quarter of 2009. Our accounts receivable average days outstanding was 55 days in the second quarter of 2010 compared to 52 days in the second quarter of the previous year. As of June 30, 2010, we had $163,962 in cash, cash equivalents and marketable securities, no short- or long-term debt, and total stockholders’ equity of $307,171. Working capital increased to $141,478 as of June 30, 2010, compared to $118,031 on June 30, 2009.

 
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The following tables set forth certain selected financial information relating to the results of operations for the periods indicated:
 
Selected Financial Information
Three Months Ended
June 30
($ in thousands)
 
   
2010
 
2009
CONSOLIDATED:
                       
                         
Net sales
  $ 158,664     100 %   $ 116,472     100 %
Cost of sales
    89,815     57       66,909     57  
Gross profit
    68,849     43       49,563     43  
Other operating income net of expenses
    5,229     3       7,362     6  
Operating expenses
    42,025     26       37,553     32  
Income from operations
    32,053     20       19,372     17  
Interest and other income – net
    942     1       368     0  
Income before income taxes
    32,995     21       19,740     17  
Net income
    19,799     12       12,144     10  
                             
By Segment:
                           
WHOLESALE FOOTWEAR SEGMENT:
                           
                             
Net sales
  $ 104,170     100 %   $ 74,204     100 %
Cost of sales
    64,035     61       45,859     62  
Gross profit
    40,135     39       28,345     38  
Operating expenses
    19,693     19       17,542     24  
Income from operations
    20,442     20       10,803     15  
                             
WHOLESALE ACCESSORIES SEGMENT:
                           
                             
Net sales
  $ 25,023     100 %   $ 13,993     100 %
Cost of sales
    15,148     61       9,859     70  
Gross profit
    9,875     39       4,134     30  
Operating expenses
    5,445     22       3,380     24  
Income from operations
    4,430     18       754     5  
                             
RETAIL SEGMENT:
                           
                             
Net sales
  $ 29,471     100 %   $ 28,275     100 %
Cost of sales
    10,632     36       11,191     40  
Gross profit
    18,839     64       17,084     60  
Operating expenses
    16,887     57       16,631     59  
Income from operations
    1,952     7       453     2  
Number of stores
    84             92        
                             
FIRST COST SEGMENT:
                           
                             
Other commission income net of expenses
  $ 4,413     100 %   $ 6,389     100 %
                             
LICENSING SEGMENT:
                           
                             
Licensing income net of expenses
  $ 816     100 %   $ 973     100 %
 
 
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Selected Financial Information
Six Months Ended
June 30
($ in thousands)
 
   
2010
 
2009
CONSOLIDATED:
                       
                         
Net sales
  $ 290,272     100 %   $ 223,901     100 %
Cost of sales
    161,486     56       130,851     58  
Gross profit
    128,786     44       93,050     42  
Other operating income net of expenses
    11,413     4       10,267     4  
Operating expenses
    83,287     29       73,641     33  
Income from operations
    56,912     20       29,676     13  
Interest and other income – net
    1,726     1       764     1  
Income before income taxes
    58,638     20       30,440     14  
Net income
    35,184     12       18,721     8  
                             
By Segment:
                           
WHOLESALE FOOTWEAR SEGMENT:
                           
                             
Net sales
  $ 186,925     100 %   $ 139,405     100 %
Cost of sales
    111,358     60       85,258     61  
Gross profit
    75,567     40       54,147     39  
Operating expenses
    38,384     21       32,482     23  
Income from operations
    37,183     20       21,665     16  
                             
WHOLESALE ACCESSORIES SEGMENT:
                           
                             
Net sales
  $ 45,360     100 %   $ 30,077     100 %
Cost of sales
    27,147     60       20,767     69  
Gross profit
    18,213     40       9,310     31  
Operating expenses
    10,728     24       6,510     22  
Income from operations
    7,485     17       2,800     9  
                             
RETAIL SEGMENT:
                           
                             
Net sales
  $ 57,987     100 %   $ 54,419     100 %
Cost of sales
    22,981     40       24,826     46  
Gross profit
    35,006     60       29,593     54  
Operating expenses
    34,175     59       34,649     63  
Income (loss) from operations
    831     1       (5,056 )   (9 )
Number of stores
    84             92        
                             
FIRST COST SEGMENT:
                           
                             
Other commission income net of expenses
  $ 9,359     100 %   $ 8,457     100 %
                             
LICENSING SEGMENT:
                           
                             
Licensing income net of expenses
  $