UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K




(Mark
One)


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




For
the fiscal year ended December 31, 2009




or




oTRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES AND 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)




(718)
446-1800


(Registrant’s
Telephone Number, Including Area Code)


Securities
Registered Pursuant to Section 12(b) of the Act:




Title of Each Class
            
            Name of Each Exchange on Which
      RegisteredCommon
      Stock, par value $.0001 per share
            
            The
      NASDAQ Stock Market LLCPreferred
      Stock Purchase Rights
            
            The
      NASDAQ Stock Market LLC





Securities
Registered Pursuant to Section 12(g) of the Act: None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes 
o  No
x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Act.


Yes o   No
x




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 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  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  o
              Accelerated
      filer  x
              Non-accelerated
      filer  o
              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





The
aggregate market value of the common equity held by non-affiliates of the
registrant (assuming for these purposes, but without conceding, that all
executive officers and directors are “affiliates” of the registrant) as of June
30, 2009, the last business day of the registrant’s most recently completed
second fiscal quarter, was approximately $385,532,000 (based on the closing sale
price of the registrant’s common stock on that date as reported on The NASDAQ
Global Select Market).




The
number of outstanding shares of the registrant’s common stock as of March 9,
2010 was 18,348,786 shares.




DOCUMENTS
INCORPORATED BY REFERENCE:




PART III
INCORPORATES CERTAIN INFORMATION BY REFERENCE FROM THE REGISTRANT’S DEFINITIVE
PROXY STATEMENT FOR THE REGISTRANT’S 2010 ANNUAL MEETING OF
STOCKHOLDERS.









TABLE OF CONTENTS




SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS
            
            1PART
      IITEM
      1
            BUSINESS
            
            1ITEM
      1A
            RISK
      FACTORS
            
            9ITEM
      1B
            UNRESOLVED
      STAFF COMMENTS
            
            12ITEM
      2
            PROPERTIES
            
            12ITEM
      3
            LEGAL
      PROCEEDINGS
            
            13ITEM
      4
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            14PART
      IIITEM
      5
            MARKET FOR
      REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
            
            14ITEM
      6
            SELECTED
      FINANCIAL DATA
            
            17ITEM
      7
            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
            
            18ITEM
      7A
            QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK
            
            27ITEM
      8
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
            
            28ITEM
      9
            CHANGES IN
      AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            
            28ITEM
      9A
            CONTROLS
      AND PROCEDURES
            
            28ITEM
      9B
            OTHER
      INFORMATION
            
            30PART
      IIIITEM
      10
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            
            30ITEM
      11
            EXECUTIVE
      COMPENSATION
            
            30ITEM
      12
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
            
            30ITEM
      13
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
            
            30ITEM
      14
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
            
            30PART
      IVITEM
      15
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
            
            31









SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS




This
Annual Report on Form 10-K contains forward-looking statements as that term is
defined in the federal securities laws that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, which
include statements with regard to future revenue, projected 2010 results,
earnings, spending, margins, cash flow, orders, expected timing of shipment of
products, inventory levels, future growth or success in specific countries,
categories or market sectors, continued or expected distribution to specific
retailers, liquidity, capital resources and market risk, strategies and
objectives and other future events. Forward-looking statements include, without
limitation, any statement that may predict, forecast, indicate or simply state
future results, performance or achievements, and can be identified by the use of
forward looking language such as“believe,” “anticipate,”
“expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,”
“will result,” “could,” “may,” “might,” or any variations of such words with
similar meanings. Factors that may affect our results include, but are not
limited to, the risks and uncertainties discussed in Item 1A of this Annual
Report on Form 10-K.




Any such
statements are subject to risks and uncertainties, many of which are beyond our
control, that may influence the accuracy of the statements and the projections
upon which the statements are based that could cause actual results to differ
materially from those projected in forward-looking statements. As such, we
caution you that these statements are not guarantees of future performance or
events. 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.




PART I


ITEM
      1
            BUSINESS





Steven
Madden, Ltd. and its subsidiaries (collectively, the “Company”) design, source,
market and sell fashion-forward footwear for women, men and children. In
addition, we design, source, market and sell name brand and private label
fashion handbags and accessories through our Accessories Division. We distribute
products through our retail stores, our e-commerce website, department and
specialty stores throughout the United States and through special distribution
arrangements in Asia, Canada, Europe, Central and South America, Australia and
Africa. Our product line includes a broad range of updated styles 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.




Fiscal
year 2009 was a record year for Steven Madden, Ltd. Consolidated net sales for
2009 increased to a record $503.6 million from $457.0 million during 2008. Our
gross margin increased in fiscal year 2009 to 42.9%, 200 basis points greater
than the 40.9% achieved in 2008. Net income increased 79% in 2009 to a record
$50.1 million from $28.0 million in 2008. Diluted earnings per share for the
year ended December 31, 2009 increased 81% to a record $2.73 per share on
18,323,000 diluted weighted average shares outstanding compared to $1.51 per
share on 18,519,000 diluted weighted average shares outstanding in 2008. Net
cash provided by operating activities increased to a record $64.3 million in
2009 compared to $41.8 million in 2008.




We have expanded our accessories
portfolio through two recent acquisitions. In July, 2009, we acquired certain
assets constituting the Zone 88 and Shakedown Street (together “Zone 88”) lines
of SML Brands, LLC, a subsidiary of Aimee Lynn, Inc, which designs and markets
primarily private label accessories, principally handbags, for mass merchants
and mid-tier retailers. The acquisition was completed for $1.3 million in cash.
We believe this acquisition will enable us to expand our accessories business in
the private label arena with value priced customers.




Most recently, subsequent to our year
end, on February 10, 2010, the Company acquired all of the outstanding shares of
stock of Big Buddha, Inc. (“Big Buddha”) from its sole stockholder, Jeremy
Bassan. Founded in 2003, Big Buddha designs and markets fashion-forward handbags
to specialty retailers and better department stores. The acquisition was
completed for $11.0 million in cash plus potential earn out payments based on
annual financial performance of Big Buddha through March 31, 2013.





1





On
September 2, 2009, the Company expanded its brand portfolio by entering into an
additional license agreement with Dualstar Entertainment Group, LLC, under which
the Company has the right to use the Olsenboye® trademark in connection with the
sale and marketing of footwear and accessories exclusively to J.C. Penney. The
agreement requires the Company to make royalty and advertising payments equal to
a percentage of net sales and a minimum royalty and advertising payment in the
event that specified net sales targets are not achieved. The agreement expires
on December 31, 2011, but is renewable, at our option, for one three-year term,
if certain conditions are met.




In addition, we made progress on our
stated goal to evolve Steve Madden® into a global lifestyle brand by entering
into two new license agreements. On October 20, 2009, we signed a license
agreement to license our Steve Madden® trademark for the design, manufacture and
worldwide distribution of women’s fashion apparel. On January 7, 2010, we signed
a license agreement to license our Steve Madden® and Steven by Steve Madden®
trademarks for the design, manufacture and worldwide distribution of women’s
fashion jewelry. The new fashion apparel and jewelry lines, which will initially
ship in the spring and fall of 2010, respectively, join our existing licenses
for cold weather accessories, sunglasses, eyewear, outerwear, bedding and
hosiery offerings. Management is pleased to be expanding the Company’s presence
beyond footwear and accessories and believes the new apparel and jewelry lines
mark very logical extensions of the Company’s brands.




Steven
Madden, Ltd. was incorporated as a New York corporation on July 9, 1990 and
reincorporated under the same name in Delaware in November 1998. We completed
our initial public offering in December 1993 and our shares of common stock,
$.0001 par value per share, currently trade on the NASDAQ Global Select Market
under the symbol “SHOO”.




We
maintain our principal executive offices at 52-16 Barnett Avenue, Long Island
City, NY 11104 and our telephone number is (718) 446-1800.




Our
website is http://www.stevemadden.com. We file Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports
and information with the Securities and Exchange Commission (the “SEC”) pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended,
(the “Exchange Act”). We make these reports, any amendments to such reports, and
our proxy statements for our stockholders’ meetings available free of charge, on
our website as soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC. We will provide paper
copies of such filings free of charge upon request. The public may read and copy
any materials filed by us with the SEC at the SEC’s Public Reference Room at 100
R Street, NE, Washington, D.C. 20549. The public may also obtain information on
the operation of the SEC’s Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains
reports, proxy and information statements and other information regarding us,
which is available at http://www.sec.gov.




Product
Distribution Segments




Our business is comprised of five
distinct segments (Wholesale Footwear, Wholesale Accessories, Retail, First Cost
and Licensing). Our Wholesale Footwear segment includes seven core divisions:
Steve Madden Women’s, Steve Madden Men’s, Madden Girl, Steven, Stevies,
Elizabeth and James and our international business. Our Wholesale Accessories
segment, through license agreements, includes Betsey Johnson®, Daisy Fuentes®
and Olsenboye® accessories brands. Steven Madden Retail, Inc., our wholly owned
retail subsidiary, operates Steve Madden and Steven retail stores as well as our
e-commerce website. There are also three stores licensed to a third party. The
First Cost segment represents activities of a subsidiary which earns commissions
for serving as a buying agent for footwear products under private labels and
licensed brands (such as l.e.i.®, Candie’s® and Olsenboye®) for many of the
country’s large mass-market merchandisers, shoe chains and other off-price
retailers. In the Licensing 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, women’s fashion apparel and jewelry.




2





Wholesale
Footwear Segment




Steve Madden Women’s Division.The Steve Madden Women’s Division (“Madden Women’s”) designs, sources and
markets our Steve Madden brand to major department stores, mid-tier department
stores, better specialty stores and independently owned boutiques throughout the
United States. The Steve Madden brand has become a leading life-style brand in
the fashion conscious marketplace. To serve our customers (primarily women ages
16 to 35), Madden Women’s creates and markets fashion forward footwear designed
to appeal to customers seeking exciting, new footwear designs at affordable
prices.




As our
largest division, Madden Women’s generated net sales of $148.0
million for the year ended December 31, 2009, or approximately 29% of
our total net sales. New products for Madden Women’s are test marketed at our
retail stores. Typically, within a few days, we can determine if the test
product appeals to our customers. This enables us to use our flexible sourcing
model to rapidly respond to changing trends, which we believe is essential for
success in the fashion arena.




Madden Girl Division. The
Madden Girl Division (“Madden Girl”) designs, sources and markets a full
collection of directional young women’s shoes. Madden Girl is geared for young
women ages 13 to 20 and is an “opening price point” brand that is currently sold
at major department stores, mid-tier retailers and specialty stores. Madden Girl
generated net sales of $62.5 million for the year ended December 31, 2009, or
approximately 12% of our total net sales.




Steve Madden Men’s Division.
The Steve Madden Men’s Division (“Madden Men’s”) designs, sources and markets a
full collection of directional men’s shoes and fashion forward athletic shoes to
major department stores, mid-tier department stores, better specialty stores and
independent shoe stores throughout the United States. Price points range from
$70 to $100 at retail, targeted at men ages 20 to 40 years old. Madden Men’s
generated net sales of $40.0 million for the year ended December 31,
2009, or approximately 8% of our total net sales. Madden Men’s maintains
open stock inventory positions in select patterns to serve the replenishment
programs of its wholesale customers.




Steven Division. The Steven
Division designs, sources and markets women’s fashion footwear under the Steven®
trademark through major department and better footwear specialty stores
throughout the United States. Priced a tier above the Steve Madden brand, Steven
products are designed to appeal principally to fashion conscious women, ages 25
to 45, who shop at department stores and footwear boutiques. The Steven
Divisiongenerated
net sales of $23.6 million for the year ended December 31, 2009, or
approximately 5% of our total net sales.




International Division.Prior
to 2009, our international business (the “International Division”) operated
under the “first cost” model and, thus, the revenues derived from our
international business were included in Commissions and Licensing Fees in the
Consolidated Statements of Income of our Financial Statements. In order to
improve operating efficiencies, and to give our international partners better
visibility in the process, as of January 2009, we have changed the operating
model for our international business to the “wholesale” model. Our International
Division ships products to China, Canada, Mexico, the United Kingdom, Israel,
UAE, Turkey, Australia, Korea, Morocco, and several countries in southeast Asia,
Europe and Central and South America. Our International Division generated net
sales of $22.1 million for the year ended December 31, 2009 or 4% of our total
net sales.




Elizabeth and James Division.
On September 10, 2008, we entered into a license agreement with Dualstar
Entertainment Group, LLC, under which we have the right to use the Elizabeth and
James trademark in connection with the sale and marketing of footwear. The
Elizabeth and James brand, which was created by Mary-Kate and Ashley Olsen, is
distributed through luxury retailers to women ages 25 to 36 years with average
retail price points from $200 to $350 for shoes and from $350 to $500 for boots.
Our Elizabeth and James Division, which began shipping in April 2009, generated
net sales of $4.3 million for the year ended December 31, 2009 or 1% of our
total net sales.




Steve Madden Kids Division.
Our Steve Madden Kids Division (“Madden Kids”) designs, sources and markets
footwear for young girls to department stores, specialty stores and independent
boutiques throughout the United States. Madden Kids generated net sales
of $7.3 million for the year ended December 31, 2009, or
approximately 1% of our total net sales.




3





Wholesale
Accessories Segment




Our
Wholesale Accessories segment designs, sources and markets name brand (including
Betsey Johnson®, Daisy Fuentes® and Olsenboye® in addition to our Steve Madden®
and Steven by Steve Madden® brands) and private label fashion handbags and
accessories to major department stores, mid-tier department stores, value price
retailers and independent stores throughout the United States. The Wholesale
Accessories segment generated net sales of $70.4 million for the year
ended December 31, 2009, or approximately 14% of our total net
sales.




Retail
Segment




Steven Madden Retail, Inc.As
of December 31, 2009, the Company, through our wholly owned subsidiary Steven
Madden Retail, Inc., owned and operated 89 retail stores including 84
stores under the Steve Madden name, four under the Steven name and our
e-commerce website (at www.stevemadden.com). In 2009, we opened two new stores,
closed seven underperforming stores and licensed out three stores. Steve
Madden stores are located in major shopping malls and in urban street locations
across the United States, primarily focused in New York, California and Florida.
In 2009, our retail stores generated annual sales in excess of $640 per square
foot. Comparative store sales (sales of those stores, including the
e-commerce website, that were open for all of 2009 and 2008) increased 1%
in fiscal year 2009 compared to fiscal year 2008. The Retail segment generated
net sales of $123.7 million for the year ended December 31, 2009, or
approximately 25% of our total net sales.




We
believe that the Retail segment will continue to enhance overall sales and
profitability while increasing recognition for the Steve Madden brand. We plan
to open one to three new retail stores and close six to nine
underperforming stores during 2010. Our retail stores enable us to test and
react to new products and classifications which, in turn, strengthens the
product development efforts of the Steve Madden Wholesale segments.




First
Cost Segment




The First
Cost segment represents activities of a subsidiary which earns commissions for
serving as a buying agent for footwear products under private labels and
licensed brands (such as l.e.i.®, Candie’s® and Olsenboye®) for many of the
country’s large mass-market merchandisers, shoe chains and other mid-tier
retailers. As a buying agent, we utilize our expertise and our relationships
with shoe manufacturers to facilitate the production of private label shoes to
our customers’ specifications. We believe that by operating in the private
label, mass merchandising market, we are able to maximize additional non-branded
sales opportunities. This leverages our overall sourcing and design
capabilities. Currently, this segment serves as a buying agent for the
procurement of women’s, men’s and children’s footwear for large retailers,
including Target, Wal-Mart, Kohl’s, J.C. Penney and Sears. The First Cost
segment receives buying agent’s commissions from its customers. In addition, we
have leveraged the strength of our Steve Madden brands and product designs
resulting in a partial recovery of our design, product and development costs
from our suppliers. The First Cost segment generated operating income of
$16.8 million for the year ended December 31, 2009.




Licensing
Segment




We
license our 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, women’s fashion
apparel and jewelry. Most of our license agreements require the licensee to pay
us a royalty based on actual net sales, a minimum royalty in the event that
specified net sales targets are not achieved and a percentage of sales for
advertising the brand. Licensing income for the year ended December 31, 2009
was $3.1 million.




See Note
N to our Consolidated Financial Statements for additional information relating
to our five operating segments.




4





Product
Design and Development




We have
established a reputation for our creative designs, marketing and trendy products
at affordable price points. We believe that our future success will
substantially depend on our ability to continue to anticipate and react to
changing consumer demands in a timely manner. To meet this objective, we have
developed an unparalleled design process that allows us to recognize and act
quickly to changing consumer demands. Our design team strives to create designs
which it believes fit our image, reflect current or future trends and can be
manufactured in a timely and cost-effective manner. Once the initial design is
complete, a prototype is developed, primarily in our Long Island City facility,
which is reviewed and refined prior to the commencement of initial production.
Most new products are then tested in selected Steve Madden retail stores. Based
on these tests, among other things, management selects the products that are
then offered for wholesale and retail distribution nationwide. We believe that
our design and testing process and flexible sourcing model is a significant
competitive advantage allowing us to mitigate the risk of production costs and
the distribution of less desirable designs.




Product
Sourcing and Distribution




We source
each of our product lines separately based on the individual design, style and
quality specifications of the products in such product lines. We do not own or
operate manufacturing facilities; rather, we source our products through agents
and our own sourcing office with independently owned manufacturers in China,
Mexico, Brazil, Italy, Spain and India. We have established relationships with a
number of manufacturers and agents in each of these countries. Although we have
not entered into any long-term manufacturing or supply contracts, we believe
that a sufficient number of alternative sources exist for the manufacture of our
products. We continually monitor the availability of the principal materials
used in our footwear, which are available from a number of sources in various
parts of the world. We track inventory flow on a regular basis, monitor
sell-through data and incorporate input on product demand from wholesale
customers. We use retailers’ feedback to adjust the production or manufacture of
new products on a timely basis, which helps reduce the close out of slow-moving
products.




We
distribute our products from three third-party distribution warehouse centers
located in California and New Jersey. By utilizing distribution facilities that
specialize in distributing products to certain wholesale accounts, Steve Madden
retail stores and Internet fulfillment, we believe that our customers are better
served.




Customers




Our
wholesale customers consist principally of department stores and specialty
stores, including independent boutiques. Approximately 69% of our wholesale
revenue is generated from department and specialty stores, including Macy’s,
DSW, Nordstrom, Famous Footwear, Dillard’s and Lord & Taylor as well as
mid-tier department stores and catalog retailers, including Victoria’s Secret.
For the year ended December 31, 2009, DSW accounted for approximately $52.9
million, or 14% of our wholesale net sales and 11% of our total net sales.
Macy’s accounted for approximately $39.0 million, or 10% of our wholesale net
sales and 8% of our total net sales in 2009.




Distribution
Channels




United
States




We sell
our products principally through department stores, specialty stores and
discount stores and through our company-owned retail stores. For the year ended
December 31, 2009, our Retail segment and our Wholesale segment generated net
sales of approximately $123.7 million and $379.8 million, or 25% and 75% of our
total net sales, respectively. Each of these distribution channels are described
below.




5





Steve Madden and Steven Retail
Stores. As of December 31, 2009, we operated 84 company-owned retail
stores under the Steve Madden name and four under the Steven name and our
e-commerce website (at www.stevemadden.com). We believe that our retail stores
will continue to enhance overall sales, profitability, and our ability to react
to changing consumer trends. The stores are also a marketing tool that allows us
to strengthen brand recognition and to showcase selected items from our full
line of branded and licensed products. Furthermore, the retail stores provide us
with a venue to test and introduce new products and merchandising strategies.
Specifically, we often test new designs at our Steve Madden retail stores before
scheduling them for mass production and wholesale distribution. In addition to
these test marketing benefits, we have been able to leverage sales information
gathered at Steve Madden retail stores to assist our wholesale customers in
order placement and inventory management.




A typical
Steve Madden store is approximately 1,400 to 1,600 square feet and is located in
a mall or street location that we expect will attract the highest concentration
of our core demographic, style-conscious customer base. The Steven stores, which
are generally the same size as our Steve Madden stores, have a more
sophisticated design and format styled to appeal to their more mature target
audience. In addition to carefully analyzing mall demographics and locations, we
set profitability guidelines for each potential store site. Specifically, we
target well trafficked sites at which the demographics fit our consumer profile
and seek new locations where the projected fixed annual rent expense stays
within our guidelines. By setting these guidelines, we seek to identify stores
that will contribute to our overall profitability both in the near and longer
terms.




Department Stores. We
currently sell to over 1,900 doors of 17 department stores throughout the United
States. Our major accounts include Macy’s, Nordstrom, Dillard’s and Lord &
Taylor.




We
provide merchandising support to our department store customers which includes
in-store fixtures and signage, supervision of displays and merchandising of our
various product lines. Our wholesale merchandising effort includes the creation
of in-store concept shops, where a broader collection of our branded products
are showcased. These in-store concept shops create an environment that is
consistent with our image and are designed to enable the retailer to display and
sell a greater volume of our products per square foot of retail space. In
addition, these in-store concept shops encourage longer term commitment by the
retailer to our products and enhance consumer brand awareness.




In
addition to merchandising support, our key account executives maintain weekly
communications with their respective accounts to guide them in placing orders
and to assist them in managing inventory, assortment and retail sales. We
leverage our sell-through data gathered at our retail stores to assist
department stores in allocating their open-to-buy dollars to the most popular
styles in the product line and to phase out styles with weaker sell-throughs,
which reduces markdown exposure at season’s end.




Specialty Stores/Catalog
Sales. We currently sell to specialty store locations throughout the
United States. Our major specialty store accounts include DSW, Famous Footwear
and Journeys. We offer our specialty store accounts the same merchandising,
sell-through and inventory tracking support offered to our department store
accounts. Sales of our products are also made through various catalogs,
such as Victoria’s Secret.




Internet Sales. We operate an
Internet website, www.stevemadden.com, where customers can purchase numerous
styles of our Madden Women’s, Steven and Madden Men’s as well as selected styles
of Madden Girl, footwear and accessory products.




International




Our
products are available in many countries and territories worldwide via several
retail selling and distribution agreements. Under the terms of the various
agreements, the distributors and retailers are generally required to open a
minimum number of stores each year and to pay us a fee for each pair of footwear
purchased, and in many cases, an additional sales royalty as a percentage of
sales or a predetermined amount per unit of sale. Distributors are required to
purchase a specified minimum number of products within specified periods. The
agreements we have in place expire at various times through December 31, 2014
and include renewal options. These agreements are exclusive in their specific
territories, which include China, Canada, Mexico, the United Kingdom,
Israel, UAE, Turkey, Australia, Korea, Morocco, and several countries in
Southeast Asia, Europe and Central and South America.




6





Competition




The
fashion industry is highly competitive. We compete with specialty shoe and
accessory companies as well as companies with diversified footwear product
lines, such as Nine West, Skechers, Kenneth Cole, Nike, Guess and Jessica
Simpson. Our competitors may have greater financial and other resources than us.
We believe effective advertising and marketing, fashionable styling, high
quality, value and fast manufacturing turnaround are the most important
competitive factors and intend to continue to employ these elements as we
develop our products. However, we cannot be certain that we will be able to
compete successfully against our current and future competitors, or that
competitive pressures will not have a material adverse effect on our business,
financial condition and results of operations.




Marketing
and Sales




We have
focused on creating an integrated brand building program to establish Steve
Madden as a leading designer of fashion footwear for style-conscious young women
and men. Principal marketing activities include product placements in lifestyle
and fashion magazines, personal appearances by our founder and Creative and
Design Chief, Steve Madden, and in-store promotions. In addition, we continue to
promote our e-commerce website (www.stevemadden.com) where customers can
purchase products under the brands Steve Madden, Steven, Steve Madden Men’s and
selected styles from Madden Girl footwear, as well as view exclusive content,
participate in contests and “live chat” with customer service
representatives.




Management
Information Systems (MIS) Operations




Sophisticated
information systems are essential to our ability to maintain our competitive
position and to support continued growth. We operate on a dual AS/400 system
which provides system support for all aspects of our business, including
manufacturing purchase orders, customer purchase orders, order allocations,
invoicing, accounts receivable management, quick response replenishment,
point-of-sale support and financial and management reporting functions. We have
a PKMS bar coded warehousing system that is integrated with the wholesale system
in order to provide accurate inventory positions and quick response size
replenishment for our customers. In addition, we have installed an EDI system
which provides a computer link between us and certain wholesale customers that
enables both the customer and us to monitor purchases, shipments and invoicing.
The EDI system also improves our ability to respond to customer inventory
requirements on a weekly basis.




Intellectual
Property




Trademarks




We own
numerous trademarks including Steve Madden®, Steve Madden plus Design®, Steven
by Steve Madden® and various PEACE LOVE SHOES designs. As of December 31, 2009,
we have 216 U.S. and internationally registered trademarks or trademark
applications pending in the trademark offices of 67 countries around the
world including the U.S. From time to time we adopt new trademarks in connection
with the marketing of new product lines. We believe that our trademarks have
significant value and are important to the marketing of our products,
identifying the Company and distinguishing our products from the products of
others. We consider our Steve Madden®, Steve
Madden plus Design®, Steven by Steve Madden® and the various PEACE LOVE SHOES
design marks to be among our most valuable assets and have registered these
marks in numerous countries and in numerous International Classes. We act
aggressively to register and vigorously to protect our trademarks against
infringement. There can be no assurance, however, that we will be able to
effectively obtain rights to our marks throughout all of the countries of the
world. Moreover, no assurance can be given that others will not assert rights in
or ownership of, our marks and other proprietary rights or that we will be able
to resolve any such conflicts successfully. Our failure to protect such rights
from unlawful and improper appropriation may have a material adverse effect on
our business, financial condition, results of operations and
liquidity.




7





Trademark
Licensing




We
believe that expanding the Company’s presence beyond footwear and accessories is
a logical extension of the Company’s brands. Therefore, on October 20, 2009, we
licensed our Steve Madden® mark for the design, manufacture and worldwide
distribution of women’s fashion apparel and, on January 7, 2010, we licensed our
Steve Madden® and Steven by Steve Madden® marks for the design, manufacture and
worldwide distribution of women’s fashion jewelry. The new fashion apparel and
jewelry lines, which will initially ship in the spring and fall of 2010,
respectively, join our existing licenses for cold weather accessories,
sunglasses, eyewear, outerwear, bedding and hosiery offerings. Our licensees pay
us a royalty and, in substantially all of our license agreements, an advertising
fee equal to a percentage of net sales and a minimum royalty and advertising fee
in the event that specified net sales targets are not achieved. See Note A[13]
to our Consolidated Financial Statements included in this Annual Report on Form
10-K for additional disclosure regarding these licensing
arrangements.




In addition to out-licenses of our
trademarks, we also license from third parties certain marks used in connection
with certain of our product lines. We have a license from Betsey Johnson LLC
providing the right to use the Betsey Johnson® and Betseyville® trademarks in
connection with the sale and marketing of handbags, small leather goods, belts
and umbrellas. In addition, we have licenses from Dualstar Entertainment Group,
LLC under which the Company has the right to use the Olsenboye® trademark in
connection with the sale and marketing of footwear and accessories and the
Elizabeth and James® trademark in connection with the sale and marketing of
footwear. We also hold a license from Phat Fashions LLC to design, manufacture
and distribute women’s footwear, handbags and belts and related accessories
under the Fabulosity® brand and a license from Jones Investment Co. Inc. to use
the l.e.i.® trademark in connection with the marketing and sale of women’s
footwear exclusively to Wal-Mart. We also hold a license from Dafu Licensing,
Inc. to design, manufacture and distribute handbags and belts and related
accessories under the DF Daisy Fuentes® and the Daisy Fuentes® brands. We also
hold a license from IP Holdings LLC to sell Candie’s® banded footwear to Kohl’s.
Substantially all of these licensing agreements require us to make royalty and
advertising payments to the licensor equal to a percentage of our net sales and
a minimum royalty and advertising payment in the event that specified net sales
targets are not achieved.




See Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Note L[4] to our Consolidated Financial Statements included in
this Annual Report on Form 10-K for additional information relating to each of
the above referenced licensing arrangements.





Employees




On
February 5, 2010, we employed approximately 1,370 employees, of whom
approximately 700 work on a full-time basis and approximately 670 work on a
part-time basis, most of whom work in the Retail segment. All of our employees
are located in the United States with the exception of approximately 30
employees located in Hong Kong and China who perform quality control and
administrative duties. None of our employees are represented by a union. Our
management considers relations with our employees to be good. The Company has
never experienced a material interruption of its operations due to a labor
dispute.




Seasonality




Historically,
our merchandising businesses have experienced holiday retail seasonality. In
addition to seasonal fluctuations, our operating results fluctuate quarter to
quarter as a result of the timing of holidays, weather, the timing of larger
shipments of footwear, market acceptance of our products, product mix, pricing
and presentation of the products offered and sold, the hiring and training of
additional personnel, inventory write downs for obsolescence, the cost of
materials, the product mix between wholesale, retail and licensing businesses,
the incurrence of other operating costs and factors beyond our control, such as
general economic conditions and actions of competitors.




Backlog




We had
unfilled wholesale customer orders of $151.7 million and $90.5 million, as of
February 21, 2010 and 2009, respectively. Our backlog at a particular time
is affected by a number of factors, including seasonality, timing of market
weeks and wholesale customer purchases of our core basic products through our
open stock program. Accordingly, a comparison of backlog from period to period
may not be indicative of eventual shipments.




8





ITEM
      1A
            RISK
  FACTORS




You
should carefully consider the risks and uncertainties we describe below and the
other information in this Annual Report on Form 10-K before deciding to invest
in, sell or retain shares of our common stock. These are not the only risks and
uncertainties that we face. Additional risks and uncertainties that we do not
currently know about or that we currently believe are immaterial, or that we
have not predicted, may also harm our business operations or adversely affect
us. If any of these risks or uncertainties actually occurs, our business,
financial condition, results of operations and liquidity could be materially
harmed.




Fashion Industry
Risks. Our
success depends in significant part upon our ability to anticipate and respond
to product and fashion trends as well as to anticipate, gauge and react to
changing consumer demands in a timely manner. There can be no assurance that our
products will correspond to the changes in taste and demand or that we will be
able to successfully market products that respond to such trends. If we misjudge
the market for our products, we may be faced with significant excess inventories
for some products and missed opportunities for others. In addition, misjudgments
in merchandise selection could adversely affect our image with our customers
resulting in lower sales and increased markdown allowances for customers which
could have a material adverse effect on our business, financial condition,
results of operations and liquidity.




The
industry in which we operate is cyclical, with purchases tending to decline
during recessionary periods when disposable income is low. Purchases of
contemporary shoes and accessories tend to decline during recessionary periods
and also may decline at other times. There can be no assurance that we will be
able to grow or even maintain our current level of revenues and earnings, or
remain profitable in the future. A recession in the national or regional
economies or uncertainties regarding future economic prospects, among other
things, could affect consumer spending habits. The recent volatility and
disruption of global economic and financial market conditions has led to
declines in consumer confidence and spending in the United States and
internationally. Further deterioration or a continued weakness of economic and
financial market conditions for an extended period of time could have a material
adverse effect on our business, financial condition, results of operations and
liquidity.




In recent
years, the retail industry has experienced consolidation and other ownership
changes. In the future, retailers in the United States and in foreign markets
may further consolidate, undergo restructurings or reorganizations, or realign
their affiliations, any of which could decrease the number of stores that carry
our products or increase the ownership concentration within the retail industry.
While such changes in the retail industry to date have not had a material
adverse effect on our business or financial condition, results of operations and
liquidity, there can be no assurance as to the future effect of any such
changes.




Economic
Uncertainty and Political Risks.Our opportunities for long-term growth
and profitability are accompanied by significant challenges and risks,
particularly in the near term. Specifically, our business is dependent on
consumer demand for our products. We believe that declining consumer confidence
accompanied with changes in credit availability, interest rates, energy prices,
unemployment rates and consumers’ disposable income negatively impacted the
level of consumer spending for discretionary items during the years ended
December 31, 2008 and 2009. Despite the worsening retail environment, in 2009 we
achieved a substantial revenue growth in the Wholesale segment that was
partially offset by a small decrease in revenues in the Retail segment. A
continued weak economic environment could have a negative effect on the
Company’s sales and results of operations during the year ending December 31,
2010 and thereafter. In addition, unstable political conditions in some parts of
the world, including potential or actual international conflicts, or the
continuation or escalation of terrorism, could have a material adverse effect on
our business, financial condition, results of operations and
liquidity.




Inventory
Management. The
fashion-oriented nature of our products and the rapid changes in customer
preferences leave us vulnerable to an increased risk of inventory obsolescence.
Thus, our ability to manage our inventories properly is an important factor in
our operations. Inventory shortages can adversely affect the timing of shipments
to customers and diminish sales and brand loyalty. Conversely, excess
inventories can result in lower gross margins due to the excessive discounts and
markdowns that might be necessary to reduce inventory levels. Our inability to
effectively manage our inventory could have a material adverse effect on our
business, financial condition, results of operations and liquidity.




9




Dependence upon
Customers and Risks Related to Extending Credit to Customers.Our customers consist
principally of major department stores, mid-tier department stores, better
specialty stores and independently-owned boutiques. Certain of our department
store customers, including some under common ownership, account for significant
portions of our wholesale business.


We
generally enter into a number of purchase order commitments with our customers
for each of our lines every season and do not enter into long-term agreements
with any of our customers. Therefore, a decision by a significant customer,
whether motivated by competitive conditions, financial difficulties or
otherwise, to decrease the amount of merchandise purchased from us or to change
its manner of doing business could have a material adverse effect on our
business, financial condition, results of operations and liquidity.




We sell
our products primarily to retail stores across the United States and extend
credit based on an evaluation of each customer’s financial condition, usually
without collateral. While various retailers, including some of our customers,
have experienced financial difficulties in the past few years which increased
the risk of extending credit to such retailers, our losses due to bad debts have
been limited. Pursuant to the terms of our factoring agreement, our factor,
Rosenthal & Rosenthal, Inc., currently assumes the credit risk related to
approximately 83% of our accounts receivable. However, financial
difficulties of a customer could cause us to curtail business with such customer
or require us to assume more credit risk relating to such customer’s accounts
receivable.




Impact of Foreign
Manufacturers; Custom Duties. Virtually all of our products are
purchased through arrangements with a number of foreign manufacturers, primarily
from China, Mexico, Brazil, Italy, Spain and India.




Risks
inherent in foreign operations include work stoppages, transportation delays and
interruptions, changes in social, political and economic conditions which could
result in the disruption of trade from the countries in which our manufacturers
or suppliers are located, the imposition of additional regulations relating to
imports, the imposition of additional duties, taxes and other charges on
imports, significant fluctuations of the value of the dollar against foreign
currencies, or restrictions on the transfer of funds, any of which could have a
material adverse effect on our business, financial condition, results of
operations and liquidity. We do not believe that any such economic or political
condition will materially affect our ability to purchase products, since a
variety of materials and alternative sources are available. However, we cannot
be certain that we will be able to identify such alternative sources without
delay, if at all, or without greater cost to us. Our inability to identify and
secure alternative sources of supply in this situation could have a material
adverse effect on our business, financial condition, results of operations and
liquidity.




Our
imported products are also subject to United States custom duties. The United
States and the countries in which our products are produced or sold, from time
to time, impose new quotas, duties, tariffs, or other restrictions, or may
adversely adjust prevailing quota, duty or tariff levels, any of which could
have a material adverse effect on our business, financial condition, results of
operations and liquidity.




Possible Adverse
Impact of Manufacturers’ Inability to Manufacture in a Timely Manner, Meet
Quality Standards or to Use Acceptable Labor Practices. As is common in
the footwear industry, we contract for the manufacture of virtually all of
our products to our specifications through foreign manufacturers. We do not own
or operate any manufacturing facilities and, therefore, we are dependent upon
third parties for the manufacture of all of our products. The inability of a
manufacturer to ship orders of our products in a timely manner or to meet our
quality standards could cause us to miss the delivery date requirements of our
customers for those items, which could result in cancellation of orders, refusal
to accept deliveries or a reduction in purchase prices, any of which could have
a material adverse effect on our business, financial condition, results of
operations and liquidity.




Although
we enter into a number of purchase order commitments each season specifying a
time frame for delivery, method of payment, design and quality specifications
and other standard industry provisions, we do not have long-term contracts with
any manufacturer. As a consequence, any of these manufacturing relationships may
be terminated, by either party, at any time. Although we believe that other
facilities are available for the manufacture of our products, there can be no
assurance that such facilities would be available to us on an immediate basis,
if at all, or that the costs charged to us by such manufacturers would not be
greater than those presently paid.




10





We do not
control our licensing partners or independent manufacturers or their labor
practices. The violation of labor or other laws by an independent manufacturer
of ours or by one of our licensing partners, or the divergence of a
manufacturer’s or a licensing partner’s labor practices from those generally
accepted as ethical in the United States, could have a material adverse effect
on our business, financial condition, results of operations and
liquidity.




Intense Industry
Competition.The
fashion footwear industry is highly competitive and barriers to entry are low.
Our competitors include specialty companies as well as companies with
diversified product lines. The recent market growth in the sales of fashion
footwear has encouraged the entry of many new competitors and increased
competition from established companies. Most of these competitors, including
Nine West, Skechers, Kenneth Cole, Nike, Guess and Jessica Simpson may have
significantly greater financial and other resources than we do and there can be
no assurance that we will be able to compete successfully with other fashion
footwear companies. Increased competition could result in pricing pressures,
increased marketing expenditures and loss of market share, and could have a
material adverse effect on our business, financial condition, results of
operations and liquidity. We believe effective advertising and marketing,
branding of the Steve Madden® trademark, fashionable styling, high quality and
value are the most important competitive factors and we plan to continue to
employ these elements as we develop our products. Our inability to effectively
advertise and market our products could have a material adverse effect on our
business, financial condition, results of operations and liquidity.




Expansion of
Retail Business.
Our continued growth depends to a significant degree on further developing the
Steve Madden, Stevies, Steven, Madden Girl, Steve Madden Men’s, Steve Madden
Fix, Candies, Elizabeth and James, Olsenboye and l.e.i. brands, creating new
product categories and businesses and operating company-owned Steve Madden and
Steven stores on a profitable basis. During the year ended December 31, 2009, we
opened two, closed seven and licensed out three Steve Madden retail stores and
have plans to open one to three and close six to nine stores in the year ending
December 31, 2010. We also remodeled seven existing stores. Our future
expansion plan includes the opening of stores in new geographic markets as well
as strengthening existing markets. New markets have in the past presented, and
will continue to present, competitive and merchandising challenges that are
different from those faced by us in our existing markets. There can be no
assurance that we will be able to open new stores, and if opened, that such new
stores will be able to achieve sales and profitability levels consistent with
management’s expectations. Our retail expansion is dependent on a number of
factors, including our ability to locate and obtain favorable store sites, the
performance of our wholesale and retail operations, and our ability to manage
such expansion and hire and train personnel. Past comparable store sales results
may not be indicative of future results, and there can be no assurance that our
comparable store sales results can be maintained or will increase in the future.
In addition, there can be no assurance that our strategies to increase other
sources of revenue, which may include expansion of our licensing activities,
will be successful or that our overall sales or profitability will increase or
not be adversely affected as a result of the implementation of such retail
strategies.




Management of
Growth.Our
operations have increased and will continue to increase demand on our
managerial, operational and administrative resources. We have recently invested
significant resources in, among other things, our management information systems
and hiring and training new personnel. However, in order to manage currently
anticipated levels of future demand, we may be required to, among other things,
expand our distribution facilities, establish relationships with new
manufacturers to produce our product, and continue to expand and improve our
financial, management and operating systems. There can be no assurance that we
will be able to manage future growth effectively and a failure to do so could
have a material adverse effect on our business, financial condition, results of
operations and liquidity.




Seasonal and
Quarterly Fluctuations.Our results may fluctuate quarter to quarter as a result of the timing of
holidays, weather, the timing of larger shipments of footwear, market acceptance
of our products, the mix, pricing and presentation of the products offered and
sold, the hiring and training of additional personnel, inventory write downs for
obsolescence, the cost of materials, the product mix between wholesale, retail
and licensing businesses, the incurrence of other operating costs and factors
beyond our control, such as general economic conditions and actions of
competitors. In addition, we expect that our sales and operating results may be
significantly impacted by the opening of new retail stores and the introduction
of new products. Accordingly, the results of operations in any quarter will not
necessarily be indicative of the results that may be achieved for a full fiscal
year or any future quarter.




11





Trademark
Protection.We
believe that our trademarks and other proprietary rights are important to our
success and our competitive position. Accordingly, we devote substantial
resources to the establishment and protection of our marks on a worldwide basis.
Nevertheless, there can be no assurance that the actions taken by us to
establish and protect our marks and other proprietary rights will be adequate to
prevent imitation of our products by others or to prevent others from seeking to
block sales of our products on the basis that our products violate the
trademarks and proprietary rights of others. Moreover, no assurance can be given
that others will not assert rights in, or ownership of, trademarks and other
proprietary rights of ours or that we will be able to successfully resolve such
conflicts. In addition, the laws of certain foreign countries may not protect
proprietary rights to the same extent as do the laws of the United States. Our
failure to establish and then protect such proprietary rights from unlawful and
improper utilization could have a material adverse effect on our business,
financial condition, results of operations and liquidity.




Foreign Currency
Fluctuations.We
make approximately 99% of our purchases in U.S. dollars. However, we source
substantially all of our products overseas and, as such, the cost of these
products may be affected by changes in the value of the relevant currencies.
Changes in currency exchange rates may also affect the relative prices at which
we and our foreign competitors sell products in the same market. There can be no
assurance that foreign currency fluctuations will not have a material adverse
effect on our business, financial condition, results of operations and
liquidity.




Dependence on Key
Personnel.The future of our
business depends to a significant degree on the skills and efforts of our
Creative and Design Chief, Steven Madden, and our senior executives. If we lose
the services of our Creative and Design Chief or any of our senior executives,
and especially if any of our executives joins a competitor or forms a competing
company, our business and financial performance could be seriously harmed. A
loss of our Creative and Design Chief’s or any of our executive officers’
skills, knowledge of the industry, contacts and expertise could cause a setback
to our operating plan and strategy.




Outstanding
Options. As of
March 9, 2010, there were outstanding options to purchase an aggregate of
approximately 1,076,000 shares of our common stock. Holders of such
options are likely to exercise them when the market price of our stock is
significantly higher than the exercise price of the options. Further, while
options are outstanding, they may adversely affect the terms on which we could
obtain additional capital, if required.


ITEM
      1B
            UNRESOLVED STAFF
      COMMENTS




None.


ITEM
      2
            PROPERTIES




We lease
approximately 41,900 square feet for our corporate headquarters and sample
production facilities at 52-16 Barnett Avenue, Long Island City, NY 11104
pursuant to a lease which expires on June 30, 2013. The Steve Madden showroom is
located at 1370 Avenue of the Americas, New York, NY. All of our brands are
displayed for sale from this 9,917 square foot space. The lease for our showroom
expires on February 28, 2013.




We lease
approximately 20,000 square feet for our Accessories Division’s offices and
showroom space at 10 West 33rd Street, New York, NY. The lease expires on
December 31, 2014.




We lease
approximately 6,500 square feet for our Madden Zone Division’s office space at
17-19 West 34th Street, New York, NY. The initial term of the lease expires on
April 30, 2010 with an option, at our election, to extend it on a month-to-month
basis that can be terminated by either party with 30 days’ prior written
notice.




We
maintain approximately 7,200 square feet as a storage facility at 25-15 Borough
Place, Woodside, NY. The lease for this space expires on October 31,
2013.




We own a
building that is approximately 2,200 square feet that is located across the
street from our executive offices at 38-35 Woodside Avenue, Long Island City, NY
11104.




12





We lease
approximately 3,600 square feet for office space in Kwai Chung, Hong Kong. This
lease will expire on March 4, 2011.




In
addition, we lease approximately 4,825 square feet for office space in Kuangdong
Province, China. This lease will expire on January 31, 2013.




All of
our retail stores are leased pursuant to leases that, under their original
terms, extend for an average of ten years. A majority of the leases include
clauses that provide for contingent rental payments if gross sales exceed
certain targets and, as such, a majority of the leases enable us and/or the
landlord to terminate the lease in the event that our gross sales do not achieve
certain minimum levels during a prescribed period. Many of the leases contain
rent escalation clauses to compensate for increases in operating costs and real
estate taxes. The current terms of our retail store leases, including our three
licensed stores and two unoccupied locations, expire as follows:




Years
      Lease Terms Expire
            
            Number
      of Stores2010
            
            122011
            
            142012
            
            82013
            
            132014
            
            52015
            
            52016
            
            62017
            
            142018
            
            102019
            
            62020
            
            1




ITEM
      3
            LEGAL
    PROCEEDINGS




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 Consolidated
Financial Statements.




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. The parties have agreed to submit the claim to private mediation,
which is scheduled for March 29, 2010. 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 million. Accordingly, the Company accrued $1 million in the
fiscal year 2009. The accrual is subject to change to reflect the status of this
matter.




13





On August
10, 2005, following the conclusion of an audit of the Company conducted by
auditors of 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 to be $1.4 million. 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, has evaluated the Company’s potential
liability in this matter, including additional duties, interest and penalties,
and believes that it is not likely to exceed $2.7 million. Therefore, as of
December 31, 2007, the Company had recorded a total reserve of $2.7 million that
was increased by $256 thousand in 2008 and $89 thousand in 2009 to reflect
anticipated additional interest costs, bringing the reserve to $3 million as of
December 31, 2009. Such reserve is subject to change to reflect the status of
this matter.





We have
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 our financial position or results of operations.


ITEM
      4
            SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS





No
matters were submitted to a vote of the holders of our common stock during the
last quarter of our fiscal year ended December 31, 2009.




PART II


ITEM
      5
                MARKET FOR REGISTRANT’S COMMON
      EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES




Market Information. Our
shares of common stock have traded on the NASDAQ Global Select Market since
August 1, 2007 and were traded on the NASDAQ National Market prior to that date.
The following table sets forth the range of high and low closing sales prices
for our common stock during each fiscal quarter during the two-year period ended
December 31, 2009 as reported by the NASDAQ Global Select. The trading volume of
our securities fluctuates and may be limited during certain periods. As a
result, the liquidity of an investment in our securities may be adversely
affected.




Common
Stock




High
            
            
            Low
            
            
            
            High
            
            
            Low2009
            
            
            
            
            
            
            2008Quarter
      ended March 31, 2009
            
            $
            22.80
            
            
            $
            13.57
            
            Quarter
      ended March 31, 2008
            
            $
            19.52
            
            
            $
            14.98Quarter
      ended June 30, 2009
            
            $
            30.15
            
            
            $
            19.04
            
            Quarter
      ended June 30, 2008
            
            $
            22.74
            
            
            $
            16.05Quarter
      ended September 30, 2009
            
            $
            37.25
            
            
            $
            23.87
            
            Quarter
      ended September 30, 2008
            
            $
            28.36
            
            
            $
            18.13Quarter
      ended December 31, 2009
            
            $
            42.91
            
            
            $
            35.68
            
            Quarter
      ended December 31, 2008
            
            $
            24.60
            
            
            $
            14.20





Holders. As of March 9, 2010,
there were 18,348,786 shares of common stock outstanding and 76 holders of
record.





14


Dividends. With the exception
of a special cash dividend paid in November 2005 and in November 2006, we have
not declared or paid any cash dividends in the past to the holders of our common
stock and do not currently anticipate declaring or paying any cash dividends in
the foreseeable future. We intend to retain earnings, if any, to finance the
development and expansion of our business. Future dividend policy will be
subject to the discretion of our Board of Directors and will be contingent upon
future earnings, if any, our financial condition, capital requirements, general
business conditions, and other factors. Therefore, we can give no assurance that
any cash dividends of any kind will be paid to holders of our common stock in
the future.




Equity Compensation Plans.
Information regarding our equity compensation plans as of December 31, 2009 is
disclosed in Item 12,
“Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.”




Issuer Repurchases of Equity
Securities.We did not repurchase any shares of our common stock during
the fourth quarter of fiscal 2009. In February and August of 2007, our Board of
Directors authorized increases of our previously announced share repurchase
program of $30 million and $37 million, respectively. At December 31, 2009, an
aggregate of $2 million remained authorized to repurchase our common stock. The
programhas no set
expiration date.




15





Performance Graph. The
following graph compares the yearly percentage change in the cumulative total
stockholder return on our common stock during the period beginning on December
31, 2004, and ending on December 31, 2009, with the cumulative total return on
the Russell 2000 Index and the S&P 500 Footwear Index. The comparison
assumes that $100 was invested on December 31, 2004 in our common stock and in
the foregoing indices and assumes the reinvestment of dividends.











12/31/2004
            
            
            12/31/2005
            
            
            12/31/2006
            
            
            12/31/2007
            
            
            12/31/2008
            
            
            12/31/2009Steven
      Madden, Ltd.
            
            $
            100.00
            
            
            $
            154.98
            
            
            $
            279.08
            
            
            $
            159.07
            
            
            $
            169.57
            
            
            $
            328.00Russell
      2000 Index
            
            $
            100.00
            
            
            $
            103.32
            
            
            $
            120.89
            
            
            $
            117.57
            
            
            $
            76.65
            
            
            $
            95.98S&P
      500 Footwear Index
            
            $
            100.00
            
            
            $
            99.42
            
            
            $
            114.97
            
            
            $
            149.17
            
            
            $
            118.42
            
            
            $
            153.42




16




ITEM 6
            SELECTED
      FINANCIAL DATA





The following selected financial data has been derived from our audited
Consolidated Financial Statements. The Income Statement Data relating to 2009,
2008 and 2007, and the Balance Sheet data as of December 31, 2009 and 2008
should be read in conjunction with the information provided in Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the notes to our Consolidated Financial Statements appearing
elsewhere in this Annual Report on Form 10-K.





INCOME
      STATEMENT DATA
                Year
      Ended December 31,
                (in
      thousands, except per share data)2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Net
      sales
            
            $
            503,550
            
            
            $
            457,046
            
            
            $
            431,050
            
            
            $
            475,163
            
            
            $
            375,786Cost
      of sales
            
            
            287,361
            
            
            
            270,222
            
            
            
            257,646
            
            
            
            276,734
            
            
            
            236,631Gross
      profit
            
            
            216,189
            
            
            
            186,824
            
            
            
            173,404
            
            
            
            198,429
            
            
            
            139,155Commissions
      and licensing fee income - net
            
            
            19,928
            
            
            
            14,294
            
            
            
            18,351
            
            
            
            14,246
            
            
            
            7,119Operating
      expenses
            
            
            (157,149
            )
            
            
            (156,212
            )
            
            
            (138,841
            )
            
            
            (134,377
            )
            
            
            (114,185
            )Impairment
      of goodwill
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (519
            )Income
      from operations
            
            
            78,968
            
            
            
            44,906
            
            
            
            52,914
            
            
            
            78,298
            
            
            
            31,570Interest
      income
            
            
            2,096
            
            
            
            2,620
            
            
            
            3,876
            
            
            
            3,703
            
            
            
            2,554Interest
      expense
            
            
            (93
            )
            
            
            (207
            )
            
            
            (65
            )
            
            
            (100
            )
            
            
            (164
            )Loss
      on sale of marketable securities
            
            
            (182
            )
            
            
            (1,013
            )
            
            
            (589
            )
            
            
            (967
            )
            
            
            (500
            )Income
      before provision for income taxes
            
            
            80,789
            
            
            
            46,306
            
            
            
            56,136
            
            
            
            80,934
            
            
            
            33,460Provision
      for income taxes
            
            
            30,682
            
            
            
            18,330
            
            
            
            20,446
            
            
            
            34,684
            
            
            
            14,260Net
      Income
            
            $
            50,107
            
            
            $
            27,976
            
            
            $
            35,690
            
            
            $
            46,250
            
            
            $
            19,200Basic
      income per share
            
            $
            2.78
            
            
            $
            1.53
            
            
            $
            1.73
            
            
            $
            2.21
            
            
            $
            0.95Diluted
      income per share
            
            $
            2.73
            
            
            $
            1.51
            
            
            $
            1.68
            
            
            $
            2.09
            
            
            $
            0.92Basic
      weighted average shares of common stock
            
            
            18,045
            
            
            
            18,325
            
            
            
            20,647
            
            
            
            20,906
            
            
            
            20,112Effect
      of potential shares of common stock from exercise of
    options
            
            
            278
            
            
            
            194
            
            
            
            645
            
            
            
            1,195
            
            
            
            806Diluted
      weighted average shares of common stock outstanding
            
            
            18,323
            
            
            
            18,519
            
            
            
            21,292
            
            
            
            22,101
            
            
            
            20,918Dividends
      paid per share of common stock
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            0.00
            
            
            $
            1.00
            
            
            $
            0.67





BALANCE
      SHEET DATA
                At
      December 31,2009
            
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005Total
      assets
            
            $
            326,859
            
            
            $
            284,693
            
            
            $
            266,521
            
            
            $
            251,392
            
            
            $
            211,728Working
      capital
            
            
            139,007
            
            
            
            122,086
            
            
            
            121,138
            
            
            
            151,711
            
            
            
            114,066Noncurrent
      liabilities
            
            
            6,710
            
            
            
            5,801
            
            
            
            3,470
            
            
            
            3,136
            
            
            
            2,757Stockholders’
      equity
            
            $
            267,787
            
            
            $
            206,242
            
            
            $
            215,334
            
            
            $
            211,924
            
            
            $
            182,065




17





ITEM 7
            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 our audited Consolidated Financial Statements and
notes thereto appearing elsewhere in this Annual Report on Form
10-K.




Overview


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




Steven
Madden, Ltd. and its subsidiaries (collectively the “Company”) design, source,
market and sell fashion-forward footwear for women, men and children. In
addition, we design, source, market and sell name brand and private label
fashion handbags and accessories, through our Accessories Division. We
distribute products through department and specialty stores, our retail stores
and our e-commerce website throughout the United States and through special
distribution arrangements in Asia, Canada, Europe, Central and South America,
Australia and Africa. 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 accessible price points.




Our
business is comprised of five distinct segments (Wholesale Footwear, Wholesale
Accessories, Retail, First Cost and Licensing). Our Wholesale Footwear segment
includes seven core divisions: Steve Madden Women’s, Steve Madden Men’s, Madden
Girl, Steven, Steve Madden Kids, Elizabeth and James and our international
business. Our Wholesale Accessories segment, through license agreements,
includes Betsey Johnson®, Daisy Fuentes® and Olsenboye® accessories brands.
Steven Madden Retail, Inc., our wholly owned retail subsidiary, operates Steve
Madden and Steven retail stores as well as our e-commerce website. The First
Cost segment represents activities of a subsidiary which earns commissions for
serving as a buying agent for footwear products under private labels and
licensed brands (such as l.e.i.®, Candie’s® and Olsenboye®) for many of the
country’s large mass-market merchandisers, shoe chains and other off-price
retailers. In the Licensing 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, women’s fashion apparel and jewelry.




Prior to
2009, our international business operated under the “first cost” model and,
thus, the revenues derived from our international business were included in
Commissions and Licensing Fees in the Consolidated Statements of Income. In
order to improve operating efficiencies, and to give our international partners
better visibility in the process, as of January of 2009, we have changed the
operating model for our international business to the “wholesale” model. Under
the “wholesale” model, we will be able to manage inventory levels, improve
delivery times, and increase our ability to receive payments on a timely basis.
As a result of this change, commencing with the first quarter of 2009,
international revenues are now included in the Net Sales line in the
Consolidated Statements of Income. For the year ended December 31, 2009, our
international business contributed net sales of $22,055, or 4% of our total net
sales.




Net sales
for the year ended December 31, 2009 also reflect shifts related to our
Candie’s® business, which we distribute exclusively to Kohl’s. Pursuant to an
agreement with Kohl’s, Candie’s® has been transitioned from a wholesale model to
a “first cost” model and, therefore, revenues for 2009 are included in
Commissions and Licensing Fees in the Consolidated Statements of Income. As a
result of this change, net sales for 2009 does not reflect Candies revenue while
net sales for 2008 reflected revenue of $14,308 for the Candie’s®
business.




Fiscal
year 2009 was a record year for Steven Madden, Ltd. Consolidated net sales for
2009 increased to a record $503,550 from $457,046 during 2008. Our gross margin
increased in the year ended December 31, 2009 to 42.9%, 200 basis points greater
than the 40.9% achieved in 2008. Net income increased 79% to a record $50,107 in
2009 from $27,976 in 2008. Diluted earnings per share for the year ended
December 31, 2009 increased 81% to a record $2.73 per share on 18,323,000
diluted weighted average shares outstanding compared to $1.51 per share on
18,519,000 diluted weighted average shares outstanding in 2008. Net cash
provided by operating activities increased to a record $64,342 in 2009 compared
to $41,779 in 2008.




18





We have
expanded our accessories portfolio through two recent acquisitions. On July 8,
2009, we acquired certain assets constituting the Zone 88 and Shakedown Street
(together “Zone 88”) lines of SML Brands, LLC, a subsidiary of Aimee Lynn, Inc,
which designs and markets primarily private label accessories, principally
handbags, for mass merchants and mid-tier retailers. The acquisition was
completed for $1,348 in cash. We believe this acquisition will enable us to
expand our accessories business in the private label arena with value priced
customers. Subsequent to our year-end, on February 10, 2010, the Company
acquired all of the outstanding shares of stock of Big Buddha, Inc. (“Big
Buddha”) from its sole stockholder, Jeremy Bassan. Founded in 2003, Big Buddha
designs and markets fashion-forward handbags to specialty retailers, better
department stores and online retailers. The acquisition was completed for
$11,000 in cash plus potential earn out payments to Mr. Bassan based on
financial performance of Big Buddha through March 31, 2013.




In
September 2009, the Company expanded its brand portfolio by entering into a
license agreement with Dualstar Entertainment Group, LLC, under which the
Company has the right to use the Olsenboye® trademark in connection with the
sale and marketing of footwear and accessories exclusively to J.C. Penney. The
agreement requires the Company to make royalty and advertising payments equal to
a percentage of net sales and a minimum royalty and advertising payment in the
event that specified net sales targets are not achieved. The agreement expires
on December 31, 2011, but is renewable, at our option, for one three-year term,
if certain conditions are met.




In
addition, we made progress on our stated goal to evolve Steve Madden into a
global lifestyle brand by entering into two new license agreements. On October
20, 2009, we signed a license agreement to license our Steve Madden® trademark
for the design, manufacture and worldwide distribution of women’s fashion
apparel. On January 7, 2010, we signed a license agreement to license our Steve
Madden® and Steven by Steve Madden® trademarks for the design, manufacture and
worldwide distribution of women’s fashion jewelry. The new fashion apparel and
jewelry lines, which will initially ship in the spring and fall of 2010,
respectively, join our existing licenses for cold weather accessories,
sunglasses, eyewear, outerwear, bedding and hosiery offerings. Management is
pleased to be expanding the Company’s presence beyond footwear and accessories
and believes the new apparel and jewelry lines mark a very logical extension of
the Company’s brands.




In our
Retail segment, same store sales (sales of those stores, including the
e-commerce website, that were in operation throughout 2009 and 2008) increased
1% in 2009. As of December 31, 2009, we had 89 stores in operation,
compared to 97 stores as of December 31, 2008. During the year ended
December 31, 2009, sales per square foot increased to $640 compared to sales per
square foot of $628 achieved in 2008.




As of
December 31, 2009, our total inventory decreased to $30,453 from $31,597 as of
December 31, 2008, and our annualized inventory turnover improved to 9.8 times
in 2009 compared to 8.1 times in 2008. Our accounts receivable average
collection days improved to 54 days in 2009 compared to 55 days in 2008. As
of December 31, 2009, we had $154,950 in cash, cash equivalents and marketable
securities, no short- or long-term debt, and total stockholders’ equity of
$267,787.




19





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




Years
Ended


December
31


($
in thousands)




2009
            
            
            2008
            
            
            2007CONSOLIDATED:Net
      sales
            
            $
            503,550
            
            100
            %
            
            
            $
            457,046
            
            100
            %
            
            
            $
            431,050
            
            100
            %Cost
      of sales
            
            
            287,361
            
            57
            
            
            
            
            270,222
            
            59
            
            
            
            
            257,646
            
            60Gross
      profit
            
            
            216,189
            
            43
            
            
            
            
            186,824
            
            41
            
            
            
            
            173,404
            
            40Other
      operating income – net of expenses
            
            
            19,928
            
            4
            
            
            
            
            14,294
            
            3
            
            
            
            
            18,351
            
            4Operating
      expenses
            
            
            157,149
            
            31
            
            
            
            
            156,212
            
            34
            
            
            
            
            138,841
            
            32Income
      from operations
            
            
            78,968
            
            16
            
            
            
            
            44,906
            
            10
            
            
            
            
            52,914
            
            12Interest
      and other income – net
            
            
            1,821
            
            —
            
            
            
            
            1,400
            
            —
            
            
            
            
            3,222
            
            1Income
      before income taxes
            
            
            80,789
            
            16
            
            
            
            
            46,306
            
            10
            
            
            
            
            56,136
            
            13Net
      income
            
            
            50,107
            
            10
            
            
            
            
            27,976
            
            6
            
            
            
            
            35,690
            
            8By
      Segment:WHOLESALE SEGMENT:Net
      sales
            
            $
            379,845
            
            100
            %
            
            
            $
            331,407
            
            100
            %
            
            
            $
            310,405
            
            100
            %Cost
      of sales
            
            
            232,932
            
            61
            
            
            
            
            215,026
            
            65
            
            
            
            
            205,584
            
            66Gross
      profit
            
            
            146,913
            
            39
            
            
            
            
            116,381
            
            35
            
            
            
            
            104,821
            
            34Operating
      expenses
            
            
            86,354
            
            23
            
            
            
            
            81,593
            
            25
            
            
            
            
            73,362
            
            24Income
      from operations
            
            
            60,559
            
            16
            
            
            
            
            34,788
            
            10
            
            
            
            
            31,459
            
            10RETAIL SEGMENT:Net
      sales
            
            $
            123,705
            
            100
            %
            
            
            $
            125,639
            
            100
            %
            
            
            $
            120,645
            
            100
            %Cost
      of sales
            
            
            54,429
            
            44
            
            
            
            
            55,196
            
            44
            
            
            
            
            52,062
            
            43Gross
      profit
            
            
            69,276
            
            56
            
            
            
            
            70,443
            
            56
            
            
            
            
            68,583
            
            57Operating
      expenses
            
            
            70,795
            
            57
            
            
            
            
            74,619
            
            59
            
            
            
            
            65,479
            
            54Income
      (loss) from operations
            
            
            (1,519
            )
            (1
            )
            
            
            
            (4,176
            )
            (3
            )
            
            
            
            3,104
            
            3Number
      of stores
            
            
            89
            
            
            
            
            
            
            97
            
            
            
            
            
            
            101FIRST COST SEGMENT:Other
      commission income - net of expenses
            
            $
            16,803
            
            100
            %
            
            
            $
            11,567
            
            100
            %
            
            
            $
            14,674
            
            100
            %LICENSING SEGMENT:Licensing
      income –
      net of expenses
            
            $
            3,125
            
            100
            %
            
            
            $
            2,727
            
            100
            %
            
            
            $
            3,677
            
            100
            %




20


RESULTS
OF OPERATIONS ($
in thousands) 
 Year
Ended December 31, 2009 vs. Year Ended December 31, 2008


Consolidated:




Total net
sales for the year ended December 31, 2009 increased by 10% to $503,550 from
$457,046 for the comparable period of 2008. A net sales increase of 15%
generated by the Wholesale segment was partially offset by a 2% decrease in net
sales generated by the Retail segment. Overall gross profit margin increased to
42.9% for the year ended December 31, 2009 from 40.9% for the prior year. The
increase was primarily due to the increase in the Wholesale segment gross profit
margin to 39% in 2009 compared to 35% in 2008. For the years ended December 31,
2009 and 2008, operating expenses were $157,149 and $156,212, respectively. As a
percentage of net sales, operating expenses decreased to 31% compared to 34% in
2008. Commission and licensing fee income increased to $19,928 for the year
ended December 31, 2009, compared to $14,294 for the prior year. Net income for
2009 was $50,107, compared to $27,976 in 2008.




Wholesale
Segment:




Net sales
generated by the Wholesale segment was $379,845, or 75%, and $331,407, or 73%,
of our total net sales for the years ended December 31, 2009 and 2008,
respectively. All divisions realized an increase in net sales during the year
ended December 31, 2009. The Madden Girl Division led the way by posting a 28%
increase in net sales in 2009. This increase in net sales was the result of a
deeper market penetration and the strong performance of flat shoes and sandals
in the second quarter combined with the strong performance of dress boots and
booties in the second half of the year. Net sales in our Steven Division
increased by 27% in 2009, primarily due to a significant increase in shipments
to the Steven Division’s largest customer Nordstrom, combined with the strong
performance of casual boots during the second half of the year. A 12% increase
in net sales in 2009 by our Steve Madden Women’s Division was driven by the
strong performance of flat sandals and wedges during the spring selling season
and by boots in the third and fourth quarters. A 5% increase in net sales in
2009 in our Wholesale Accessories segment was due to the $9,279 of nets sales
contributed by our new Madden Zone Division (established through our Zone 88
acquisition) combined with an increase in sales of Steve Madden® and Steven by
Steve Madden® handbags that was partially offset by a decrease of net sales of
Betsey Johnson® and Betseyville® handbags. Net sales in 2009 for our Madden
Men’s Division increased 5% primarily due to the strong performance of dress and
casual shoes during the second half of the year. Finally, the Elizabeth and
James Division, our new brand that began shipping in the first quarter of 2009,
contributed net sales of $4,298 in 2009. Net sales for 2009 were also impacted
by the previously mentioned shifts related to our Candies® and international
businesses. The net effect of the shift of our Candies® business from a
“wholesale” model to a “first cost” model, and the reverse shift of our
international business from a “first cost” model to a “wholesale” model, was an
increase of net sales in $7,746 during the year ended December 31,
2009.





Gross
profit margin in the Wholesale segment increased to 39% in 2009 from 35% in the
prior year, primarily due to a decrease in close out sales combined with
improved operating efficiencies. For the year ended December 31, 2009, operating
expenses increased to $86,354 from $81,593 last year, primarily resulting from
an increase in variable costs due to an increase in sales. As a percentage of
net sales, operating expenses decreased to 23% in 2009 from 25% in 2008. As a
result of the increases in net sales and gross margin as offset by higher
operating expenses, income from operations for the Wholesale segment increased
74% to $60,559 in 2009 compared to $34,788 in 2008.





Retail
Segment:




Net sales
generated by the Retail segment accounted for $123,705, or 25%, and $125,639, or
27%, of total Company net sales for the years ended December 31, 2009 and 2008,
respectively. We opened two new stores, remodeled seven existing stores, closed
seven under-performing stores and licensed three stores during the year ended
December 31, 2009. As a result, we had 89 retail stores as of December 31, 2009,
compared to 97 stores as of December 31, 2008. The 89 stores currently in
operation include 84 under the Steve Madden brand, four under the Steven brand
and one e-commerce website. Comparable store sales (sales of those stores,
including the e-commerce website, that were open for all of 2009 and 2008) for
the year ended December 31, 2009 increased 1% when compared to the prior year.
The gross margin in the Retail segment remained at 56% in 2009 and 2008. During
the year ended December 31, 2009, operating expenses decreased to $70,795, or
57% of net sales, from $74,619, or 59% of nets sales, in 2008. This decrease is
due to the reduction of rent, payroll and other operating expenses related to
the net reduction of eight stores during the year ended December 31, 2009, as
well as other operational initiatives put in place.




21





First Cost
Segment:




Income
from operations in the First Cost segment increased 45% to $16,803 in 2009
compared to $11,567 in 2008. The main drivers of the increase were the
growth of our new l.e.i.® brand at Wal-mart, which began shipping in the fourth
quarter of 2008, followed by the shift of our Candies® business to the First
Cost segment. In addition, growth in our private label business with Sears
contributed to this increase in income. These increases were partially offset by
the shift in our international business from the “first cost” model to a
“wholesale” model in 2009.




Licensing
Segment:




During
the year ended December 31, 2009, licensing income increased to $3,125 from
$2,727 last year, primarily due to an increase in sales by several of our
licensees combined with the incremental revenue provided by our new bedding and
bath license.


Year
Ended December 31, 2008 vs. Year Ended December 31, 2007


Consolidated:




Total net
sales for the year ended December 31, 2008 increased by 6% to $457,046 from
$431,050 for the comparable period of 2007. A net sales increase of 7% generated
by the Wholesale segment was complemented by a 4% increase in net sales
generated by the Retail segment. Overall gross profit margin increased to 41%
for the year ended December 31, 2008 from 40% for the prior year. An increase in
the Wholesale gross profit margin to 35% in 2008 compared to 34% in 2007 was
partially offset by a decrease in the Retail gross profit margin to 56% in 2008
from 57% in the same period in the prior year. Operating expenses increased in
2008 to $156,212, or 34% of net sales, from $138,841, or 32% of net sales, in
2007. $4,921 of this increase is due to the charges related to the resignation
of our former Chief Executive Officer and Chairman of the Board (“CEO”) in March
of 2008. Additional expenses associated with our Compo internet business
acquired in the second quarter of the prior year and our new Steve Madden’s Fix
Division, which began shipping product in the fourth quarter of the prior year,
also contributed to the increase in operating expenses. The additional stores in
operation during the first half of 2008 (which ranged from a net of five
additional stores on January 1, 2008 to a net of two additional stores on June
30, 2008) resulted in an increase in payroll, rent and depreciation expenses.
Finally, we recorded $1,325 of charges related to the closing of two stores
prior to the end of their prospective lease terms, net of anticipated revenues
from sub-letting. Commission and licensing fee income decreased to $14,294 for
the year ended December 31, 2008, compared to $18,351 for the prior
year. The decrease was due to the decision of several of our private label
customers to scale back their orders in response to the soft retail environment.
Including the one-time charge of $4,921 related to the resignation of our former
CEO, operating income for the year ended December 31, 2008 was $44,906 compared
to $52,914 in the same period of the prior year. Including the above-mentioned
one-time charge of $4,921 ($3,002 net of tax effect) related to the resignation
of our former CEO, net income for 2008 was $27,976, compared to $35,690 in 2007.
The decrease in net income was primarily due to the decrease in commission and
licensing fee income and the increase in operating expenses.




Wholesale
Segment:




Net sales
generated by the Wholesale segment was $331,407, or 73%, and $310,405, or 72%,
of our total net sales for the years ended December 31, 2008 and 2007,
respectively. The increase in sales was primarily driven by a significant
sales growth in two of our wholesale divisions. In the Madden Girl Division, a
66% increase in net sales was the result of a deeper market penetration and a
strong product performance at retail. A 23% increase in net sales in the
Accessories Division was due to the strong performance of Betsey Johnson®
handbags and net sales increases in Steve Madden® and Steven by Steve Madden®
handbags. In addition, strong boot sales during the second half of 2008 combined
with a decrease in allowances helped our Steven and Steve Madden Women’s
Divisions achieve a 15% and 6% increase in net sales, respectively. Finally, our
two new divisions, Madden Fix, which began shipping product during the fourth
quarter of 2007, and Fabulosity, contributed incremental net sales of $3,171 and
$1,166, respectively, during the year ended December 31, 2008. These net
sales increases were partially offset by net sales decreases in the Steve Madden
Men’s and Steve Madden Kids Divisions. These net sales decreases are primarily
the result of the challenging economic environment. During the second half of
2008, we began to migrate the Candie’s® Division to our commission based First
Cost segment, which caused sales to decrease in the Candie’s®
Division.





22





Gross
profit margin increased to 35% in the year ended December 31, 2008 from 34% in
the prior year, primarily due to a significant decrease in markdown allowances
in the Candie’s® and Steven Divisions. Our Accessories and Steve Madden Women’s
Divisions also experienced a decrease in markdown activity reflective of their
strong sales performance and inventory management during the year. Operating
expenses increased in 2008 to $81,593 compared to $73,362 in the prior year. The
increase is primarily due to the $4,921 of charges related to the resignation of
our former Chief Executive Officer and Chairman of the Board in March of 2008.
An increase in variable selling and selling related expenses reflective of the
increase in sales also contributed to the increase in operating expenses. Income
from operations for the Wholesale segment increased to $34,788 for the year
ended December 31, 2008, compared to $31,459 for the year ended December 31,
2007.




Retail
Segment:




Net sales
generated by the Retail segment accounted for $125,639, or 27%, and $120,645, or
28%, of total Company net sales for the years ended December 31, 2008 and 2007,
respectively. We opened three new stores and closed seven under-performing
stores during the year ended December 31, 2008. As a result, we had 97 retail
stores as of December 31, 2008, compared to 101 stores as of December 31, 2007.
The 97 stores in operation as of December 31, 2008 included 92 under the Steve
Madden brand, four under the Steven brand and one e-commerce
website. Comparable store sales (sales of those stores, including the
e-commerce website, that were open for all of 2008 and 2007) for the year ended
December 31, 2008 were flat when compared to the prior year. The gross
margin in the Retail segment decreased to 56% in 2008 from 57% in 2007 primarily
due to an increase in promotional activity reflective of the challenging
economic environment. During the year ended December 31, 2008, operating
expenses increased to $74,619 from $65,479 in the same period of the prior year.
Several factors contributed to the increase of operating expenses during 2008.
The additional stores in operation during the first half of the year (which
ranged from a net of five additional stores on January 1, 2008 to a net of two
additional stores on June 30, 2008) resulted in an increase in payroll, rent and
depreciation expenses. In addition, a non-cash write-off of unamortized assets
associated with the closing of seven stores added to the increase in operating
expenses. Finally, we recorded $1,325 in charges related to the closing of two
stores prior to the end of their prospective lease terms, net of anticipated
revenues from sub-letting. Loss from operations for the Retail segment was
$(4,176) in 2008 compared to income from operations of $3,104 for
2007.




First Cost
Segment:




The First
Cost segment generated income from operations of $11,567 for the year ended
December 31, 2008, compared to $14,674 for the year ended December 31, 2007. The
decrease was due to the decision of several of our private label customers to
scale back their orders in response to the soft retail environment. The decrease
was partially offset by an increase in our international business.




LIQUIDITY
AND CAPITAL RESOURCES


($
in thousands)




On July
10, 2009, we entered into a collection agency agreement with Rosenthal &
Rosenthal, Inc. (“Rosenthal”) that became effective on September 15, 2009. The
agreement provides us with a credit facility in the amount of $30,000, having a
sub-limit of $15,000 on the aggregate face amount of letters of credit, at an
interest rate based, at our election, upon either the prime rate or LIBOR. The
agreement can be terminated by Rosenthal at any time with 60 days’ prior written
notice, or by us at any time after the expiration of the first contract year
with 60 days’ prior written notice.




23





As of
December 31, 2009, we had working capital of $139,007. We had cash and cash
equivalents of $69,266, investments in marketable securities of $85,684 and we
did not have any long term debt.




Management
believes that, based upon our current financial position and available cash,
cash equivalents and marketable securities, as augmented by cash flow from
operations in 2010, we will meet all of our financial commitments and operating
needs for at least the next twelve months.




OPERATING
ACTIVITIES


($
in thousands)




During
the year ended December 31, 2009, net cash provided by operating activities was
$64,342. The primary sources of cash were net income of $49,567, an increase in
accounts payable and accrued expenses of $10,561 and an increase of accrued
incentive compensation of $4,445. The primary uses of cash were an increase of
accounts receivable of $5,169 and an increase in due from factor of
$15,939.




INVESTING
ACTIVITIES


($
in thousands)




During
the year ended December 31, 2009, we invested $67,265 in marketable securities
and received $17,543 from the maturities and sales of securities. We also
paid $4,526 representing the final earn-out payment payable in connection with
our acquisition of our Daniel M. Friedman Division and paid $1,348 as part of
the acquisition cost of Zone 88. Additionally, we made capital expenditures of
$3,399, principally for the remodeling of seven existing stores, the two
new stores opened during the fiscal year 2009, leasehold improvements to
our corporate office space and enhancements to operating systems.




FINANCING
ACTIVITIES


($
in thousands)




During
the year ended December 31, 2009, we repaid advances from our factor totaling
$30,168. We also received $3,904 in cash and realized a tax benefit of $497
in connection with the exercise of stock options.




CONTRACTUAL
OBLIGATIONS


($
in thousands)




Our
contractual obligations as of December 31, 2009 were as follows:


Payment
      due by periodContractual
      Obligations
            
            Total
            
            
            2010
            
            
            
            2011-2012
            
            
            
            2013-2014
            
            
            2015
      andafterOperating
      lease obligations
            
            $
            104,422
            
            
            $
            16,824
            
            
            $
            31,635
            
            
            $
            25,139
            
            
            $
            30,824Purchase
      obligations
            
            
            58,642
            
            
            
            58,642
            
            
            
            0
            
            
            
            0
            
            
            
            0Other
      long-term liabilities (future minimum royalty payments)
            
            
            8,062
            
            
            
            2,788
            
            
            
            4,374
            
            
            
            900
            
            
            
            0Total
            
            $
            171,126
            
            
            $
            78,254
            
            
            $
            36,009
            
            
            $
            26,039
            
            
            $
            30,824




24





At
December 31, 2009, we had un-negotiated open letters of credit for the purchase
of inventory of approximately $3,050.




The
Company has an employment agreement with Steven Madden, our founder and Creative
and Design Chief, which provides for an annual base salary of $600 subject to
certain specified adjustments through December 31, 2019. The agreement also
provides for annual bonuses based on EBITDA, revenue of any new business, and
royalty income over $2 million, plus an equity grant and a non-accountable
expense allowance.




In
addition, we have employment agreements with certain executive officers, which
provide for the payment of compensation aggregating approximately $4,379 in
2010, $2,334 in 2011 and $1,503 in 2012. In addition, some of the employment
agreements provide for a discretionary bonus and some provide for incentive
compensation based on various performance criteria as well as other benefits
including stock options. Our Chief Operating Officer is entitled to deferred
compensation calculated as a percentage of his base salary.








Virtually
all of our products are produced at overseas locations, the majority of which
are located in China, with a small percentage located in Mexico, Brazil, Italy,
Spain and India. We have not entered into any long-term manufacturing or supply
contracts with any of these foreign companies. 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 99% of our
purchases in U.S. dollars.




INFLATION




We do not
believe that the inflation experienced over the last few years in the United
Sates, where we primarily compete, has had a significant effect on the Company’s
sales or profitability. Historically, we have minimalized the impact of product
cost increases by improving operating efficiencies, changing suppliers and
increasing prices. However, no assurance can be given that we will be able to
offset 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 Consolidated Financial Statements included in this Annual Report
on Form 10-K, which have been prepared in accordance with generally accepted
accounting principles (“GAAP”) 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. 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 Consolidated Financial Statements: allowance for
bad debts, returns and customer chargebacks; inventory valuation; valuation of
intangible assets; litigation reserves and cost of sales.




Allowances for bad debts, returns
and customer chargebacks. We provide reserves against our 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 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 key account executives and the Vice President of Wholesale Sales 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.




25





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 economy, 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. 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 goodwill 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 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 the
contingent liability could materially impact our results of operation and
financial position.




Cost of sales. All costs
incurred to bring finished products to our distribution center and, in the
Retail segment, the costs to bring products to our stores, are included in the
cost of sales line on the Consolidated Statement of Income. These include the
cost of finished products, purchase commissions, letter of credit fees,
brokerage fees, sample expenses, customs duties, inbound freight, royalty
payments on licensed products, labels and product packaging. All warehouse and
distribution costs related to the Wholesale segment and freight to customers, if
any, are included in the operating expenses line item of our Consolidated
Statements of Income. Our gross margins may not be comparable to other companies
in the industry because some companies may include warehouse and distribution
costs as a component of cost of sales, while other companies report on the same
basis as we do and include them in operating expenses.




Accounting
Standards Adopted In Fiscal 2009:




Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC” or the “Codification”) 105-10,
“Generally Accepted Accounting Principles” (“ASC 105-10”). ASC 105-10
establishes the Accounting Standards Codification as the source of authoritative
generally accepted accounting principles in the United States of America
(“GAAP”) recognized by the FASB to be applied by non-governmental entities in
the preparation of financial statements. Rules and interpretive releases of the
Securities and Exchange Commission (“SEC”) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. The FASB will
no longer issue standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts; instead, the FASB will issue Accounting
Standards Updates (“ASU”). The Codification did not affect the accounting
policies followed by the Company.




26





Effective
January 1, 2009, the Company adopted ASC 805-10, “Business Combinations” (“ASC
805-10”). Under ASC 805-10, an acquiring entity is required to recognize all the
assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value. ASC 805-10 establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. This statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial
effects of the business combination. The adoption of ASC 805-10 did not have a
material impact on our Consolidated Financial Statements.





Effective
January 1, 2009, the Company adopted ASC 810-10, “Consolidation” (“ASC 810-10”).
ASC 810-10 establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a
non-controlling interest (minority interest) as equity in the Consolidated
Financial Statements and separate from the parent’s equity. The amount of net
income attributable to the noncontrolling interest is required to be included in
consolidated net income on the face of the income statement. ASC 810-10
clarifies that changes in a parent’s ownership interest in a subsidiary that do
not result in deconsolidation are equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. ASC 810-10 also
includes expanded disclosure requirements regarding the interests of the parent
and its non-controlling interest. The adoption of ASC 810-10 had no material
impact on our Consolidated Financial Statements.





The
Company adopted the provisions of ASC 350-30, “General Intangibles Other Than
Goodwill” (“ASC 350-30”) on January 1, 2009. ASC 350-30 specifies the factors to
be considered in developing renewal or extension assumptions used to determine
the useful life of intangible assets. Its intent is to improve the consistency
between the useful life of an intangible asset and the period of expected cash
flows used to measure its fair value. The adoption of ASC 350-30 had no material
impact on our Consolidated Financial Statements.





In May
2009, the FASB amended ASC 855, “Subsequent Events” (“ASC855”), effective for
reporting periods ending after June 15, 2009, to establish general standards of
accounting for and disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. The
adoption of the amendment did not have a material impact on the Company’s
Consolidated Financial Statements.





In August
of 2009, the FASB issued ASU 2009-5, an update to Topic ASC 820, “Fair Value
Measurements and Disclosures”. This update provides amendments to reduce
potential ambiguity in financial reporting when measuring the fair value of
liabilities. Among other provisions, this update provides clarification in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the valuation techniques described in ASU 2009-5. ASU
2009-5 became effective October 1, 2009. The adoption of ASU 2009-5 had no
impact on our Consolidated Financial Statements.




ITEM 7A
            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. An analysis of our collection
agency agreement with Rosenthal can be found in the “Liquidity and Capital
Resources” section under Part II, Item 7, and in Note C, “Due From Factors” to
the Consolidated Financial Statements included in this Annual Report on Form
10-K.




As of
December 31, 2009, we held marketable securities valued at $85,684, which
consist primarily of corporate and U.S. government and federal agency bonds.
These securities are subject to interest rate risk and will decrease in value if
interest rates increase. We currently have the ability to hold these securities
until maturity. In addition, any decline in interest rates would be expected to
reduce our interest income.




27




ITEM 8
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA




The
information required by this Item is incorporated herein by reference to the
Consolidated Financial Statements listed in response to Item 15 of Part IV of
this Annual Report on Form 10-K.




ITEM 9
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




None.




ITEM 9A
            CONTROLS
      AND PROCEDURES




Disclosure
Controls and Procedures




As
required by Rule 13a-15(b) of 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 year covered by this Annual Report on Form 10-K. 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 effective as of the end of the fiscal
year covered by this Annual Report on Form 10-K.




Management’s
Annual Report on Internal Control Over Financial Reporting




Management
of Steven Madden, Ltd. is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) of the
Exchange Act).





Our
internal control over financial reporting is a process designed by, or under the
supervision of, our principal executive officer and principal financial officer,
and effected by the board of directors, management, and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles. Our internal control over
financial reporting includes those policies and procedures that (1) pertain to
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of our assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. generally accepted accounting
principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a material effect
on the financial statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




With the
participation of the Chief Executive Officer and the Chief Financial Officer,
our management conducted an evaluation of the effectiveness as of the end of our
fiscal year ended December 31, 2009, of our internal control over financial
reporting based on the framework and criteria established in Internal
Control–Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation our
management has concluded that, as of December 31, 2009, our internal control
over financial reporting was effective.




The
independent registered public accounting firm that audited the financial
statements included in this Annual Report on Form 10-K has issued an attestation
report on our internal control over financial reporting.





28





Attestation
Report of our Independent Registered Public Accounting Firm





Our
Independent Registered Public Accounting Firm, Eisner LLP, has audited and
issued a report on our internal control over financial reporting. The report of
Eisner LLP appears below.





To the
Board of Directors and Stockholders


Steven
Madden, Ltd. and subsidiaries





We have
audited Steven Madden, Ltd. and subsidiaries’ (the “Company”) internal control
over financial reporting as of December 31, 2009, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). The Company’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our
audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.





A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





In our
opinion, Steven Madden, Ltd. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control - Integrated Framework
issued by COSO.





We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Steven
Madden, Ltd. and subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of income, changes in stockholders’ equity and cash
flows for each of the years in the three-year period ended December 31, 2009,
and our report dated March 11, 2010 expressed an unqualified opinion on those
consolidated financial statements and included an explanatory paragraph
regarding the adoption of the provisions of the accounting guidance relating to
the uncertainty in income taxes, effective January 1, 2007.





/S/ Eisner LLP


New York, New York


March 11,


29





Changes
in Internal Control Over Financial Reporting




There was
no change in our internal control over financial reporting, identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15 of the
Exchange Act, that occurred during the fiscal quarter ended December 31, 2009,
which has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.




ITEM 9B
            OTHER
      INFORMATION




None.




PART III




ITEM 10
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




The
information required to be furnished pursuant to this Item will be set forth in
our proxy statement for the 2010 Annual Meeting of Stockholders, and is
incorporated herein by reference.




ITEM 11
            EXECUTIVE
      COMPENSATION




The
information required to be furnished pursuant to this Item will be set forth in
our proxy statement for the 2010 Annual Meeting of Stockholders, and is
incorporated herein by reference.




ITEM 12
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




The
information required to be furnished pursuant to this Item will be set forth in
our proxy statement for the 2010 Annual Meeting of Stockholders, and is
incorporated herein by reference.




ITEM 13
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE




The
information required to be furnished pursuant to this Item will be set forth in
our proxy statement for the 2010 Annual Meeting of Stockholders, and is
incorporated herein by reference.




ITEM 14
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES




The
information required to be furnished pursuant to this Item will be set forth in
our proxy statement for the 2010 Annual Meeting of Stockholders, and is
incorporated herein by reference.




30





PART IV




ITEM 15
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES




(a)(1)
Financial Statements


The
Consolidated Financial Statements of Steven Madden, Ltd. and subsidiaries are
included in Item 8:




Report
      of Independent Registered Public Accounting Firm
              
              F-1Balance
      sheets as of December 31, 2009 and 2008
              
              F-2Statements
      of income for the years ended December 31, 2009, 2008 and
    2007
              
              F-3Statements
      of changes in stockholders’ equity for the years ended December 31, 2009,
      2008 and 2007
              
              F-4Statements
      of cash flows for the years ended December 31, 2009, 2008 and
      2007
              
              F-6Notes
      to financial statements
              
              F-7




(2)
Financial Statement Schedules




None.




(3)
Exhibits.





3.01
              
              Certificate
      of Incorporation of Steven Madden, Ltd. (incorporated by reference to
      Exhibit 1 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on November 23,
  1998).3.02
              
              Amended
      & Restated By-Laws of Steven Madden, Ltd. (incorporated by reference
      to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on March 28, 2008).4.01
              
              Specimen
      Certificate for shares of Common Stock (incorporated by reference to
      Exhibit 4.1 to the Company’s Registration Statement on Form SB-2/A filed
      with the Securities and Exchange Commission on September 29,
      1993).4.02
              
              Rights
      Agreement dated November 14, 2001 between the Company and American Stock
      Transfer and Trust Company (incorporated by reference to Exhibit 4.1 to
      the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on November 16, 2001).10.01
              
              Amended
      and Restated Secured Promissory Note dated December 19, 2007 of Steven
      Madden to the Company (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on May 12, 2008).10.02
              
              Second
      Amended and Restated Secured Promissory Note dated April 6, 2009 of Steven
      Madden to the Company (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on April 10, 2009.10.03
              
              Consulting
      Agreement effective August 1, 2004 among the Company, John Madden and
      J.L.M. Consultants Inc., as amended by Amendment No. 1 dated March 10,
      2005 and Amendment No. 2 dated April 14, 2005 (incorporated by reference
      to Exhibits 10.9, 10.10 and 10.11 to the Company’s Annual Report on Form
      10-K for its fiscal year ended December 31, 2005 filed with the Securities
      and Exchange Commission on March 14, 2006).10.04
              
              Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and the Company (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 16, 2009).   31
  10.05
              
              Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and Daniel Friedman & Associates, Inc. (incorporated by reference
      to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on July 16, 2009).10.06
              
              Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and Diva Acquisition Corp. (incorporated by reference to Exhibit 10.3
      to the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 16, 2009).10.07
              
              Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and Steven Madden Retail, Inc. (incorporated by reference to Exhibit
      10.4 to the Company’s Current Report on Form 8-K filed with the Securities
      and Exchange Commission on July 16, 2009).10.08
              
              Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and Stevies, Inc. (incorporated by reference to Exhibit 10.5 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 16, 2009).10.09
              
              Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and SML Acquisition Corp. (incorporated by reference to Exhibit 10.6
      to the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 16, 2009).10.10
              
              Amendment
      to Collection Agency Agreement dated February 16, 2010 between Rosenthal
      & Rosenthal, Inc. and the Company. †10.11
              
              Letter
      Agreement dated July 10, 2009 among Rosenthal & Rosenthal, Inc., the
      Company, Daniel Friedman & Associates, Inc., Diva Acquisition Corp.,
      Steven Madden Retail, Inc., Stevies, Inc., and SML Acquisition Corp.
      (incorporated by reference to Exhibit 10.7 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on July 16,
      2009).10.12
              
              Guarantee
      dated July 10, 2009 of the Company, Daniel Friedman & Associates,
      Inc., Diva Acquisition Corp., Steven Madden Retail, Inc., Stevies, Inc.,
      and SML Acquisition Corp. in favor of Rosenthal & Rosenthal, Inc.
      (incorporated by reference to Exhibit 10.8 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on July 16,
      2009).10.13
              
              Stock
      Purchase Agreement dated February 10, 2010 between the Company and Jeremy
      Bassan (incorporated by reference to Exhibit 10.1 to the Company’s Current
      Report on Form 8-K filed with the Securities and Exchange Commission on
      February 11, 2010).10.14
              
              Earn-Out
      Agreement dated February 10, 2010 among the Company, Jeremy Bassan and Big
      Buddha, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on February 11, 2010).10.15
              
              Third
      Amended Employment Agreement dated July 15, 2005 between the Company and
      Steven Madden (incorporated by reference to Exhibit 10.1 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on July 20, 2005).#10.16
              
              Amendment
      dated December 14, 2009 to Third Amended Employment Agreement between the
      Company and Steven Madden (incorporated by reference to Exhibit 10.1 to
      the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on December 17, 2009).#10.17
              
              Employment
      Agreement dated January 1, 1998 between the Company and Arvind Dharia
      (incorporated by reference to Exhibit 10.07 to the Company’s Annual Report
      on Form 10-K for its fiscal year ended December 31, 2000 filed with the
      Securities and Exchange Commission on March 30, 2001.#10.18
              
              Amendment
      No. 1 dated June 29, 2001 to Employment Agreement between the Company and
      Arvind Dharia (incorporated by reference to Exhibit 99.4 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2001
      filed August 14, 2001.#10.19
              
              Amendment
      No. 2 dated October 30, 2002 to Employment Agreement between the Company
      and Arvind Dharia (incorporated by reference to Exhibit 10.16 to the
      Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended
      September 30, 2002 filed with the Securities and Exchange Commission on
      November 14, 2002.#  32
  10.20
              
              Amendment
      No. 3 dated February 1, 2006 to Employment Agreement between the Company
      and Arvind Dharia (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on February 3, 2006).#10.21
              
              Amendment
      No. 4 dated October 7, 2009 to Employment Agreement of Arvind Dharia
      between the Company and Arvind Dharia (incorporated by reference to
      Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on October 13, 2009).#10.22
              
              Employment
      Agreement dated June 15, 2005 between the Company and Awadhesh Sinha
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on June 21,
      2005).#10.23
              
              Amendment
      No. 1 dated November 6, 2007 to Employment Agreement between the Company
      and Awadhesh Sinha (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on November 6, 2007).#10.24
              
              Amendment
      No. 2 dated October 14, 2008 and effective October 1, 2008 to Employment
      Agreement between the Company and Awadhesh Sinha (incorporated by
      reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
      filed with the Securities and Exchange Commission on October 20,
      2008).#10.25
              
              Employment
      Agreement dated October 7, 2009 between the Company and Robert Schmertz
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on October
      13, 2009).#10.26
              
              Employment
      Agreement effective as of April 29, 2008 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 Securities and Exchange
      Commission on May 5, 2008).#10.27
              
              Employment
      Agreement dated April 7, 2008 between the Company and Edward Rosenfeld
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on April 11,
      2008).#10.28
              
              Employment
      Agreement dated November 6, 2009 between the Company and Edward R.
      Rosenfeld (incorporated by reference to Exhibit 10.1 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on November 10, 2009).#10.29
              
              Amendment
      No. 1 dated March 8, 2010 to Employment Agreement between the Company and
      Edward R. Rosenfeld. †#10.30
              
              Letter
      Agreement dated March 27, 2008 between the Company and Walter Yetnikoff
      (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended March 31, 2008 filed with
      the Securities and Exchange Commission on May 12, 2008).#10.31
              
              Employment
      Agreement dated May 16, 2007 between the Company and Jeffrey Silverman
      (incorporated by reference to Exhibit 10.3 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on May 18,
      2007).#10.32
              
              Amendment
      to Employment Agreement dated as of December 21 2007 between the Company
      and Jeffrey Silverman (incorporated by reference to Exhibit 10.3 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on December 21, 2007).#10.33
              
              Settlement
      and Release Agreement dated December 21, 2007 between the Company and
      Jeffrey Silverman (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on December 21, 2007).10.34
              
              Termination
      Agreement dated as of April 11, 2008 between the Company and Jeffrey
      Silverman (incorporated by reference to Exhibit 10.1 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on April 15, 2008).  33
  10.35
              
              The
      1999 Stock Plan, approved and adopted on March 15, 1999, amended as of
      March 20, 2000 and March 30, 2001 (incorporated by reference to Exhibit
      10.A to the Company’s Registration Statement on Form S-8 filed with the
      Securities and Exchange Commission on July 26, 2004).#10.36
              
              2006
      Stock Incentive Plan (Amended and Restated Effective May 22, 2009),
      approved and adopted on May 22, 2009 (incorporated by reference to Exhibit
      10.1 to the Company’s Current Report on Form 8-K filed with the Securities
      and Exchange Commission on May 28, 2009.#10.37
              
              Form
      of Non-Qualified Stock Option Agreement (Chief Executive Officer) under
      the Company’s 2006 Stock Incentive Plan, as amended, as adopted October
      30, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.38
              
              Form
      of Non-Qualified Stock Option Agreement (Employee without Employment
      Agreement) under the Company’s 2006 Stock Incentive Plan, as adopted
      October 30, 2007 (incorporated by reference to Exhibit 10.3 to the
      Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended
      September 30, 2007 filed with the Securities and Exchange Commission on
      November 9, 2007).#10.39
              
              Form
      of Non-Qualified Stock Option Agreement (Employee with Employment
      Agreement) under the Company’s 2006 Stock Incentive Plan, as adopted
      October 30, 2007 (incorporated by reference to Exhibit 10.4 to the
      Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended
      September 30, 2007 filed with the Securities and Exchange Commission on
      November 9, 2007).#10.40
              
              Form
      of Restricted Stock Agreement (Chief Executive Officer) under the
      Company’s 2006 Stock Incentive Plan, as adopted October 30, 2007
      (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.41
              
              Form
      of Restricted Stock Agreement (Employee without Employment Agreement)
      under the Company’s 2006 Stock Incentive Plan, as adopted October 30, 2007
      (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.42
              
              Form
      of Restricted Stock Agreement (Employee with Employment Agreement) under
      the Company’s 2006 Stock Incentive Plan, as adopted October 30, 2007
      (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.43
              
              Form
      of Restricted Stock Agreement under the Company’s 2006 Stock Incentive
      Plan used for grants made to non- employee directors from March 2006
      through May 2007, with a schedule setting forth the name of each of the
      recipients, the date of the grant and the number of shares (incorporated
      by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form
      10-Q for its fiscal quarter ended September 30, 2007 filed with the
      Securities and Exchange Commission on November 9, 2007).#10.44
              
              Restricted
      Stock Agreement dated March 24, 2006 between Steven Madden and the Company
      (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.45
              
              Restricted
      Stock Agreement dated June 9, 2006 between Steven Madden and the Company
      (incorporated by reference to Exhibit 10.13 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.46
              
              Restricted
      Stock Agreement dated March 24, 2006 between Arvind Dharia and the Company
      (incorporated by reference to Exhibit 10.14 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#  34
  10.47
              
              Restricted
      Stock Agreement dated March 20, 2006 between Amelia Newton Varela and the
      Company (incorporated by reference to Exhibit 10.15 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.48
              
              Restricted
      Stock Agreement dated March 20, 2006 between Robert Schmertz and the
      Company (incorporated by reference to Exhibit 10.16 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.49
              
              Restricted
      Stock Agreement dated March 6, 2007 between Arvind Dharia and the Company
      (incorporated by reference to Exhibit 10.17 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.50
              
              Restricted
      Stock Agreement dated March 9, 2007 between Robert Schmertz and the
      Company (incorporated by reference to Exhibit 10.18 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.51
              
              Restricted
      Stock Agreement dated April 25, 2007 between Awadhesh Sinha and the
      Company (incorporated by reference to Exhibit 10.19 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.52
              
              Non-Qualified
      Stock Option Agreement dated May 16, 2007 between Jeffrey Silverman and
      the Company (incorporated by reference to Exhibit 10.20 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.53
              
              Non-Qualified
      Stock Option Agreement dated May 16, 2007 between Jeffrey Silverman and
      the Company (incorporated by reference to Exhibit 10.21 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#21.01
              
              Subsidiaries
      of the Registrant†23.01
              
              Consent
      of Eisner LLP†24.01
              
              Power
      of Attorney (included on signature page hereto)31.01
              
              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.†31.02
              
              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.†32.01
              
              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.†32.02
              
              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.†  †
              Filed
      herewith.#
              Indicates
      management contract or compensatory plan or arrangement required to be
      identified pursuant to Item 15(b) of this Annual Report on Form
      10-K.




35




SIGNATURES




Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.




Dated:
            New
      York, New York

                March
      12, 2010






STEVEN
      MADDEN, LTD.By:
              /S/
      EDWARD R. ROSENFELDEdward
      R. RosenfeldChairman
      and Chief Executive OfficerBy:
              /S/
      ARVIND DHARIAArvind
      DhariaChief
      Financial Officer





POWER
OF ATTORNEY




KNOW ALL
PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and appoints
Edward R. Rosenfeld and Arvind Dharia, and each of them, as attorneys-in-fact
and agents, with full power of substitute and resubstitution, for and in the
name, place and stead of the undersigned, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-K, and to file the same,
with all exhibits thereto and all other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that each of said attorney-in-fact or substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.




36




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.




Signature
            
            Title
            
            Date/S/ EDWARD R. ROSENFELD
            
            Chairman,
      Chief Executive Officer and Director
            
            March
      12, 2010Edward
      R. Rosenfeld/S/ ARVIND DHARIA
            
            Chief
      Financial Officer
            
            March
      12, 2010Arvind
      Dharia/S/ JOHN L. MADDEN
            
            Director
            
            March
      12, 2010John
      L. Madden/S/ PETER MIGLIORINI
            
            Director
            
            March
      12, 2010Peter
      Migliorini/S/ RICHARD P. RANDALL
            
            Director
            
            March
      12, 2010Richard
      P. Randall/S/ RAVI SACHDEV
            
            Director
            
            March
      12, 2010Ravi
      Sachdev/S/ THOMAS H. SCHWARTZ
            
            Director
            
            March
      12, 2010





37




STEVEN
MADDEN, LTD.




INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS




Report of Independent Registered Public Accounting
      Firm
            
            F-1Balance sheets as of December 31, 2009 and
      2008
            
            F-2Statements of income for the years ended December 31, 2009,
      2008 and 2007
            
            F-3Statements of changes in stockholders’ equity for the years
      ended December 31, 2009, 2008 and 2007
            
            F-4Statements of cash flows for the years ended December 31,
      2009, 2008 and 2007
            
            F-6Notes to financial statements
            
            F-7




38





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM




To the
Board of Directors and Stockholders


Steven
Madden, Ltd. and subsidiaries




We have
audited the accompanying consolidated balance sheets of Steven Madden, Ltd. and
subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of income, changes in stockholders’ equity and cash
flows for each of the years in the three-year period ended December 31, 2009.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Steven Madden, Ltd.
and subsidiaries as of December 31, 2009 and 2008, and the consolidated results
of their operations and their consolidated cash flows for each of the years in
the three-year period ended December 31, 2009 in conformity with accounting
principles generally accepted in the United States of America.




As
discussed in Note A to the consolidated financial statements, the Company
adopted the provisions of the accounting guidance relating to the uncertainty in
income taxes, effective January 1, 2007.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Steven Madden, Ltd. and subsidiaries’ internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report
dated March 11, 2010 expressed an unqualified opinion on the Company’s internal
control over financial reporting.




/S/ Eisner LLP
 New York, New York
 March 11,




F -
1





STEVEN
MADDEN, LTD. AND SUBSIDIARIES


Consolidated Balance Sheets


(in
thousands, except per share data)




December
      31,2009
            
            
            2008ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            69,266
            
            
            $
            89,588Accounts
      receivable - net of allowances of $1,195 and $1,530
            
            
            11,071
            
            
            
            5,567Due
      from factors - net of allowances of $12,487 and $9,771
            
            
            47,534
            
            
            
            34,311Note
      receivable – related party
            
            
            —
            
            
            
            3,370Inventories
      - net
            
            
            30,453
            
            
            
            31,597Marketable
      securities - available for sale
            
            
            17,971
            
            
            
            14,609Prepaid
      expenses and other current assets
            
            
            6,295
            
            
            
            5,645Prepaid
      taxes
            
            
            —
            
            
            
            2,069Deferred
      taxes
            
            
            8,779
            
            
            
            7,980Total
      current assets
            
            
            191,369
            
            
            
            194,736Note
      receivable – related party
            
            
            3,568
            
            
            
            —Property
      and equipment, net
            
            
            23,793
            
            
            
            28,209Deferred
      taxes
            
            
            7,543
            
            
            
            7,112Deposits
      and other
            
            
            1,844
            
            
            
            2,260Marketable
      securities - available for sale
            
            
            67,713
            
            
            
            20,615Goodwill
      - net
            
            
            24,313
            
            
            
            23,574Intangibles
      - net
            
            
            6,716
            
            
            
            8,187Total
    assets
            
            $
            326,859
            
            
            $
            284,693LIABILITIESCurrent
      liabilities:Advances
      payable - factor
            
            $
            —
            
            
            $
            30,168Accounts
      payable
            
            
            24,544
            
            
            
            18,018Accrued
      expenses
            
            
            15,338
            
            
            
            16,595Income
      taxes payable
            
            
            166
            
            
            
            —Accrued
      incentive compensation
            
            
            12,314
            
            
            
            7,869Total
      current liabilities
            
            
            52,362
            
            
            
            72,650Deferred
      rent
            
            
            5,044
            
            
            
            4,773Other
      liabilities
            
            
            1,666
            
            
            
            1,028Total
      liabilities
            
            
            59,072
            
            
            
            78,451Commitments,
      contingencies and other – (notes J & L)STOCKHOLDERS’
      EQUITYPreferred
      stock - $.0001 par value, 5,000 shares authorized; none issued; Series A
      Junior Participating preferred stock - $.0001 par value, 60 shares
      authorized; none issuedCommon
      stock - $.0001 par value, 90,000 shares authorized, 26,545 and 26,135
      shares issued, 18,283 and 17,873 shares outstanding at December 31, 2009
      and 2008, respectively
            
            
            3
            
            
            
            3Additional
      paid-in capital
            
            
            147,703
            
            
            
            137,362Retained
      earnings
            
            
            247,365
            
            
            
            197,257Other
      comprehensive income (loss):Unrealized
      gain (loss) on marketable securities (net of taxes)
            
            
            700
            
            
            
            (396
            )Treasury
      stock – 8,262 and 8,262 shares at cost at December 31, 2009 and 2008,
      respectively
            
            
            (127,984
            )
            
            
            (127,984
            )Total
      stockholders’ equity
            
            
            267,787
            
            
            
            206,242Total
      liabilities and stockholders’ equity
            
            $
            326,859
            
            
            $
            284,693




See
notes to consolidated financial statements




F -
2





STEVEN
MADDEN, LTD. AND SUBSIDIARIES




Consolidated Statements of Income


(in
thousands, except per share data)


Years
      Ended December 31,2009
            
            
            2008
            
            
            2007Net
      sales
            
            $
            503,550
            
            
            $
            457,046
            
            
            $
            431,050Cost
      of sales
            
            
            287,361
            
            
            
            270,222
            
            
            
            257,646Gross
      profit
            
            
            216,189
            
            
            
            186,824
            
            
            
            173,404Commission
      and licensing fee income – net
            
            
            19,928
            
            
            
            14,294
            
            
            
            18,351Operating
      expenses
            
            
            (157,149
            )
            
            
            (156,212
            )
            
            
            (138,841
            )Income
      before other income (expenses) and provision for income
    taxes
            
            
            78,968
            
            
            
            44,906
            
            
            
            52,914Other
      income (expenses):Interest
      income
            
            
            2,096
            
            
            
            2,620
            
            
            
            3,876Interest
      expense
            
            
            (93
            )
            
            
            (207
            )
            
            
            (65
            )Loss
      on sale of marketable securities
            
            
            (182
            )
            
            
            (1,013
            )
            
            
            (589
            )Income
      before provision for income taxes
            
            
            80,789
            
            
            
            46,306
            
            
            
            56,136Provision
      for income taxes
            
            
            30,682
            
            
            
            18,330
            
            
            
            20,446Net
      income
            
            $
            50,107
            
            
            $
            27,976
            
            
            $
            35,690Basic
      income per share
            
            $
            2.78
            
            
            $
            1.53
            
            
            $
            1.73Diluted
      income per share
            
            $
            2.73
            
            
            $
            1.51
            
            
            $
            1.68Basic
      weighted average shares of common stock outstanding
            
            
            18,045
            
            
            
            18,325
            
            
            
            20,647Effect
      of dilutive securities – options and restricted stock
            
            
            278
            
            
            
            194
            
            
            
            645Diluted
      weighted average shares of common stock outstanding
            
            
            18,323
            
            
            
            18,519
            
            
            
            21,292




See
notes to consolidated financial statements




F -
3


STEVEN
MADDEN, LTD. AND SUBSIDIARIES




Consolidated Statements of Changes in Stockholders’
Equity


(in
thousands)




Common
      Stock
            
            
            Additional
              Paid-in
            
            
            RetainedShares
            
            
            Amount
            
            
            Capital
            
            
            EarningsBalance - December 31,
    2006
            
            $
            24,806
            
            
            $
            2
            
            
            $
            112,692
            
            
            $
            133,561Exercise
      of stock options
            
            
            863
            
            
            
            1
            
            
            
            5,607Tax
      benefit from exercise of options
            
            
            
            
            
            
            
            
            
            
            7,180Issuance
      of fully vested restricted stock
            
            
            111Stock-based
      compensation
            
            
            
            
            
            
            
            
            
            
            4,434Unrealized
      holding gain on marketable securities (net of taxes of
    $426)Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            35,690Comprehensive
      incomeForfeiture
      of accrued dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12Common
      stock purchased for treasuryBalance
      - December 31, 2007
            
            
            25,780
            
            
            
            3
            
            
            
            129,913
            
            
            
            169,263Exercise
      of stock options
            
            
            171
            
            
            
            
            
            
            
            2,051Tax
      expense from stock based compensation
            
            
            
            
            
            
            
            
            
            
            (258
            )Issuance
      of fully vested restricted stock
            
            
            184Stock-based
      compensation
            
            
            
            
            
            
            
            
            
            
            5,656Unrealized
      holding loss on marketable securities (net of tax benefits of
      $253)Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            27,976Comprehensive
      incomeForfeiture
      of accrued dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            18Common
      stock purchased for treasuryBalance
      - December 31, 2008
            
            
            26,135
            
            
            
            3
            
            
            
            137,362
            
            
            
            197,257Exercise
      of stock options
            
            
            264
            
            
            
            
            
            
            
            3,904Tax
      benefit from exercise of options
            
            
            
            
            
            
            
            
            
            
            497Issuance
      of fully vested restricted stock
            
            
            146Stock-based
      compensation
            
            
            
            
            
            
            
            
            
            
            5,940Unrealized
      holding gain on marketable securities (net of taxes of
    $698)Net
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            50,107Comprehensive
      incomeForfeiture
      of accrued dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1Balance
      - December 31, 2009
            
            
            26,545
            
            
            $
            3
            
            
            $
            147,703
            
            
            $
            247,365




See notes to consolidated financial
statements




F -
4




STEVEN MADDEN, LTD. AND SUBSIDIARIES




Consolidated
Statements of Changes in Stockholders’ Equity (Continued)


(in
thousands)




Accumulated
                Other
      Comprehensive
              
              
              Treasury
      Stock
              
              
              Total
                Stockholders’
              
              
              ComprehensiveGain
      (Loss)
              
              
              Shares
              
              
              Amount
              
              
              Equity
              
              
              IncomeBalance
      - December 31, 2006
              
              $
              (641
              )
              
              
              3,700
              
              
              $
              (33,690
              )
              
              $
              211,924Exercise
      of stock options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,608Tax
      benefit from exercise of options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              7,180Issuance
      of fully vested restricted stockStock-based
      compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,434Unrealized
      holding gain on marketable securities (net of taxes of
    $426)
              
              
              580
              
              
              
              
              
              
              
              
              
              
              
              580
              
              
              
              580Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              35,690
              
              
              
              35,690Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              36,270Forfeiture
      of accrued dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12Common
      stock purchased for treasury
              
              
              
              
              
              
              1,962
              
              
              
              (50,094
              )
              
              
              (50,094
              )Balance
      - December 31, 2007
              
              
              (61
              )
              
              
              5,662
              
              
              
              (83,784
              )
              
              
              215,334Exercise
      of stock options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,051Tax
      expense from exercise of options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (258
              )Issuance
      of fully vested restricted stockStock-based
      compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,656Unrealized
      holding loss on marketable securities (net of tax benefits of
      $253)
              
              
              (335
              )
              
              
              
              
              
              
              
              
              
              
              (335
              )
              
              
              (335
              )Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              27,976
              
              
              
              27,976Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              27,641Forfeiture
      of accrued dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              18Common
      stock purchased for treasury
              
              
              
              
              
              
              2,600
              
              
              
              (44,200
              )
              
              
              (44,200
              )Balance
      - December 31, 2008
              
              
              (396
              )
              
              
              8,262
              
              
              
              (127,984
              )
              
              
              206,242Exercise
      of stock options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,904Tax
      benefit from exercise of options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              497Issuance
      of fully vested restricted stockStock-based
      compensation
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              5,940Unrealized
      holding gain on marketable securities (net of taxes of
    $698)
              
              
              1,096
              
              
              
              
              
              
              
              
              
              
              
              1,096
              
              
              
              1,096Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              50,107
              
              
              
              50,107Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              51,203Forfeiture
      of accrued dividends
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1Balance
      - December 31, 2009
              
              $
              700
              
              
              
              8,262
              
              
              $
              (127,984
              )
              
              $
              267,787





See
notes to consolidated financial statements




F -
5





STEVEN MADDEN, LTD. AND SUBSIDIARIES




Consolidated Statements of Cash Flows (in
thousands)


Years
      Ended December 31,2009
            
            
            2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            50,107
            
            
            $
            27,976
            
            
            $
            35,690Adjustments
      to reconcile net income to net cash provided by operating
      activities:Stock-based
      compensation
            
            
            5,940
            
            
            
            5,656
            
            
            
            4,434Tax
      expense (benefits) from stock based compensation
            
            
            (497
            )
            
            
            258
            
            
            
            (7,180
            )Depreciation
      and amortization
            
            
            9,560
            
            
            
            9,101
            
            
            
            8,435Loss
      on disposal of fixed assets
            
            
            1,153
            
            
            
            1,619
            
            
            
            760Deferred
      taxes
            
            
            (1,928
            )
            
            
            1,495
            
            
            
            (2,120
            )Provision
      for doubtful accounts and chargebacks
            
            
            2,381
            
            
            
            (4,145
            )
            
            
            2,938Accrued
      interest on notes receivable – related party
            
            
            (198
            )
            
            
            (244
            )
            
            
            (126
            )Deferred
      rent expense and other non-current liabilities
            
            
            271
            
            
            
            2,331
            
            
            
            334Loss
      on sale of marketable securities
            
            
            182
            
            
            
            1,013
            
            
            
            589Changes
      in:Accounts
      receivable
            
            
            (5,169
            )
            
            
            3,221
            
            
            
            (1,992
            )Due
      from factor – excluding advances
            
            
            (15,939
            )
            
            
            2,216
            
            
            
            5,409Notes
      receivable – related party
            
            
            —
            
            
            
            —
            
            
            
            (3,000
            )Inventories
            
            
            1,144
            
            
            
            (4,400
            )
            
            
            6,463Prepaid
      expenses, prepaid taxes, deposits and other assets
            
            
            1,691
            
            
            
            3,887
            
            
            
            3,189Accounts
      payable and accrued expenses
            
            
            10,561
            
            
            
            (10,969
            )
            
            
            9,443Accrued
      incentive compensation
            
            
            4,445
            
            
            
            1,736
            
            
            
            (3,359
            )Other
      liabilities
            
            
            638
            
            
            
            1,028
            
            
            
            —Net
      cash provided by operating activities
            
            
            64,342
            
            
            
            41,779
            
            
            
            59,907Cash
      flows from investing activities:Purchase
      of property and equipment
            
            
            (3,399
            )
            
            
            (8,314
            )
            
            
            (12,965
            )Purchases
      of marketable securities
            
            
            (67,265
            )
            
            
            (31,005
            )
            
            
            (66,505
            )Maturity/sale
      of marketable securities
            
            
            17,543
            
            
            
            74,844
            
            
            
            76,192Acquisitions,
      net of cash acquired *
            
            
            (5,776
            )
            
            
            (4,923
            )
            
            
            (9,080
            )Net
      cash (used in) provided by investing activities
            
            
            (58,897
            )
            
            
            30,602
            
            
            
            (12,358
            )Cash
      flows from financing activities:Advances
      from factor - net
            
            
            (30,168
            )
            
            
            30,168
            
            
            
            —Proceeds
      from exercise of stock options
            
            
            3,904
            
            
            
            2,051
            
            
            
            5,607Tax
      benefits from stock based compensation
            
            
            497
            
            
            
            (258
            )
            
            
            7,180Common
      stock purchased for treasury
            
            
            —
            
            
            
            (44,200
            )
            
            
            (50,094
            )Net
      cash used in financing activities
            
            
            (25,767
            )
            
            
            (12,239
            )
            
            
            (37,307
            )Net
      (decrease) increase in cash and cash equivalents
            
            
            (20,322
            )
            
            
            60,142
            
            
            
            10,242Cash
      and cash equivalents - beginning of year
            
            
            89,588
            
            
            
            29,446
            
            
            
            19,204Cash
      and cash equivalents – end of year
            
            $
            69,266
            
            
            $
            89,588
            
            
            $
            29,446Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Interest
            
            $
            93
            
            
            $
            207
            
            
            $
            65Income
      taxes
            
            $
            30,508
            
            
            $
            23,306
            
            
            $
            20,178Non-cash
      transactionsDividend
      accrual (forfeitures) related to restricted stock
            
            $
            (1
            )
            
            $
            (18
            )
            
            $
            (16
            )





* The
amount for 2009 includes $4,526 which was accrued at December 31, 2008. The
amount for 2008 includes $3,903 which was accrued at December 31,
2007.




See
notes to consolidated financial statements





F -
6





STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)





Note
A - Summary of Significant Accounting Policies




[1]           Organization:




Steven
Madden, Ltd. and its subsidiaries (collectively, the “Company”), a Delaware
corporation, design, source, market and sell women’s, men’s and children’s
shoes, for sale worldwide through its wholesale and retail channels under the
Steve Madden, Steven and Madden Men’s brand names and through its wholesale
channels under the Steve Madden Kids, Madden Girl, Candie’s (under license),
l.e.i. (under license), Elizabeth and James (under license) and Olsenboye (under
license) brand names. In addition, the Company designs, sources, markets and
sells name brand and private label fashion handbags and accessories to customers
worldwide through its Accessories Division. The Company licenses the Betsey
Johnson, Daisy Fuentes and Olsenboye brand names for its accessories business.
Revenue is generated predominately through the sale of the Company’s brand name
merchandise and certain licensed products. At December 31, 2009 and 2008, the
Company operated 89 and 97 retail stores (including its e-commerce website as a
store), respectively. Revenue is subject to seasonal fluctuations. See Note N
for operating segment information.




[2]           Accounting
Standards Adopted In Fiscal 2009:




Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC” or the “Codification”) 105-10,
“Generally Accepted Accounting Principles” (“ASC 105-10”). ASC 105-10
establishes the Accounting Standards Codification as the source of authoritative
generally accepted accounting principles in the United States of America
(“GAAP”) recognized by the FASB to be applied by non-governmental entities in
the preparation of financial statements. Rules and interpretive releases of the
Securities and Exchange Commission (“SEC”) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. The FASB will
no longer issue standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting
Standards Updates (“ASU”). The Codification did not affect the accounting
policies followed by the Company.




Effective
January 1, 2009, the Company adopted ASC 805-10, “Business Combinations” (“ASC
805-10”). Under ASC 805-10, an acquiring entity is required to recognize all the
assets acquired and liabilities assumed in a transaction at the acquisition-date
fair value. ASC 805-10 establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. This statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial
effects of the business combination. The adoption of ASC 805-10 did not have a
material impact on our Consolidated Financial Statements.




Effective
January 1, 2009, the Company adopted ASC 810-10, “Consolidation” (“ASC 810-10”).
ASC 810-10 establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. Specifically, this statement requires the recognition of a
non-controlling interest (minority interest) as equity in the Consolidated
Financial Statements and separate from the parent’s equity. The amount of net
income attributable to the noncontrolling interest is required to be included in
consolidated net income on the face of the income statement. ASC 810-10
clarifies that changes in a parent’s ownership interest in a subsidiary that do
not result in deconsolidation are equity transactions if the parent retains its
controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
non-controlling equity investment on the deconsolidation date. ASC 810-10 also
includes expanded disclosure requirements regarding the interests of the parent
and its non-controlling interest. The adoption of ASC 810-10 had no material
impact on our Consolidated Financial Statements.




F -
7





STEVEN
MADDEN, LTD. AND SUBSIDIARIES


Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)




Note
A - Summary of Significant Accounting Policies (continued)




The
Company adopted the provisions of ASC 350-30, “General Intangibles Other Than
Goodwill” (“ASC 350-30”) on January 1, 2009. ASC 350-30 specifies the factors to
be considered in developing renewal or extension assumptions used to determine
the useful life of intangible assets. Its intent is to improve the consistency
between the useful life of an intangible asset and the period of expected cash
flows used to measure its fair value. The adoption of ASC 350-30 had no material
impact on our Consolidated Financial Statements.




In May
2009, the FASB amended ASC 855, “Subsequent Events” (“ASC855”), effective for
reporting periods ending after June 15, 2009, to establish general standards of
accounting for and disclosures of events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. The
adoption of the amendment did not have a material impact on the Company’s
Consolidated Financial Statements.




In August
of 2009, the FASB issued ASU 2009-5, an update to Topic ASC 820, “Fair Value
Measurements and Disclosures”. This update provides amendments to reduce
potential ambiguity in financial reporting when measuring the fair value of
liabilities. Among other provisions, this update provides clarification in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the valuation techniques described in ASU 2009-5. ASU
2009-5 became effective October 1, 2009. The adoption of ASU 2009-5 had no
impact on our Consolidated Financial Statements.




[3]           Recently
issued Accounting Standards:




A new
accounting pronouncement amending the consolidation guidance relating to
variable interest entities (“VIE”) will become 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 is not expected to have a material impact on the Company’s Consolidated Financial
Statements.




[4]           Principles
of consolidation:




The
Consolidated Financial Statements include the accounts of Steven Madden, Ltd.
and its wholly owned subsidiaries Steven Madden Retail, Inc., Diva Acquisition
Corp., Adesso Madden, Inc., Stevies, Inc. and Daniel M. Friedman and Associates,
Inc. (collectively referred to as the “Company”). All significant intercompany
balances and transactions have been eliminated.




[5]           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.




F -
8


STEVEN
MADDEN, LTD. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
A
- Summary of Significant Accounting Policies
(continued)




Significant
areas involving management estimates include allowances for bad debts, returns
and customer chargebacks. The Company provides reserves on trade accounts
receivables 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.




[6]           Cash
equivalents:




Cash
equivalents at December 31, 2009 and 2008 amounted to approximately $30,962
and $78,639, respectively, and consisted of money market accounts. The
Company considers all highly liquid instruments with an original maturity of
three months or less when purchased to be cash equivalents.




[7]           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) until realized. The schedule of
maturities at December 31, 2009 and 2008 are as follows:




Maturities
      as of
                December
      31, 2009
              
              
              Maturities
      as of
                December
      31, 20081
      Year or Less
              
              
              1
      to 5 Years
              
              
              1
      Year or Less
              
              
              1
      to 5 YearsMunicipal
      bonds
              
              $
              —
              
              
              $
              —
              
              
              $
              6,635
              
              
              $
              726U.S.
      Government and federal agency bonds
              
              
              —
              
              
              
              9,479
              
              
              
              4,997
              
              
              
              —Corporate
      bonds
              
              
              17,971
              
              
              
              58,234
              
              
              
              491
              
              
              
              19,889Certificates
      of deposit
              
              
              —
              
              
              
              —
              
              
              
              1,108
              
              
              
              —17,971
              
              
              
              67,713
              
              
              
              13,231
              
              
              
              20,615Marketable
      equity securities
              
              
              —
              
              
              
              —
              
              
              
              1,378
              
              
              
              —$
              17,971
              
              
              $
              67,713
              
              
              $
              14,609
              
              
              $
              20,615




As of
March 31, 2008, the Company held $16,070 in auction rate securities (“ARS”). In
the first quarter of 2008, the liquidity in the ARS market evaporated causing
the ARSs to fail at auction and accordingly, the auction rate securities were
classified as long term as of March 31, 2008. As a result of the lack of
liquidity in the ARS market, the Company recorded an unrealized loss on its ARSs
of $230 for the three months ended March 31, 2008. During the months of June
through December of 2008, the Company was able to liquidate its entire portfolio
of ARSs at full face value, and as a result, the Company did not hold any ARSs
as of December 31, 2008. The Company did not incur any losses with respect to
its investments in ARSs and hence, the unrealized loss of $230 was reversed in
the second quarter of 2008.


F -
9
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
   Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
A - Summary of Significant Accounting Policies (continued)




[8]           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.




[9]           Property
and equipment:




Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation is computed utilizing the straight-line method based on estimated
useful lives ranging from three to ten years. Leasehold improvements are
amortized utilizing the straight-line method over the shorter of their estimated
useful lives or the remaining lease term. Depreciation and amortization include
amounts relating to property and equipment under capital leases.




Impairment
losses are recognized for long-lived assets, including certain intangibles, used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are not sufficient to
recover the assets’ carrying amount. Impairment losses are measured by comparing
the fair value of the assets to their carrying amount.




[10]         Goodwill:




The
Company’s goodwill and indefinite lived intangible assets are not amortized,
rather they are tested for impairment on an annual basis or more often if events
or circumstances change that could cause these assets to become impaired. The
Company completed its annual impairment tests on the goodwill relating to the
Compo Enhancements, Daniel M. Friedman and Diva Acquisition Corp. acquisitions.
No impairments were recognized.




[11]         Net
income per share:




Basic
income per share is based on the weighted average number of shares of common
stock outstanding during the year. 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 the years ended December 31, 2009
and 2008, options exercisable into approximately 10,000 and 50,000 shares of
common stock, respectively, have been excluded in the calculation of diluted
income per share as the result would have been antidilutive, whereas no options
exercisable into shares of common stock have been excluded in the calculation of
diluted income per share for the year ended December 31, 2007. For the
years ended December 31, 2009, 2008 and 2007, all unvested restricted stock
awards were dilutive.




[12]         Advertising
costs:




The
Company expenses costs of print, radio and billboard advertisements as of the
first date the advertisements take place. Advertising expense included in
operating expenses amounted to approximately $4,713 in 2009, $5,019 in
2008 and $4,831 in 2007.


F -
10
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
   Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
A - Summary of Significant Accounting Policies (continued)




[13]        Revenue
recognition:




The
Company recognizes revenue on 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 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
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,
collections are reasonably assured, and is 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. 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 on the purchases of the Company’s
products. Licensing revenue is recognized on the basis of net sales reported by
the licensees and international distributors, 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.




[14]        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.




[15]        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.
Such expenses are reflected in the financial statements as deductions to net
sales. For the years ended December 31, 2009, 2008 and 2007 the total deductions
to net sales for these expenses were $31,078, $37,291 and $43,691,
respectively.


F -
11
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
   Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
A - Summary of Significant Accounting Policies (continued)




[16]        Cost
of sales:




All costs
incurred to bring finished products to the Company’s distribution center and, in
the Retail Division, the costs to bring products to the Company’s stores, are
included in the cost of sales line on the Consolidated Statement of Income.
These include the cost of finished products and related handling costs, purchase
commissions, letter of credit fees, brokerage fees, sample expenses, customs
duties, inbound freight, royalty payments on licensed products, labels and
product packaging. All warehouse and distribution costs related to the Wholesale
Division and freight to customers, if any, are included in the operating
expenses line item of the Company’s Consolidated Statements of Income. The
Company’s gross margins may not be comparable to other companies in the industry
because some companies may include warehouse and distribution costs as a
component of cost of sales, while other companies report on the same basis as
the Company and include them in operating expenses.




[17]        Warehouse
and shipping costs:




The
Company includes all warehouse and distribution costs for the Wholesale segment
in the Operating Expenses line on the Consolidated Statements of Income. For the
years ended December 31, 2009, 2008 and 2007, the total warehouse and
distribution costs included in Operating Expenses were $8,488, $9,229 and $8,957
respectively. The Company’s standard terms of sales are “FOB Steve Madden
warehouse” and thus the Company’s wholesale customers absorb most shipping
costs. Shipping costs to wholesale customers incurred by the Company are not
considered significant and are included in the Operating Expense line in the
Consolidated Statements of Income.




[18]        Impairment
of long-lived assets:




The
Company reviews long-lived assets, including amortizable intangible assets, for
impairment whenever events or changes in business circumstances indicate that
the carrying amount of the asset may not be fully recoverable. If facts and
circumstances indicate that the Company’s long-lived assets might be impaired,
the estimated future undiscounted cash flows associated with the long-lived
asset would be compared to its carrying amounts to determine if a write-down to
fair value is necessary. If a write-down is required, the amount is determined
by estimation of the present value of net discounted cash flows.




[19]        Exit
or disposal activity costs:




The
Company accounts for its exit and disposal costs by recording an accrual for the
liability for lease costs that will continue to be incurred without economic
benefit to the Company upon the date that the Company ceases using the leased
property. As of December 31, 2009, the Company accrued approximately $1,830 in
lease exit costs associated with two stores that were closed prior to the end of
their prospective lease terms.




[20]        401(k)
Plan:




The
Company maintains a tax-qualified 401(k) plan which is available to each of the
Company’s eligible employees who elect to participate after meeting certain
length-of-service requirements. The Company made discretionary matching
contributions of 50% of employees’ contributions up to a maximum of 6% of
employees’ compensation which vest to the employees over a period of time. Total
matching contributions to the plan for 2009, 2008 and 2007 were
approximately $601, $570 and $513, respectively.


F -
12
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
   Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
A - Summary of Significant Accounting Policies (continued)




[21]        Fair
Value of Financial Instruments:




The
carrying value of certain financial instruments such as accounts receivable, due
from factors, accounts payable and advances payable to factor 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.




[22]        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 December 31,
2009 are as follows:




Fair
      Value Measurements
                Using
      Fair Value HierarchyFair
      value
              
              
              Level
      1
              
              
              Level
      2
              
              
              Level
      3Cash
      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 year ended December 31, 2009, the Company had no assets measured at fair
value on a recurring basis using significant unobservable inputs (Level 3). As
of December 31, 2009, the Company does not have any long-term financial
liabilities. No gains or losses resulting from the fair value measurement of
financial assets were included in the Company’s earnings.




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 affect on the Company’s
Consolidated Financial Statements.


F -
13
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
   Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)




Note
A - Summary of Significant Accounting Policies (continued)




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
B – Acquisitions




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. 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
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.




Daniel
M. Friedman




On
February 7, 2006, the Company acquired all of the equity interests of privately
held Daniel M. Friedman and Associates, Inc. and D.M.F. International
(collectively, “Daniel M. Friedman”). Founded in 1995, Daniel M. Friedman
designs, sources and markets name brand fashion handbags and accessories. The
acquisition was completed for consideration of $18,710, including transaction
costs. In addition, the purchase agreement includes certain earn-out provisions
based on financial performance through 2010. On April 10, 2007, an amendment to
the agreement shortened the earn-out period by one year through December 31,
2008 and advanced the earn-out payments from 2008 to 2007. On December 31, 2007,
a preliminary earn-out provision for 2007 of $3,956 was charged to goodwill and
on March 31, 2008, the 2007 earn-out provision was finalized at $4,923, which
increased the total acquisition cost to $23,686. On December 31, 2008, a
preliminary earn-out provision for 2008 of $6,632 was charged to goodwill which
increased the total acquisition cost to $30,318. On March 31, 2009, the parties
agreed to a tentative 2008 earn-out provision of $6,530, and accordingly,
goodwill was reduced by $102 bringing the total acquisition cost to $30,216. In
December of 2009, the parties finalized the 2008 provision at
$6,530.




The
Daniel M. Friedman acquisition was accounted for using the purchase method of
accounting as required by Business Combinations accounting standards as
promulgated. Accordingly, the assets and liabilities of Daniel M. Friedman 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. The total purchase price has been allocated as
follows:




Current
      assets
              
              $
              9,772Property,
      plant and equipment
              
              
              289Deposits
              
              
              62Intangible
      assets
              
              
              8,400Goodwill
              
              
              16,424Liabilities
      assumed
              
              
              (4,731
              )Net
      assets acquired
              
              $
              30,216


F -
14
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
   Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
B – Acquisitions (continued)




Pursuant
to the acquisition, the Company had a note receivable from the former owner and
namesake of Daniel M. Friedman in the amount of $1,250. The note, which had an
interest rate of 5%, was due and payable on the same day that the final earn-out
payment was due. The note allowed the maker to offset the principal and interest
due on the note against any earn-out monies that might be owed to him. On March
31, 2009, the note was offset against the final earn-out payment.




Note
C - Due From Factors
  On July
10, 2009, the Company entered into a collection agency agreement with Rosenthal
& Rosenthal, Inc (“Rosenthal”) that became effective on September 15, 2009.
The agreement can be terminated by Rosenthal at any time upon 60 days’ prior
written notice, or by us at any time after the expiration of the first contract
year upon 60 days’ prior written notice. Under the agreement, the Company can
request advances from the factor of up to 85% of aggregate receivables factored
by Rosenthal. The agreement provides the Company with a $30 million credit
facility with a $15 million sub-limit for letters of credit. The Company also
pays a fee of 0.275% of the gross invoice amount factored with Rosenthal.
Rosenthal assumes the credit risk on a substantial portion of the receivables
the Company refers to it and Rosenthal maintains a lien on all of the Company’s
receivables to secure the Company's obligations. On February 10, 2010, the agreement was
amended to include foreign accounts receivable.
  Under the
terms of our prior factoring agreement, as amended, which the agreement with
Rosenthal replaces, the Company could request advances from the factor of up to
85% of aggregate factored receivables. The agreement provided the Company with a
$50 million credit facility with a $25 million sub-limit for letters of credit.
The Company paid a fee that varied depending on the customer of between 0.15%
and 0.25% of the gross invoice amount. Prior to the amendment to the factoring
agreement discussed in the next paragraph, the Company sold a substantial portion of its
receivables, principally without recourse, to the factor. The prior factor
maintained a lien on all of the Company's receivables to secure the Company's obligations and
assumed the credit risk for all purchased accounts approved by them with certain
exceptions. On July 13, 2009, the Company terminated the prior factoring
agreement, effective on September 14, 2009.
  In
November of 2008, the Company borrowed from its former factor the maximum amount
allowed by the terms of the agreement. As of December 31, 2008, the Company had
advances payable due to the factor of $30,168 against gross factored receivables
of $44,082. Subsequent to the year end, the Company began reducing the loan
balance with the proceeds from the collections of factored accounts receivable,
and as of February 17, 2009, the loan was completely paid off. The interest rate
on the advances averaged 3.9% through the date of repayment. Effective January
1, 2009, the factoring agreement was amended so that the Company retained title
to its factored accounts receivable, which would keep its outstanding
receivables from being the property of the previous factor.
  As of
December 31, 2009 and 2008, the Company assumed the credit risk on approximately
$178 and $93 of factored receivables, respectively.


F -
15
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
C - Due From Factors (continued)




A
“factored” sale (whether “with” or “without” recourse) is substantially the same
as a non-factored sale and the Company accounts for its factored
sales/receivables in the same manner as its non-factored sales/receivables. The
factor services the collection of the Company’s accounts receivable. Funds
collected by the factor are applied against advances owed to the factor (if
any), and the balance is due and payable to the Company, net of any fees. The
allowance against “due from factor” is a projected provision based on certain
formulas and prior approvals for markdowns, allowances, discounts, advertising
and other deductions that customers may deduct against their
payments.




Note
D - Note Receivable – related party




On June
25, 2007, the Company made a loan to Steven 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 in connection with
the loan. Mr. Madden executed a secured promissory note in favor of the Company
that bears interest at an annual rate of 8% and 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 pursuant to an Amended and Restated Secured
Promissory Note dated December 19, 2007 which extended the due date to March 31,
2009. A second Amended and Restated Secured Promissory Note 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 December 31, 2009 and 2008, $568 and $370 of
interest, respectively, has accrued on the note and has been reflected on the
Company’s Consolidated Financial Statements. Pursuant to a pledge agreement
between the Company and Mr. Madden, the note is secured by 510,000 shares of the
Company’s common stock.




Note
E - Property and Equipment




The major
classes of assets and total accumulated depreciation and amortization are as
follows:




December
      31,2009
            
            
            2008Land
      and building
            
            $
            767
            
            
            $
            767Leasehold
      improvements
            
            
            36,181
            
            
            
            37,913Machinery
      and equipment
            
            
            3,619
            
            
            
            3,660Furniture
      and fixtures
            
            
            4,395
            
            
            
            4,605Computer
      equipment
            
            
            15,617
            
            
            
            14,52260,579
            
            
            
            61,467Less
      accumulated depreciation and amortization
            
            
            (36,786
            )
            
            
            (33,258
            )Property
      and equipment - net
            
            $
            23,793
            
            
            $
            28,209





Depreciation
and amortization expense included in operating expenses amounted to
approximately $6,628 in 2009, $7,140 in 2008, and $6,537 in 2007.


F -
16
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
F – Goodwill and Intangible Assets




The
following is a summary of the carrying amount of goodwill by segment for the
year ended December 31, 2009:




Wholesale
              
              
              
              
              
              Net
      CarryingFootwear
              
              
              Accessories
              
              
              Retail
              
              
              AmountBalance
      at January 1, 2009
              
              $
              1,547
              
              
              $
              16,526
              
              
              $
              5,501
              
              
              $
              23,574Acquisition
      of Zone 88
              
              
              
              
              
              
              841
              
              
              
              
              
              
              
              841Adjustment
      of purchase price –
      Daniel M. Friedman
              
              
              0
              
              
              
              (102
              )
              
              
              0
              
              
              
              (102
              )Balance
      at December 31, 2009
              
              $
              1,547
              
              
              $
              17,265
              
              
              $
              5,501
              
              
              $
              24,313




The
following table details identifiable intangible assets as of December 31,
2009:





Estimated
      lives
            
            Cost
      basis
            
            
            Accumulated
      Amortization
            
            
            Net
      Carrying AmountTrade
      name
            6
      years
            
            $
            200
            
            
            $
            132
            
            
            $
            68Customer
      relationships
            10
      years
            
            
            6,809
            
            
            
            2,045
            
            
            
            4,764License
      agreements
            3-6
      years
            
            
            5,600
            
            
            
            4,105
            
            
            
            1,495Non-compete
      agreement
            5
      years
            
            
            930
            
            
            
            542
            
            
            
            388Other
            3
      years
            
            
            14
            
            
            
            13
            
            
            
            1$
            13,553
            
            
            $
            6,837
            
            
            $
            6,716




The
amortization of intangible assets is included in operating expenses on the
Company’s Consolidated Statements of Income. The estimated future amortization
expense of intangibles as of December 31, 2009 is as follows:





2010
            
            $
            1,8972011
            
            
            1,4222012
            
            
            6832013
            
            
            6832014
            
            
            683Thereafter
            
            
            1,348Total
            
            $
            6,716





F -
17
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
G – Stock-Based
Compensation




In March
2006, the Board of Directors approved the Steven Madden, Ltd. 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.
Initially, the number of shares that could be issued or used under the Plan
could not exceed 1,200,000 shares. On May 25, 2007, the stockholders approved an
amendment to the Plan to increase the maximum number of shares that could be
issued under the Plan to 1,550,000. 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 4,064,000. The following table summarizes the
number of shares of common stock authorized for use under the Plan, the amount
of stock-based awards issued (net of expired or cancelled) and the amount of
common stock available for the grant of stock-based awards under the
Plan:





Common
      Stock authorized
            
            
            4,064,000Stock
      based awards, including restricted stock and stock options granted, net of
      expired or cancelled
            
            
            1,774,000Common
      Stock available for grant of stock based awards as of December 31,
      2009
            
            
            2,290,000





In June
of 1999, the Company adopted the 1999 Stock Plan which, as amended, authorized
the issuance of up to 4,830,000 shares. The plan, which expired in June of 2009,
provided that the option price could not be less than the fair market value of
the common stock on the date of grant. Options to purchase 4,829,000 shares of
the Company’s common stock were granted under the 1999 Stock Plan.





In
accordance with accounting guidance relating to stock-based compensation, the
Company records compensation for all awards based on the fair value of options
and restricted stock on the date of grant. Equity-based compensation is included
in operating expenses on the Company’s Consolidated Statements of Income. For
the years ended December 31, 2009, 2008 and 2007, total equity-based
compensation was as follows:





Years
      Ended December 31,2009
            
            
            2008
            
            
            2007Stock
      options
            
            $
            1,560
            
            
            $
            486
            
            
            $
            5Restricted
      stock
            
            
            4,380
            
            
            
            5,170
            
            
            
            4,429Total
            
            $
            5,940
            
            
            $
            5,656
            
            
            $
            4,434




On March
24, 2008, the Chief Executive Officer and Chairman of the Board of Directors of
the Company (the “former CEO”) resigned from his positions. For the purposes of
determining any payments to which such former CEO was entitled following his
resignation, it was mutually agreed to treat his resignation as a termination
without cause, as defined in his employment agreement. Pursuant to an agreement
with the Company, 42,500 shares of restricted stock that were due to vest in
varying amounts over four years vested on the date of termination. Accordingly,
the balance of unamortized stock-based compensation related to the former CEO’s
restricted stock of $921 was included as a charge in operating expenses during
the quarter ended March 31, 2008.





The
Company classifies cash flows resulting from the tax benefits from tax
deductions in excess of the compensation costs recognized for those options (tax
benefits) as financing cash flows. For the years ended December 31, 2009, 2008
and 2007, the Company realized a tax benefit (expense) from the exercise of
stock options of $497, $(258) and $7,180, respectively.


F -
18
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)
 Note
G - Stock-Based Compensation (continued)


Stock
Options




The total
intrinsic value of options exercised during 2009, 2008 and 2007 amounted to
$5,300, $2,361 and $20,825 respectively. During the years ended December 31,
2009 and 2008, 95,000 options with a weighted average exercise price of $19.56
and 25,000 options with a weighted average exercise price of $18.07 vested,
respectively, while no options vested in 2007. As of December 31, 2009,
there were 858,000 unvested options with a total unrecognized compensation cost
of $5,818 that is expected to be recognized over a weighted-average of 3.3
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 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 in November of
2006, the Company historically has not paid dividends and thus the expected
dividend rate is assumed to be zero. The weighted average fair value of options
granted in 2009, 2008 and 2007 was approximately $9.43, $6.93 and $5.02,
respectively, using the Black-Scholes option-pricing model with the following
assumptions:





2009
            
            2008
            
            2007Volatility
            
            49%
      to 52%
            
            43%
      to 45%
            
            37%
      to 40%Risk
      free interest rate
            
            1.39%
      to 2.09%
            
            2.17%
      to 3.12%
            
            4.29%
      to 4.73%Expected
      life in years
            
            3
      to 4
            
            3
      to 4
            
            3Dividend
      yield
            
            0
            
            0
            
            0





Activity
relating to stock options granted under the Company’s plans and outside the
plans during the three years ended December 31, 2009 is as follows:




Number
      of Shares
            
            
            Weighted
      Average Exercise Price
            
            Weighted
      Average Remaining Contractual Term
            
            Aggregate
      Intrinsic ValueOutstanding
      at January 1, 2007
            
            
            1,396,000
            
            
            $
            8.75Granted
            
            
            305,000
            
            
            
            47.01Exercised
            
            
            (863,000
            )
            
            
            6.50Cancelled/Forfeited
            
            
            (300,000
            )
            
            
            47.50Outstanding
      at December 31, 2007
            
            
            538,000
            
            
            
            12.45Granted
            
            
            405,000
            
            
            
            19.34Exercised
            
            
            (171,000
            )
            
            
            11.95Cancelled/Forfeited
            
            
            —
            
            
            
            —Outstanding
      at December 31, 2008
            
            
            772,000
            
            
            
            16.18Granted
            
            
            587,000
            
            
            
            23.44Exercised
            
            
            (264,000
            )
            
            
            14.49Cancelled/Forfeited
            
            
            (18,000
            )
            
            
            17.40Outstanding
      at December 31, 2009
            
            
            1,077,000
            
            
            $
            20.52
            
            5.4
            
            $
            22,306Exercisable
      at December 31, 2009
            
            
            225,000
            
            
            $
            14.16
            
            3.6
            
            $
            6,092


F -
19
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)
 Note
G - Stock-Based Compensation (continued)





The
following table summarizes information about stock options at December 31,
2009:




Options
      Outstanding
            
            
            Options
      ExercisableRange
      of Exercise Price
            
            Number
      Outstanding
            
            
            Weighted
      Average Remaining Contractual Life
                (in
      Years)
            
            Weighted
      Average Exercise Price
            
            
            Number
      Exercisable
            
            
            Weighted
      Average Exercise Price$11.61
      to $16.00
            
            
            178,000
            
            
            3.3
            
            
            $
            12.82
            
            
            
            177,000
            
            
            $
            12.80$16.01
      to $22.00
            
            
            659,000
            
            
            5.6
            
            
            
            18.81
            
            
            
            48,000
            
            
            
            19.17$22.01
      to $28.00
            
            
            41,000
            
            
            5.6
            
            
            
            23.56
            
            
            
            —
            
            
            
            —$28.01
      to $34.00
            
            
            134,000
            
            
            6.4
            
            
            
            30.05
            
            
            
            —
            
            
            
            —$34.01
      to $40.50
            
            
            65,000
            
            
            6.6
            
            
            
            37.62
            
            
            
            —
            
            
            
            —1,077,000
            
            
            5.4
            
            
            $
            20.52
            
            
            
            225,000
            
            
            $
            14.16





Restricted
Stock




The
following table summarizes restricted stock activity during the year ended
December 31, 2009:





Number
      of Shares
            
            
            Weighted
      Average Fair Value at Grant DateOutstanding
      at January 1, 2009
            
            
            358,000
            
            
            $
            29.53Granted
            
            
            89,000
            
            
            
            35.11Vested
            
            
            (147,000
            )
            
            
            25.85Forfeited
            
            
            (3,000
            )
            
            
            36.59Outstanding
      at December 31, 2009
            
            
            297,000
            
            
            $
            31.47





As of
December 31, 2009, there was $6,195 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 2.6 years. During the year
ended December 31, 2006, 165,000 restricted stock awards were granted to
the Company’s Creative and Design Chief of which 61,500 remain restricted as of
December 31, 2009. On November 6, 2009, an award of 50,000 shares of restricted
stock were granted to Edward R. Rosenfeld, the Company’s Chief Executive Officer
and Chairman of the Board. 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. The fair value of the restricted stock that vested during the
years ended December 31, 2009, 2008 and 2007 was $3,786, $5,741 and $3,604,
respectively.




Note
H - Preferred Stock




The
Company has authorized 5,000,000 shares of preferred stock. The Board of
Directors has designated 60,000 shares of such preferred stock as Series A
Junior Participating Preferred Stock (“Series A Preferred”). Holders of the
shares of Series A Preferred are entitled to dividends equal to 1,000 times
dividends declared or paid on the Company’s common stock. Each share of Series A
Preferred entitles the holder to 1,000 votes on all matters submitted to the
holders of common stock. The Series A Preferred has a liquidation preference of
$1,000 per share, and is not redeemable by the Company. No shares of preferred
stock have been issued.





F -
20
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
I – Rights Agreement




On
October 30, 2001, the Company declared a dividend distribution of one preferred
stock purchase right (a “Right”) for each outstanding share of common stock.
Each Right entitles the holder to purchase from the Company seven
ten-thousandths (7/10,000) of a share of Series A Preferred at a price of $50
per seven ten-thousandth (7/10,000) of a share. Initially, the Rights will not
be exercisable and will automatically trade with the common stock. The Rights
become exercisable, in general, ten days following the announcement of a person
or group acquiring beneficial ownership of at least 15% of the outstanding
voting stock of the Company.




Note
J - Operating Leases




The
Company leases office, showroom and retail facilities under noncancelable
operating leases with terms expiring at various times through
2020. Future minimum annual lease payments under noncancelable operating
leases consist of the following at December 31:




2010
            
            $
            16,8242011
            
            
            16,2112012
            
            
            15,4242013
            
            
            13,1862014
            
            
            11,953Thereafter
            
            
            30,824Total
            
            $
            104,422





A
majority of the retail store leases provide for contingent rental payments if
gross sales exceed certain targets. In addition, many of the leases contain rent
escalation clauses to compensate for increases in operating costs and real
estate taxes.




Rent
expense for the years ended December 31, 2009, 2008 and 2007 was
approximately $21,087, $21,808 and $18,071, respectively. Included in
such amounts are contingent rents of $23, $44 and $29 in 2009, 2008 and 2007,
respectively. For the years ended December 31, 2009 and 2008 the Company
recorded approximately $1,541 and $1,325 in lease exit costs associated with
leases that were terminated prior to the end of their prospective
terms.




Rent
expense is calculated by amortizing total rental payments (net of any rental
abatements, construction allowances and other rental concessions), on a
straight-line basis, over the lease term. Accordingly, rent expense charged to
operations differs from rent paid resulting in the Company recording deferred
rent.




Note
K - Income Taxes




The
components of income before income taxes is as follows:





2009
            
            
            2008
            
            
            2007Domestic
            
            $
            54,666
            
            
            $
            31,395
            
            
            $
            48,456Foreign
            
            
            26,123
            
            
            
            14,911
            
            
            
            7,680$
            80,789
            
            
            $
            46,306
            
            
            $
            56,136


F -
21
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
K - Income Taxes (continued)




The
income tax provision (benefit) consists of the following:




2009
            
            
            2008
            
            
            2007Current:Federal
            
            $
            23,896
            
            
            $
            11,932
            
            
            $
            21,850State
      and local
            
            
            4,403
            
            
            
            2,548
            
            
            
            517Foreign
            
            
            4,310
            
            
            
            2,609
            
            
            
            1,22932,609
            
            
            
            17,089
            
            
            
            23,596Deferred:Federal
            
            
            (1,748
            )
            
            
            1,114
            
            
            
            (2,827
            )State
      and local
            
            
            (179
            )
            
            
            127
            
            
            
            (323
            )(1,927
            )
            
            
            1,241
            
            
            
            (3,150
            )$
            30,682
            
            
            $
            18,330
            
            
            $
            20,446





A
reconciliation between taxes computed at the federal statutory rate and the
effective tax rate is as follows:




December
      31,2009
            
            
            2008
            
            
            2007Income
      taxes at federal statutory rate
            
            
            35.0
            %
            
            
            35.0
            %
            
            
            35.0
            %State
      and local income taxes - net of federal income tax benefit
            
            
            2.9
            
            
            
            3.0
            
            
            
            4.3Nondeductible
      items
            
            
            0.2
            
            
            
            0.4
            
            
            
            0.2Valuation
      allowance
            
            
            —
            
            
            
            0.9
            
            
            
            —One-time
      adjustment for filing prior years’ NY State and NY City amended returns on
      a combined basis
            
            
            —
            
            
            
            0.7
            
            
            
            (2.3
            )Other
            
            
            (0.1
            )
            
            
            (0.4
            )
            
            
            (0.8
            )Effective
      rate
            
            
            38.0
            %
            
            
            39.6
            %
            
            
            36.4
            %




The
Company applies the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to reverse.





Effective
January 1, 2007, the Company adopted the provisions of a new accounting
pronouncement that addresses the accounting for uncertainty in income taxes
recognized in the financial statements. The pronouncement provides guidance on
the financial statement recognition and measurement of a tax position taken on
the Company’s tax return. Pursuant to this pronouncement, the Company has opted
to classify interest and penalties that would accrue according to the provisions
of relevant tax law as income tax expense on the Consolidated Statements of
Income. The Company determines the amount of interest expense to be recognized
by applying the applicable statutory rate of interest to the difference between
the tax position recognized and the amount previously taken or expected to be
taken on a tax return. As required, the Company applied the
“more-likely-than-not” recognition threshold to all tax positions at the
adoption date, which resulted in no required adjustment to the opening balance
of retained earnings. The adoption of this pronouncement did not have a material
impact on the Company’s results of operations and earnings per share. The
Company’s tax returns for 2005 through 2007 are currently under examination by
the Internal Revenue Service. The Company’s tax years 2005 through 2008 remain
open to examination for most taxing authorities.


F -
22
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
K - Income Taxes (continued)




As of
December 31, 2009, the Company has unrealized investment losses of $2,983
available to offset future investment gains and thus reduce future taxable
income. A deferred tax asset has been established from recognized capital losses
on securities which can only be offset to the extent of capital gains. These
losses have a five year carryforward. Due to uncertainty in the market place,
the Company has set up a valuation allowance of $468 to reduce the deferred tax
asset to the amount that it is more likely than not that the Company will
generate sufficient capital gains to offset previously recognized capital
losses.




The
components of deferred tax assets and liabilities are as follows:




December
      31,2009
            
            
            2008Current
      deferred tax assets:Receivable
      allowances
            
            $
            5,449
            
            
            $
            4,415Inventory
            
            
            1,097
            
            
            
            1,523Unrealized
      (gain) loss
            
            
            (139
            )
            
            
            226Accrued
      expenses
            
            
            1,653
            
            
            
            1,192Other
            
            
            1,187
            
            
            
            1,092Gross
      current deferred tax asset
            
            
            9,247
            
            
            
            8,448Valuation
      allowance
            
            
            (468
            )
            
            
            (468
            )8,779
            
            
            
            7,980Non-current
      deferred tax assets:Depreciation
      and amortization
            
            
            4,660
            
            
            
            4,276Deferred
      compensation
            
            
            1,612
            
            
            
            1,082Deferred
      rent
            
            
            2,006
            
            
            
            1,861Amortization
      of goodwill
            
            
            (1,158
            )
            
            
            (652
            )Other
            
            
            423
            
            
            
            5457,543
            
            
            
            7,112Deferred
      tax assets
            
            $
            16,322
            
            
            $
            15,092





Note
L - Commitments, Contingencies and Other




[1]           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
      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 Consolidated Financial
      Statements.





F -
23
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
 Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)
 Note
L - Commitments, Contingencies and Other (continued)


(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. The parties
      have agreed to submit the claim to private mediation, which is scheduled
      for March 29, 2010. 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 U.S. Customs and Border Protection (“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, Customs
      notified the Company that it had finalized its assessment of the underpaid
      duties to be $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.




[2]          Employment




Effective
December 14, 2009, the Company amended its employment agreement with Steven
Madden, the Company’s Creative and Design Chief, to extend his existing
employment agreement, which was due to expire June 30, 2015. The amendment
extends the term of Mr. Madden’s employment through December 31, 2019. The
agreement provides for an annual salary of $600, subject to certain specified
adjustments, through December 31, 2019. The agreement also provides for annual
cash bonuses based on EBITDA, on revenue for any new business, and royalty
income over $2,000, and, under certain conditions, an annual option grant at
exercise prices equal to the market price on the date of grant. In addition, the
agreement provides that Mr. Madden shall receive a non-accountable annual
expense allowance of $200.


F -
24
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
L - Commitments, Contingencies and Other (Continued)




On
November 6, 2009, the Company entered into a new employment agreement with
Edward R. Rosenfeld, the Company’s Chief Executive Officer and the Chairman of
the Board of Directors, to replace an existing employment agreement that was due
to expire on December 31, 2009. The agreement, which expires on December 31,
2012, provides for an annual salary of $400 through December 31, 2009, $500 in
2010, $525 in 2011 and $551 in 2012. In addition, Mr. Rosenfeld received a grant
of 50,000 shares of restricted common stock that will vest annually on the
anniversary date of the agreement over five years.





Effective
October 7, 2009, the Company entered into a new employment agreement with Robert
Schmertz, the Company’s Brand Director, to replace an existing employment
agreement that was due to expire at the end of 2009. The new agreement, which
expires on December 31, 2012, provides for an annual salary of $600 through
December 31, 2009, and $660 for the duration of the term. Mr. Schmertz will
receive a performance bonus of $300 for 2009, and any additional bonuses for
2009 or in the future are at the sole discretion of the Board of Directors. In
addition, Mr. Schmertz received an option to purchase 50,000 shares of the
Company’s common stock that will vest in equal annual installments over five
years commencing on the first anniversary of the date of grant.




Effective
October 7, 2009, the Company amended its employment agreement with Arvind
Dharia, the Company’s Chief Financial Officer, to, among other things, extend
the term of his existing employment agreement which was due to expire at the end
of 2009, to December 31, 2011 and increase Mr. Dharia’s annual base salary to $528.
The agreement as amended provides for an annual bonus at the discretion of the
Board of Directors.





Effective
October 1, 2008, the Company amended its employment agreement with Awadhesh
Sinha, the Company’s Chief Operating Officer. The agreement provides for an
annual salary of $540 through December 31, 2010, with successive one-year
automatic renewal terms thereafter. The agreement also provides for an annual
incentive bonus and requires the Company to accrue deferred cash compensation
equal to from 7.5% to 25% of annual salary.





Effective
April 29, 2008, the Company entered into an employment agreement with Amelia
Newton Varela, the Company’s Executive Vice President of Wholesale and Retail.
The agreement provides for an annual salary of $350 through December 31, 2008
and $400 for the duration of the term, which ends on December 31, 2010. The
agreement also provides for annual incentive bonuses. In addition, Ms. Varela
received an option to purchase 50,000 shares of common stock on the date of the
agreement, an option to purchase an additional 25,000 in April 2009 and will
receive an additional option to purchase 25,000 shares of common stock in April
2010, all of which vest over a five year period commencing on the first
anniversary of the grant date.




The
Company has employment agreements with other executives (the “executives”) which
expire between June 30, 2010 and December 31, 2012. Some of these agreements
provide for cash bonuses at the discretion of the Board of Directors, and some
provide for cash bonuses based primarily upon a percentage of year-to-year
increases in earnings before interest, taxes, depreciation and amortization,
option grants and non-accountable expense allowances as defined. Base salary
commitments for these executives are as follows:




2010
            
            $
            1,7512011
            
            
            6212012
            
            
            73$
            2,445


F -
25
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
L - Commitments, Contingencies and Other (Continued)




In
connection with their employment agreements, five executives received an
aggregate of 50,000, none and 170,000 shares of restricted common stock from the
Company in 2009, 2008 and 2007, respectively. The restricted shares vest equally
each year over a period of between four to five years and, accordingly, the
Company has recorded a charge to operations in the amount of $1,675, $1,335 and
$1,726 for the years ended December 31, 2009, 2008 and 2007,
respectively




[3]           Letters
of credit:




At
December 31, 2009, the Company had open letters of credit for the purchase of
imported merchandise of approximately $3,050.




[4]           License
agreements:




In
September 2009, the Company entered into a new long-term license agreement with
Betsey Johnson LLC to replace an existing agreement that was due to expire on
December 31, 2010. Under the terms of the agreement, the Company has the right
to use the Betsey Johnson® and Betseyville® trademarks in connection with the sale and marketing
of handbags, small leather goods, belts and umbrellas. The agreement requires
the Company to make royalty and advertising payments equal to a percentage of
net sales and a minimum royalty and advertising payment in the event that
specified net sales targets are not achieved. The agreement expires on December




In
September 2009, the Company entered into a license agreement with Dualstar
Entertainment Group, LLC, under which the Company has the right to use the
Olsenboye® trademark in connection with the sale and marketing of footwear and
accessories. The agreement requires the Company to make royalty and advertising
payments equal to a percentage of net sales and a minimum royalty and
advertising payment in the event that specified net sales targets are not
achieved. The agreement expires on December 31, 2011, with one two-year
renewal period if certain provisions are met.




On
September 10, 2008, the Company entered into a license agreement with Dualstar
Entertainment Group, LLC, under which the Company has the right to use the
Elizabeth and James® trademark in connection with the sale and marketing of
footwear. The agreement requires the Company to make royalty and advertising
payments equal to a percentage of net sales and a minimum royalty and
advertising payment in the event that specified net sales targets are not
achieved. The agreement expires on March 31, 2012, with one three-year
renewal period if certain provisions are met.




On July
31, 2008, the Company entered into a license agreement to design, manufacture
and distribute women’s footwear, handbags and belts and related accessories
under the Fabulosity® brand. The agreement requires the Company to pay the
licensor a royalty and advertising payments equal to a percentage of net sales
and a minimum royalty and advertising payment in the event that specified net
sales targets are not achieved. The agreement expires on December 31, 2011, with
one three-year renewal period if certain provisions are met.




On July
1, 2008, the Company entered into a license agreement with Jones Investment Co.
Inc., under which the Company has the right to use the l.e.i.® trademark in
connection with the sale and marketing of women’s footwear exclusively to
Wal-Mart. The agreement requires the Company to pay the licensor a royalty and
advertising payments equal to a percentage of net sales and a minimum royalty
and advertising payment in the event that specified net sales targets are not
achieved. The agreement expires on December 31, 2011, with one three-year
renewal period if certain provisions are met.


F -
26
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
L - Commitments, Contingencies and Other (Continued)




On March
28, 2007, the Company, through its Accessories Division, entered into a license
agreement to design, manufacture and distribute handbags and belts and related
accessories under the DF Daisy Fuentes® and the Daisy Fuentes® brands. The
agreement requires the Company to pay the licensor a royalty and brand
management fees based on a percentage of net sales and a minimum royalty in the
event that specified net sales targets are not achieved. The agreement expires
on December 31, 2010.




On May
12, 2003, the Company entered into a long-term license agreement with Candie’s,
Inc. to design, manufacture and distribute Candie’s® branded footwear for women
and children worldwide. The initial term of the agreement expired on December
31, 2009, with four 3-year renewal terms, the last of which expires on December
31, 2021. The agreement required the Company to make royalty and advertising
payments equal to a percentage of net sales of licensed products and a minimum
royalty and advertising payment in the event that specified net sales targets
were not achieved. On December 6, 2004, the agreement was amended to reflect
Candie’s decision to name Kohl’s Corporation the exclusive provider of a new
line of Candie’s apparel. The amendment extended the initial term of the
agreement to December 31, 2010, and eliminated the renewal term options.
Pursuant to the amendment, commencing on January 1, 2007, the Company no longer
has the exclusive right to market Candie’s branded footwear and will be
permitted to sell Candie’s branded footwear only to Kohl’s. Under the terms of
the amendment, Candie’s guarantees that the Company will achieve minimum sales
levels with Kohl’s during the term of the agreement. In the event such minimum
sales levels are not achieved, Candie’s is required to compensate the Company in
an amount based on a percentage of the sales shortfall. Effective January 1,
2005, all royalty and advertising payments were eliminated. As an inducement to
execute the amendment, the Company was required to pay Candie’s a total of
$3,000 payable in eight equal quarterly installments that began in February 2005
and concluded with a final payment in May 2007.





Royalty
expenses are included in the “cost of goods sold” section of the Company’s
Consolidated Statements of Income. Aggregate minimum future royalties excluding
renewal options, under these agreements are as follows:


Year
      Ending
                December
      31,2010
            
            $
            2,7882011
            
            
            3,3112012
            
            
            1,0632013
            
            
            900$
            8,062




[5]          Related
Party Transactions:




In
January 2004, the Company entered into an agreement with JLM Consultants, a
company wholly owned by John Madden, one of the Company’s directors and the
brother of Steven Madden, the Company’s founder and Creative and Design Chief.
Under this agreement, Mr. Madden provides consulting services with respect to
the development of international sales of the Company. Pursuant to this
agreement, JLM Consultants received a fee and expenses of $760, $760 and $661 in
2009, 2008 and 2007, respectively, in addition to fees that Mr. Madden received
for service to the Company as a director.


F -
27
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
L - Commitments, Contingencies and Other (Continued)




In July
2001, the Company entered into a consulting agreement with Peter J. Solomon
& Company (“Solomon”), a financial advisory firm of which Marc Cooper, a
former director of the Company from July 2001 through February of 2008, is a
managing director. Under this agreement, the firm provided financial advisory
and investment banking services to the Company. This agreement, which was
amended in March 2004, was terminated on July 11, 2006. The Company paid fees
and expenses of $46 and $67 to Solomon in 2008 and 2007, respectively, for
limited consulting engagements.




In
October 2002, the Company entered into an arrangement with Jeff Birnbaum, a
former director of the Company from June 2003 through October 2007. Under this
arrangement, which was terminated in October 2007, Mr. Birnbaum provided
consulting services with respect to the design and manufacturing of shoes and
general consulting services to the Company. Pursuant to this arrangement, Mr.
Birnbaum received a fee of $200 in 2007 in addition to fees received for service to the Company as a director.





[6]           Concentrations:




The
Company maintains cash and cash equivalents with various major financial
institutions which at times are in excess of the amount insured. In addition,
the Company’s marketable securities are principally held at three brokerage
companies.




During
the year ended December 31, 2009, the Company purchased approximately 24%, 14%
and 11% of its merchandise from three suppliers in China. Total product
purchases from China for the year ended December 31, 2009 was approximately
84%.




During
the year ended December 31, 2008, the Company purchased approximately 21%, 14%
and 10% of its merchandise from three suppliers in China. Total purchases from
China for the year ended December 31, 2008 was approximately 93%.




During
the year ended December 31, 2007, the Company purchased approximately 24% and
12% of its merchandise from two suppliers in China. Total purchases from China
for the year ended December 31, 2007 was approximately 81%.




Sales to
one customer accounted for 11% of total net sales for the year ended December
31, 2009. Three other customers represented 14%, 13% and 10% of accounts
receivable at December 31, 2009.




Sales to
one customer accounted for 10% of total net sales for the year ended December
31, 2008. This customer represented 15% while two other customers represented
15% and 11% of accounts receivable at December 31, 2008.




Sales to
one customer accounted for 12% of total net sales for the year ended December
31, 2007. This customer represented 17% of accounts receivable at December 31,
2007.




Sales to
such customers are included in the wholesale segment (see Note
N). Purchases are made primarily in United States dollars.


F -
28
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
L - Commitments, Contingencies and Other (Continued)




[7]           Valuation
and qualifying accounts:




The
following is a summary of the allowance for doubtful accounts related to
accounts receivable and the allowance for chargebacks related to the amount Due
from Factors for the years ended December 31:




2009
            
            
            2008
            
            
            2007Balance
      at beginning of year
            
            $
            11,301
            
            
            $
            15,446
            
            
            $
            12,508Charged
      to reserve
            
            
            —
            
            
            
            4,145
            
            
            
            —Increase
      in reserve
            
            
            2,381
            
            
            
            —
            
            
            
            2,938Balance
      at end of year
            
            $
            13,682
            
            
            $
            11,301
            
            
            $
            15,446





The
following is a summary of the reserve for slow moving inventory for the years
ended December 31:




2009
            
            
            2008
            
            
            2007Balance
      at beginning of year
            
            $
            2,453
            
            
            $
            2,140
            
            
            $
            2,065Charged
      to reserve
            
            
            871
            
            
            
            —
            
            
            
            —Increase
      to the reserve
            
            
            —
            
            
            
            313
            
            
            
            75Balance
      at end of year
            
            $
            1,582
            
            
            $
            2,453
            
            
            $
            2,140





The
following is a summary of goodwill and the related accumulated amortization for
the years ended December 31:




2009
            
            
            2008
            
            
            2007Cost
      basisBalance
      at beginning of year
            
            $
            24,172
            
            
            $
            16,520
            
            
            $
            7,063Acquisitions
      and purchase price adjustments
            
            
            739
            
            
            
            7,652
            
            
            
            9,457Write-off
      of impaired assets
            
            
            —
            
            
            
            —
            
            
            
            —Balance
      at end of year
            
            
            24,911
            
            
            
            24,172
            
            
            
            16,520Accumulated
      amortizationBalance
      at beginning of year
            
            
            598
            
            
            
            598
            
            
            
            598Write-off
      of impaired assets
            
            
            —
            
            
            
            —
            
            
            
            —Balance
      at end of year
            
            
            598
            
            
            
            598
            
            
            
            598Goodwill
            
            $
            24,313
            
            
            $
            23,574
            
            
            $
            15,922





Note
M – Subsequent Events




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.
Founded in 2003, Big Buddha designs and markets fashion-forward handbags to
specialty retailers, better department stores and online retailers. The
acquisition was completed for $11,000 in cash plus potential earn out payments
based on annual financial performance through March 2013.




F -
29
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
N - 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 and specialty stores worldwide, derives revenue from
sales of branded 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 revenues from sales to department 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 and accessories. The First Cost segment
represents activities of a subsidiary which earns commissions for serving as a
buying agent of footwear products to mass-market merchandisers, shoe chains and
other off-price retailers with respect to their purchase of footwear. In the
Licensing 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.





The
Company’s Candie’s business has been transitioned from a “wholesale” model to a
“first cost” model, and, therefore, commission income for the year ended
December 31, 2009 is included in the First Cost segment. As a result of this
change, for the year ended December 31, 2009, net sales for the Wholesale
Footwear segment does not reflect Candie’s revenue while net sales in 2008
reflected revenue of $4,223 for the Candie’s business.


F -
30
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)
 Note
N - Operating Segment Information (continued)


The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before other income (expense) and the
provision for income taxes. The following is information for the Company’s
reportable segments:




Year
      ended,
            
            Wholesale
              Footwear
            
            
            Wholesale
              Accessories
            
            
            Total
      Wholesale
            
            
            Retail
            
            
            First
      Cost
            
            
            Licensing
            
            
            ConsolidatedDecember
      31, 2009:Net
      sales to external customers
            
            $
            309,439
            
            
            $
            70,406
            
            
            $
            379,845
            
            
            $
            123,705
            
            
            
            
            
            
            
            
            $
            503,550Gross
      profit
            
            
            123,172
            
            
            
            23,741
            
            
            
            146,913
            
            
            
            69,276
            
            
            
            
            
            
            
            
            
            216,189Commissions
      andlicensing
      fees - net
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            16,803
            
            
            $
            3,125
            
            
            
            19,928Income
      (loss) from operations
            
            
            51,360
            
            
            
            9,199
            
            
            
            60,559
            
            
            
            (1,519
            )
            
            
            16,803
            
            
            
            3,125
            
            
            
            78,968Depreciation
      and amortization
            
            
            
            
            
            
            
            
            
            
            4,166
            
            
            
            5,197
            
            
            
            197
            
            
            
            —
            
            
            
            9,560Segment
      assets
            
            $
            225,533
            
            
            $
            42,372
            
            
            
            267,905
            
            
            
            51,774
            
            
            
            7,180
            
            
            
            —
            
            
            
            326,859Capital
      expenditures
            
            
            
            
            
            
            
            
            
            $
            1,249
            
            
            $
            2,150
            
            
            $
            —
            
            
            $
            —
            
            
            $
            3,399December
      31, 2008:Net
      sales to externalcustomers
            
            $
            264,479
            
            
            $
            66,928
            
            
            $
            331,407
            
            
            $
            125,639
            
            
            
            
            
            
            
            
            
            
            $
            457,046Gross
      profit
            
            
            92,903
            
            
            
            23,478
            
            
            
            116,381
            
            
            
            70,443
            
            
            
            
            
            
            
            
            
            
            
            186,824Commissions
      andlicensing
      fees - net
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            11,567
            
            
            $
            2,727
            
            
            
            14,294Income
      (loss) from operations
            
            
            25,699
            
            
            
            9,089
            
            
            
            34,788
            
            
            
            (4,176
            )
            
            
            11,567
            
            
            
            2,727
            
            
            
            44,906Depreciation
      and amortization
            
            
            
            
            
            
            
            
            
            
            3,751
            
            
            
            5,295
            
            
            
            55
            
            
            
            
            
            
            
            9,101Segment
      assets
            
            $
            159,133
            
            
            $
            36,453
            
            
            
            195,586
            
            
            
            52,536
            
            
            
            36,571
            
            
            
            —
            
            
            
            284,693Capital
      expenditures
            
            
            
            
            
            
            
            
            
            $
            3,551
            
            
            $
            4,707
            
            
            $
            56
            
            
            $
            —
            
            
            $
            8,314December
      31, 2007:Net
      sales to external customers
            
            $
            255,936
            
            
            $
            54,469
            
            
            $
            310,405
            
            
            $
            120,645
            
            
            
            
            
            
            
            
            
            
            $
            431,050Gross
      profit
            
            
            87,936
            
            
            
            16,885
            
            
            
            104,821
            
            
            
            68,583
            
            
            
            
            
            
            
            
            
            
            
            173,404Commissions
      andlicensing
      fees - net
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            $
            14,674
            
            
            $
            3,677
            
            
            
            18,351Income
      (loss) from operations
            
            
            26,978
            
            
            
            4,481
            
            
            
            31,459
            
            
            
            3,104
            
            
            
            14,674
            
            
            
            3,677
            
            
            
            52,914Depreciation
      and amortization
            
            
            
            
            
            
            
            
            
            
            3,668
            
            
            
            4,766
            
            
            
            1
            
            
            
            
            
            
            
            8,435Segment
      assets
            
            $
            152,373
            
            
            $
            29,618
            
            
            
            181,991
            
            
            
            56,120
            
            
            
            28,410
            
            
            
            —
            
            
            
            266,521Capital
      expenditures
            
            
            
            
            
            
            
            
            
            $
            3,210
            
            
            $
            9,513
            
            
            $
            242
            
            
            $
            —
            
            
            $
            12,965




Prior to
2009, the Company’s international business operated under the “first cost” model
and thus the revenues were included in Commissions and Licensing Fees in the
Consolidated Statements of Income. In 2009, the Company’s international business
began to operate under the “wholesale” model and thus, in 2009, international
revenues are included in the Net Sales line in the Consolidated Statements of
Income. For the year ended December 31, 2009, foreign net sales were
$22,055.


F -
31
 STEVEN
MADDEN, LTD. AND SUBSIDIARIES
  Notes
to Consolidated Financial Statements
 December
31, 2009 and 2008
 ($
in thousands except per share data)


Note
O - Quarterly Results of Operations (unaudited)




The
following is a summary of the quarterly results of operations for the years
ended December 31, 2009 and 2008:





March
      31,
            
            
            June
      30,
            
            
            September
      30,
            
            
            December
      31,2009:Net
      sales
            
            $
            107,429
            
            
            $
            116,472
            
            
            $
            140,138
            
            
            $
            139,511Cost
      of sales
            
            
            63,942
            
            
            
            66,909
            
            
            
            78,462
            
            
            
            78,048Gross
      profit
            
            
            43,487
            
            
            
            49,563
            
            
            
            61,676
            
            
            
            61,463Commissions,
      royalty and licensing fee income - net
            
            
            2,905
            
            
            
            7,362
            
            
            
            5,726
            
            
            
            3,935Net
      income
            
            $
            6,577
            
            
            $
            12,144
            
            
            $
            17,831
            
            
            $
            13,555Net
      income per share:Basic
            
            
            0.37
            
            
            
            0.67
            
            
            
            0.99
            
            
            
            0.75Diluted
            
            
            0.37
            
            
            
            0.66
            
            
            
            0.97
            
            
            
            0.732008:Net
      sales
            
            $
            100,539
            
            
            $
            109,317
            
            
            $
            128,093
            
            
            $
            119,097Cost
      of sales
            
            
            60,324
            
            
            
            63,780
            
            
            
            75,114
            
            
            
            71,004Gross
      profit
            
            
            40,215
            
            
            
            45,537
            
            
            
            52,979
            
            
            
            48,093Commissions,
      royalty and licensing fee income - net
            
            
            3,356
            
            
            
            3,203
            
            
            
            4,497
            
            
            
            3,238Net
      income
            
            $
            2,052
            
            
            $
            7,634
            
            
            $
            11,088
            
            
            $
            7,202Net
      income per share:Basic
            
            
            0.10
            
            
            
            0.43
            
            
            
            0.62
            
            
            
            0.40Diluted
            
            
            0.10
            
            
            
            0.43
            
            
            
            0.62
            
            
            
            0.40




F -
32





Exhibits.




3.01
            
            Certificate
      of Incorporation of Steven Madden, Ltd. (incorporated by reference to
      Exhibit 1 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on November 23,
  1998).3.02
            
            Amended
      & Restated By-Laws of Steven Madden, Ltd. (incorporated by reference
      to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on March 28, 2008).4.01
            
            Specimen
      Certificate for shares of Common Stock (incorporated by reference to
      Exhibit 4.1 to the Company’s Registration Statement on Form SB-2/A filed
      with the Securities and Exchange Commission on September 29,
      1993).4.02
            
            Rights
      Agreement dated November 14, 2001 between the Company and American Stock
      Transfer and Trust Company (incorporated by reference to Exhibit 4.1 to
      the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on November 16, 2001).10.01
            
            Amended
      and Restated Secured Promissory Note dated December 19, 2007 of Steven
      Madden to the Company (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on May 12, 2008).10.02
            
            Second
      Amended and Restated Secured Promissory Note dated April 6, 2009 of Steven
      Madden to the Company (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on April 10, 2009.10.03
            
            Consulting
      Agreement effective August 1, 2004 among the Company, John Madden and
      J.L.M. Consultants Inc., as amended by Amendment No. 1 dated March 10,
      2005 and Amendment No. 2 dated April 14, 2005 (incorporated by reference
      to Exhibits 10.9, 10.10 and 10.11 to the Company’s Annual Report on Form
      10-K for its fiscal year ended December 31, 2005 filed with the Securities
      and Exchange Commission on March 14, 2006).10.04
            
            Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and the Company (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 16, 2009).10.05
            
            Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and Daniel Friedman & Associates, Inc. (incorporated by reference
      to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on July 16, 2009).10.06
            
            Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and Diva Acquisition Corp. (incorporated by reference to Exhibit 10.3
      to the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 16, 2009).10.07
            
            Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and Steven Madden Retail, Inc. (incorporated by reference to Exhibit
      10.4 to the Company’s Current Report on Form 8-K filed with the Securities
      and Exchange Commission on July 16, 2009).10.08
            
            Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and Stevies, Inc. (incorporated by reference to Exhibit 10.5 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 16, 2009).10.09
            
            Collection
      Agency Agreement dated July 10, 2009 between Rosenthal & Rosenthal,
      Inc. and SML Acquisition Corp. (incorporated by reference to Exhibit 10.6
      to the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on July 16, 2009).10.10
            
            Amendment
      to Collection Agency Agreement dated February 16, 2010 between Rosenthal
      & Rosenthal, Inc. and the Company. †10.11
            
            Letter
      Agreement dated July 10, 2009 among Rosenthal & Rosenthal, Inc., the
      Company, Daniel Friedman & Associates, Inc., Diva Acquisition Corp.,
      Steven Madden Retail, Inc., Stevies, Inc., and SML Acquisition Corp.
      (incorporated by reference to Exhibit 10.7 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on July 16,
      2009).  
  10.12
              
              Guarantee
      dated July 10, 2009 of the Company, Daniel Friedman & Associates,
      Inc., Diva Acquisition Corp., Steven Madden Retail, Inc., Stevies, Inc.,
      and SML Acquisition Corp. in favor of Rosenthal & Rosenthal, Inc.
      (incorporated by reference to Exhibit 10.8 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on July 16,
      2009).10.13
              
              Stock
      Purchase Agreement dated February 10, 2010 between the Company and Jeremy
      Bassan (incorporated by reference to Exhibit 10.1 to the Company’s Current
      Report on Form 8-K filed with the Securities and Exchange Commission on
      February 11, 2010).10.14
              
              Earn-Out
      Agreement dated February 10, 2010 among the Company, Jeremy Bassan and Big
      Buddha, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on February 11, 2010).10.15
              
              Third
      Amended Employment Agreement dated July 15, 2005 between the Company and
      Steven Madden (incorporated by reference to Exhibit 10.1 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on July 20, 2005).#10.16
              
              Amendment
      dated December 14, 2009 to Third Amended Employment Agreement between the
      Company and Steven Madden (incorporated by reference to Exhibit 10.1 to
      the Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on December 17, 2009).#10.17
              
              Employment
      Agreement dated January 1, 1998 between the Company and Arvind Dharia
      (incorporated by reference to Exhibit 10.07 to the Company’s Annual Report
      on Form 10-K for its fiscal year ended December 31, 2000 filed with the
      Securities and Exchange Commission on March 30, 2001.#10.18
              
              Amendment
      No. 1 dated June 29, 2001 to Employment Agreement between the Company and
      Arvind Dharia (incorporated by reference to Exhibit 99.4 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2001
      filed August 14, 2001.#10.19
              
              Amendment
      No. 2 dated October 30, 2002 to Employment Agreement between the Company
      and Arvind Dharia (incorporated by reference to Exhibit 10.16 to the
      Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended
      September 30, 2002 filed with the Securities and Exchange Commission on
      November 14, 2002.#10.20
              
              Amendment
      No. 3 dated February 1, 2006 to Employment Agreement between the Company
      and Arvind Dharia (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on February 3, 2006).#10.21
              
              Amendment
      No. 4 dated October 7, 2009 to Employment Agreement of Arvind Dharia
      between the Company and Arvind Dharia (incorporated by reference to
      Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the
      Securities and Exchange Commission on October 13, 2009).#10.22
              
              Employment
      Agreement dated June 15, 2005 between the Company and Awadhesh Sinha
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on June 21,
      2005).#10.23
              
              Amendment
      No. 1 dated November 6, 2007 to Employment Agreement between the Company
      and Awadhesh Sinha (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on November 6, 2007).#10.24
              
              Amendment
      No. 2 dated October 14, 2008 and effective October 1, 2008 to Employment
      Agreement between the Company and Awadhesh Sinha (incorporated by
      reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
      filed with the Securities and Exchange Commission on October 20,
      2008).#10.25
              
              Employment
      Agreement dated October 7, 2009 between the Company and Robert Schmertz
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on October
      13, 2009).#10.26
              
              Employment
      Agreement effective as of April 29, 2008 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 Securities and Exchange
      Commission on May 5, 2008).#
  
  10.27
              
              Employment
      Agreement dated April 7, 2008 between the Company and Edward Rosenfeld
      (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on April 11,
      2008).#10.28
              
              Employment
      Agreement dated November 6, 2009 between the Company and Edward R.
      Rosenfeld (incorporated by reference to Exhibit 10.1 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on November 10, 2009).#10.29
              
              Amendment
      No. 1 dated March 8, 2010 to Employment Agreement between the Company and
      Edward R. Rosenfeld. †#10.30
              
              Letter
      Agreement dated March 27, 2008 between the Company and Walter Yetnikoff
      (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended March 31, 2008 filed with
      the Securities and Exchange Commission on May 12, 2008).#10.31
              
              Employment
      Agreement dated May 16, 2007 between the Company and Jeffrey Silverman
      (incorporated by reference to Exhibit 10.3 to the Company’s Current Report
      on Form 8-K filed with the Securities and Exchange Commission on May 18,
      2007).#10.32
              
              Amendment
      to Employment Agreement dated as of December 21 2007 between the Company
      and Jeffrey Silverman (incorporated by reference to Exhibit 10.3 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on December 21, 2007).#10.33
              
              Settlement
      and Release Agreement dated December 21, 2007 between the Company and
      Jeffrey Silverman (incorporated by reference to Exhibit 10.1 to the
      Company’s Current Report on Form 8-K filed with the Securities and
      Exchange Commission on December 21, 2007).10.34
              
              Termination
      Agreement dated as of April 11, 2008 between the Company and Jeffrey
      Silverman (incorporated by reference to Exhibit 10.1 to the Company’s
      Current Report on Form 8-K filed with the Securities and Exchange
      Commission on April 15, 2008).10.35
              
              The
      1999 Stock Plan, approved and adopted on March 15, 1999, amended as of
      March 20, 2000 and March 30, 2001 (incorporated by reference to Exhibit
      10.A to the Company’s Registration Statement on Form S-8 filed with the
      Securities and Exchange Commission on July 26, 2004).#10.36
              
              2006
      Stock Incentive Plan (Amended and Restated Effective May 22, 2009),
      approved and adopted on May 22, 2009 (incorporated by reference to Exhibit
      10.1 to the Company’s Current Report on Form 8-K filed with the Securities
      and Exchange Commission on May 28, 2009.#10.37
              
              Form
      of Non-Qualified Stock Option Agreement (Chief Executive Officer) under
      the Company’s 2006 Stock Incentive Plan, as amended, as adopted October
      30, 2007 (incorporated by reference to Exhibit 10.2 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.38
              
              Form
      of Non-Qualified Stock Option Agreement (Employee without Employment
      Agreement) under the Company’s 2006 Stock Incentive Plan, as adopted
      October 30, 2007 (incorporated by reference to Exhibit 10.3 to the
      Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended
      September 30, 2007 filed with the Securities and Exchange Commission on
      November 9, 2007).#10.39
              
              Form
      of Non-Qualified Stock Option Agreement (Employee with Employment
      Agreement) under the Company’s 2006 Stock Incentive Plan, as adopted
      October 30, 2007 (incorporated by reference to Exhibit 10.4 to the
      Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended
      September 30, 2007 filed with the Securities and Exchange Commission on
      November 9, 2007).#10.40
              
              Form
      of Restricted Stock Agreement (Chief Executive Officer) under the
      Company’s 2006 Stock Incentive Plan, as adopted October 30, 2007
      (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.41
              
              Form
      of Restricted Stock Agreement (Employee without Employment Agreement)
      under the Company’s 2006 Stock Incentive Plan, as adopted October 30, 2007
      (incorporated by reference to Exhibit 10.6 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#
  
  10.42
              
              Form
      of Restricted Stock Agreement (Employee with Employment Agreement) under
      the Company’s 2006 Stock Incentive Plan, as adopted October 30, 2007
      (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.43
              
              Form
      of Restricted Stock Agreement under the Company’s 2006 Stock Incentive
      Plan used for grants made to non- employee directors from March 2006
      through May 2007, with a schedule setting forth the name of each of the
      recipients, the date of the grant and the number of shares (incorporated
      by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form
      10-Q for its fiscal quarter ended September 30, 2007 filed with the
      Securities and Exchange Commission on November 9, 2007).#10.44
              
              Restricted
      Stock Agreement dated March 24, 2006 between Steven Madden and the Company
      (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.45
              
              Restricted
      Stock Agreement dated June 9, 2006 between Steven Madden and the Company
      (incorporated by reference to Exhibit 10.13 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.46
              
              Restricted
      Stock Agreement dated March 24, 2006 between Arvind Dharia and the Company
      (incorporated by reference to Exhibit 10.14 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.47
              
              Restricted
      Stock Agreement dated March 20, 2006 between Amelia Newton Varela and the
      Company (incorporated by reference to Exhibit 10.15 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.48
              
              Restricted
      Stock Agreement dated March 20, 2006 between Robert Schmertz and the
      Company (incorporated by reference to Exhibit 10.16 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.49
              
              Restricted
      Stock Agreement dated March 6, 2007 between Arvind Dharia and the Company
      (incorporated by reference to Exhibit 10.17 to the Company’s Quarterly
      Report on Form 10-Q for its fiscal quarter ended September 30, 2007 filed
      with the Securities and Exchange Commission on November 9, 2007).#10.50
              
              Restricted
      Stock Agreement dated March 9, 2007 between Robert Schmertz and the
      Company (incorporated by reference to Exhibit 10.18 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.51
              
              Restricted
      Stock Agreement dated April 25, 2007 between Awadhesh Sinha and the
      Company (incorporated by reference to Exhibit 10.19 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.52
              
              Non-Qualified
      Stock Option Agreement dated May 16, 2007 between Jeffrey Silverman and
      the Company (incorporated by reference to Exhibit 10.20 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#10.53
              
              Non-Qualified
      Stock Option Agreement dated May 16, 2007 between Jeffrey Silverman and
      the Company (incorporated by reference to Exhibit 10.21 to the Company’s
      Quarterly Report on Form 10-Q for its fiscal quarter ended September 30,
      2007 filed with the Securities and Exchange Commission on November 9,
      2007).#
  
  21.01
              
              Subsidiaries
      of the Registrant†23.01
              
              Consent
      of Eisner LLP†24.01
              
              Power
      of Attorney (included on signature page hereto)31.01
              
              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.†31.02
              
              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.†32.01
              
              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.†32.02
              
              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.†




†
              Filed
      herewith.#
              Indicates
      management contract or compensatory plan or arrangement required to be
      identified pursuant to Item 15(b) of this Annual Report on Form
      10-K.