Steven Madden(SHOO) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This part covers the company's unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls ITEM 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, comprehensive income statements, statements of changes in stockholders' equity, and cash flow statements, along with detailed notes explaining the basis of reporting, significant accounting policies, and specific financial events Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Total Assets (in thousands): | Date | Amount | | :--- | :--- | | Sep 30, 2021 | $1,300,060 | | Dec 31, 2020 | $1,137,761 | | Sep 30, 2020 | $1,104,410 | Total Liabilities (in thousands): | Date | Amount | | :--- | :--- | | Sep 30, 2021 | $492,880 | | Dec 31, 2020 | $347,392 | | Sep 30, 2020 | $336,670 | Total Stockholders' Equity (in thousands): | Date | Amount | | :--- | :--- | | Sep 30, 2021 | $807,180 | | Dec 31, 2020 | $790,369 | | Sep 30, 2020 | $767,740 | Condensed Consolidated Statements of Income/(Loss) This section provides a summary of the company's revenues, expenses, and net income or loss over specific reporting periods Three Months Ended September 30 (in thousands, except per share data): | Metric | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total revenue | $528,742 | $346,867 | +52.4% | | Gross profit | $219,998 | $139,877 | +57.3% | | Income/(loss) from operations | $88,418 | $(2,998) | Turnaround to profit | | Net income/(loss) attributable to Steven Madden, Ltd. | $66,643 | $(6,951) | Turnaround to profit | | Diluted net income/(loss) per share | $0.82 | $(0.09) | Turnaround to profit | Nine Months Ended September 30 (in thousands, except per share data): | Metric | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total revenue | $1,287,661 | $848,847 | +51.7% | | Gross profit | $529,157 | $329,229 | +60.7% | | Income/(loss) from operations | $164,180 | $(52,948) | Turnaround to profit | | Net income/(loss) attributable to Steven Madden, Ltd. | $124,692 | $(40,988) | Turnaround to profit | | Diluted net income/(loss) per share | $1.53 | $(0.52) | Turnaround to profit | Condensed Consolidated Statements of Comprehensive Income/(Loss) This section details the company's net income or loss and other comprehensive income or loss components for the reporting periods - For the three months ended September 30, 2021, the company reported net income of $66,665K and a total other comprehensive loss of $(3,984)K, resulting in comprehensive income attributable to Steven Madden, Ltd. of $62,518K[12] - For the nine months ended September 30, 2021, the company reported net income of $126,337K and total other comprehensive income of $207K, resulting in comprehensive income attributable to Steven Madden, Ltd. of $124,650K[12] - In contrast, for the three months ended September 30, 2020, the company reported a net loss of $(7,146)K and total other comprehensive income of $2,152K, leading to a comprehensive loss attributable to Steven Madden, Ltd. of $(4,578)K[12] Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines the changes in the company's equity, including share repurchases, dividends, and net income, over a specific period Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2021, in thousands): | Item | Amount | | :--- | :--- | | Balance at January 1, 2021 | $790,369 | | Share repurchases and net settlement of awards | $(74,685) | | Stock-based compensation | $16,696 | | Dividends on common stock | $(36,990) | | Net income | $126,337 | | Balance at September 30, 2021 | $807,180 | Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the reporting periods Cash Flows (Nine Months Ended September 30, in thousands): | Activity | 2021 | 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $96,184 | $607 | +$95,577 | | Net cash provided by investing activities | $2,408 | $524 | +$1,884 | | Net cash used in financing activities | $(126,429) | $(40,936) | $(85,493) | | Net decrease in cash and cash equivalents | $(28,341) | $(40,281) | +$11,940 | | Cash and cash equivalents – end of period | $219,523 | $223,820 | $(4,297) | Notes to Condensed Consolidated Financial Statements – Unaudited This section provides detailed explanations and additional information supporting the unaudited condensed consolidated financial statements Note A – Basis of Reporting This note describes the accounting principles and rules used for preparing the interim financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC rules, including normal recurring adjustments[20] Note B - COVID-19 and Restructuring Charges This note details the company's responses to the COVID-19 pandemic and associated restructuring charges - In March 2020, the Company temporarily closed brick-and-mortar stores and corporate offices and furloughed a significant number of employees due to the COVID-19 pandemic[21] - Precautionary measures included temporarily suspending share repurchases and quarterly cash dividends (reinstated in Q1 2021), and salary reductions for executives and employees (reinstated by August/October 2020)[21] - The Company recorded a pre-tax charge of $1,239K for additional severance related to its restructuring plan during the nine months ended September 30, 2021[22] Note C – Reclassification This note explains adjustments made to prior year financial amounts for consistent presentation - Certain prior year amounts were reclassified to conform to the 2021 presentation, primarily regarding the breakout of impairment of fixed assets and lease right-of-use assets from operating expenses and segment reporting of corporate expenses and assets[23] Note D – Acquisitions This note provides details on the company's recent acquisitions of non-controlling interests in joint ventures - On April 14, 2021, the Company acquired the remaining 49.9% non-controlling interest in its European joint venture for $16,626K[24] - On June 28, 2021, the Company completed the acquisition of the remaining 49.9% non-controlling interest in its South African joint venture for $2,501K[25] Note E – Use of Estimates This note highlights management's reliance on estimates and assumptions in preparing the financial statements - The preparation of financial statements requires management to make estimates and assumptions, including variable consideration in revenue, bad debt allowances, inventory valuation, intangible asset valuation, impairment of long-lived assets, litigation reserves, and contingent payment liabilities[26][27] Note F– Factoring Agreement This note describes the company's factoring agreement for managing certain receivables and credit risk - On July 22, 2020, the Company entered into an Amended and Restated Deferred Purchase Factoring Agreement with Rosenthal & Rosenthal, Inc., where Rosenthal serves as the collection agent for certain receivables and assumes credit risk for credit-approved receivables[28] Note G – Short-Term Investments This note details the composition and amounts of the company's short-term investments Short-Term Investments (in thousands): | Date | Amount | | :--- | :--- | | Sep 30, 2021 | $40,390 | | Dec 31, 2020 | $39,302 | - Short-term investments consist of certificates of deposit with maturities of one year or less[29] Note H – Fair Value Measurement This note explains the valuation methods and changes in fair value for certain financial instruments, particularly contingent consideration - The Company's Level 3 liabilities for contingent consideration increased from $207K at January 1, 2021, to $8,041K at September 30, 2021, primarily due to adjustments related to the acquisitions of B.B. Dakota, Inc. and GREATS Brand, Inc[31] - Fair value of contingent payments for B.B. Dakota, Inc. was estimated using the Black-Scholes-Merton option pricing method with a 11.0% discount rate[31] - Fair value of contingent payments for GREATS Brand, Inc. was estimated using a risk neutral simulation method with a 10.0% discount rate[32] Note I – Leases This note provides information on the company's lease-related assets, liabilities, and associated costs Lease-Related Assets and Liabilities (in thousands): | Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Operating lease right-of-use asset | $90,832 | $101,379 | | Total operating lease liabilities | $117,421 | $132,849 | | Weighted-average remaining lease term | 4.7 years | 5.0 years | | Weighted-average discount rate | 4.2% | 4.3% | Total Lease Cost (in thousands): | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $10,975 | $16,996 | | Nine Months Ended Sep 30 | $42,961 | $37,129 | - The Company incurred $9,505K in expenses related to COVID-19 lease amendments during the nine months ended September 30, 2021, included in variable lease cost[40] Note J – Impairment of Other Long-Lived Assets This note details the impairment charges recorded for the company's fixed assets and right-of-use assets Total Impairment Charges for Fixed Assets and Right-of-Use Assets (in thousands): | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $0 | $6,897 | | Nine Months Ended Sep 30 | $1,089 | $36,896 | - Impairment losses are recorded when the carrying amount of a long-lived asset group exceeds its fair value, estimated using an income approach based on management's forecast of future cash flows[43] Note K – Share Repurchase Program This note outlines the company's share repurchase activities and remaining authorization - During the nine months ended September 30, 2021, the Company repurchased 1,497,609 shares of common stock for approximately $62,081K at a weighted average price of $41.45 per share[44] - As of September 30, 2021, approximately $49,509K remained available for future repurchases under the Share Repurchase Program[44] - On November 2, 2021, the Board of Directors approved an increase of approximately $200,000K to the share repurchase authorization, bringing the total authorization to $250,000K[44] Note L – Net Income/(Loss) Per Share of Common Stock This note explains the calculation of basic and diluted earnings per share - Basic net income/(loss) per share is based on the weighted average number of common shares outstanding, excluding unvested restricted common stock[46] - Diluted net income per share reflects potential dilution from stock options and restricted stock awards, to the extent dilutive[46] - Contingently issuable performance awards (17,000 shares in 2021, 300,000 in 2020) were excluded from diluted EPS calculation as performance conditions were not met[46] Note M – Income Taxes This note discusses the company's effective tax rates and significant factors influencing them Effective Tax Rates: | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | 24.4% | (145.6%) | | Nine Months Ended Sep 30 | 22.6% | 18.2% | - The difference in effective tax rates is primarily due to the expected jurisdictional mix of profit and losses and a decrease in Global Intangible Low Taxed Income (GILTI) in 2021[47] - The Company expects to receive corporate income tax benefits from the CARES Act, including net operating loss carryback, employee retention credit, and employer payroll tax deferral[50] Note N – Equity-Based Compensation This note provides details on the company's equity-based compensation plans and expenses Total Equity-Based Compensation (in thousands): | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $5,677 | $5,732 | | Nine Months Ended Sep 30 | $16,696 | $16,939 | - As of September 30, 2021, 7,730,522 shares of common stock were available for grant under the 2019 Plan[51] - Steve Madden was granted an option to purchase 225,000 shares on August 2, 2021, vesting in four equal installments by June 30, 2022[53] Note O – Goodwill and Intangible Assets This note presents the carrying amounts of goodwill and intangible assets and any impairment assessments Goodwill Net Carrying Amount (in thousands): | Reporting Unit | Sep 30, 2021 | | :--- | :--- | | Wholesale Footwear | $90,906 | | Wholesale Accessories/Apparel | $62,688 | | Retail | $14,363 | | Total | $167,957 | - No impairment charges were recorded for goodwill and intangibles in 2021, following a qualitative assessment as of July 1, 2021, which concluded fair values exceeded carrying values[58] - The Company sold an internally developed trademark for $8,000K during the nine months ended September 30, 2021, with the gain recorded in operating expenses[60] Note P – Derivative Instruments This note describes the company's use of derivative instruments for hedging foreign currency risk - The Company uses forward foreign exchange contracts as cash flow hedging instruments to manage the risk of exchange rate fluctuations on forecasted inventory purchases[62] - As of September 30, 2021, the net forward contracts hedging portfolio had a notional amount of $26,648K[62] Note Q – Commitments, Contingencies and Other This note outlines the company's future financial commitments and potential liabilities from legal proceedings - As of September 30, 2021, the Company had future minimum royalty and advertising payments totaling $16,000K[63] - Management believes that liabilities from legal proceedings will not have a material effect on the Company's financial position or results of operations[64] Note R – Operating Segment Information This note provides financial data broken down by the company's various operating segments - The Company operates five reportable segments: Wholesale Footwear, Wholesale Accessories/Apparel, Retail, First Cost, and Licensing[65] - Corporate expenses are unallocated and include costs related to corporate executives, finance, social responsibility, legal, human resources, information technology, and other shared costs[66] Nine Months Ended September 30, 2021 Segment Revenue (in thousands): | Segment | Revenue | % of Total Revenue | | :--- | :--- | :--- | | Wholesale Footwear | $719,094 | 55.8% | | Wholesale Accessories/Apparel | $236,444 | 18.4% | | Retail | $323,227 | 25.1% | | First Cost | $1,909 | 0.1% | | Licensing | $6,987 | 0.5% | | Total | $1,287,661 | 100.0% | Note S – Recent Accounting Pronouncements This note discusses the company's evaluation of recently issued accounting standards - The Company is evaluating ASU 2020-04, "Reference Rate Reform," which provides practical expedients for contract modifications and hedging relationships related to the transition from LIBOR, but does not expect a material impact on its financial statements[69] Note T – Credit Agreement This note details the company's revolving credit agreement and its current utilization - On July 22, 2020, the Company entered into a $150,000K secured revolving credit agreement, maturing on July 22, 2025[70] - As of September 30, 2021, the Company had no cash borrowings and $1,400K in letters of credit outstanding under the Credit Facility[78] - The Credit Agreement contains various restrictions and covenants, including minimum availability requirements, but no other financial maintenance covenants[74] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting the significant recovery from the COVID-19 pandemic in 2021, with detailed analysis of revenue, gross profit, operating expenses, and net income across consolidated and segment-specific performance, alongside discussions on liquidity, capital resources, and contractual obligations Overview This section provides a general description of Steven Madden, Ltd.'s business operations and product distribution channels - Steven Madden, Ltd. designs, sources, markets, and sells fashion-forward branded and private label footwear, handbags, apparel, and accessories[85] - Products are distributed through various channels including department stores, specialty stores, luxury retailers, mass merchants, online retailers, company-owned retail stores, and e-commerce websites across North America, Europe, South Africa, and Asia[85] Executive Summary This section summarizes the company's key financial performance and liquidity position for the reporting period - The Company experienced significant improvements in its retail segment and wholesale businesses in 2021, recovering from the unprecedented decline in revenue and earnings in 2020 due to the COVID-19 pandemic[86] Key Financial Highlights (Three Months Ended Sep 30, 2021 vs. 2020): | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Total revenue | $528,742 | $346,867 | +52.4% | | Net income attributable to Steven Madden, Ltd. | $66,643 | $(6,951) | Turnaround to profit | | Diluted EPS | $0.82 | $(0.09) | Turnaround to profit | - As of September 30, 2021, the Company had $259,913K in cash, cash equivalents, and short-term investments, no debt, and working capital of $492,527K[88] Results of Operations This section analyzes the company's financial performance, including revenue, gross profit, and operating income, across different periods and segments Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 The company demonstrated a strong recovery in the third quarter of 2021, with significant revenue growth and a return to profitability across most segments compared to the pandemic-impacted prior year Consolidated This subsection provides a consolidated view of the company's financial performance for the three months ended September 30 - Total revenue increased 52.4% to $528,742K, driven by increases in Retail, Wholesale Footwear, and Wholesale Accessories/Apparel segments[91] - Gross profit margin improved to 41.6% from 40.3%, primarily due to a shift towards the higher-margin retail segment, partially offset by inbound freight costs and the non-renewal of GSP[91] - Income from operations was $88,418K, a significant turnaround from a loss of $(2,998)K in the prior-year period[91] Wholesale Footwear Segment This subsection details the financial performance of the Wholesale Footwear segment for the three months ended September 30 - Revenue increased 42.6% to $304,203K, accounting for 57.5% of total revenue[92] - Gross profit margin improved to 35.5% from 34.3%[92] - Income from operations increased to $70,515K from $31,707K in the prior year[92] Wholesale Accessories/Apparel Segment This subsection details the financial performance of the Wholesale Accessories/Apparel segment for the three months ended September 30 - Revenue increased 38.7% to $97,811K, representing 18.5% of total revenue[93] - Gross profit margin decreased to 27.8% from 35.5%, primarily due to the non-renewal of the GSP impacting imports from Cambodia in the handbag business[93] - Income from operations was $13,310K, a turnaround from a loss of $(4,658)K in the prior year[93] Retail Segment This subsection details the financial performance of the Retail segment for the three months ended September 30 - Revenue surged 108.6% to $123,054K, driven by strong performance in e-commerce and brick-and-mortar stores[94] - Gross profit margin improved to 65.9% from 63.8%, primarily due to lower promotional activity[94] - Income from operations was $22,539K, a significant turnaround from a loss of $(17,292)K in the prior year[94] - The Company ended the quarter with 216 retail stores, compared to 220 stores as of September 30, 2020[94] First Cost Segment This subsection details the financial performance of the First Cost segment for the three months ended September 30 - Commission income decreased to $991K from $1,479K[95] - Income from operations was $695K, down from $882K in the prior year[95] Licensing Segment This subsection details the financial performance of the Licensing segment for the three months ended September 30 - Royalty income slightly increased to $2,683K from $2,558K[96] - Income from operations was $1,991K, up from $1,948K in the prior year[96] Corporate This subsection details the corporate operating expenses for the three months ended September 30 - Corporate operating expenses increased 32.4% to $20,632K, primarily due to the impact of the COVID-19 pandemic in the prior year[97] Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 For the first nine months of 2021, the company achieved substantial revenue growth and a strong return to profitability, driven by recovery across all segments, effective expense control, and a gain from trademark sale, significantly reversing the losses incurred during the peak of the pandemic in 2020 Consolidated This subsection provides a consolidated view of the company's financial performance for the nine months ended September 30 - Total revenue increased 51.7% to $1,287,661K, with growth across Retail, Wholesale Footwear, and Wholesale Accessories/Apparel segments[100] - Gross profit margin improved to 41.1% from 38.8%, driven by a shift to the higher-margin retail segment, partially offset by inbound freight costs and GSP non-renewal[100] - Income from operations was $164,180K, a significant turnaround from a loss of $(52,948)K in the prior-year period, benefiting from higher revenue, an $8,000K gain on trademark sale, and expense control initiatives[100] Wholesale Footwear Segment This subsection details the financial performance of the Wholesale Footwear segment for the nine months ended September 30 - Revenue increased 36.6% to $719,094K, representing 55.8% of total revenue[101] - Gross profit margin improved to 34.4% from 33.2%[101] - Income from operations increased to $159,049K from $71,534K in the prior year[101] Wholesale Accessories/Apparel Segment This subsection details the financial performance of the Wholesale Accessories/Apparel segment for the nine months ended September 30 - Revenue increased 47.6% to $236,444K, accounting for 18.4% of total revenue[102] - Gross profit margin decreased to 26.4% from 30.2%, primarily due to the non-renewal of the GSP impacting imports from Cambodia[102] - Income from operations was $15,468K, a turnaround from a loss of $(12,465)K in the prior year[102] Retail Segment This subsection details the financial performance of the Retail segment for the nine months ended September 30 - Revenue increased 110.8% to $323,227K, driven by continued strength in e-commerce and recovery in brick-and-mortar stores[103] - Gross profit margin improved to 65.2% from 63.4%, primarily due to lower promotional activity[103] - Income from operations was $43,632K, a significant turnaround from a loss of $(66,944)K in the prior year[103] First Cost Segment This subsection details the financial performance of the First Cost segment for the nine months ended September 30 - Commission income decreased to $1,909K from $2,981K[104] - Income from operations increased to $1,577K from $1,251K in the prior year, despite lower revenue, due to decreased operating expenses[104] Licensing Segment This subsection details the financial performance of the Licensing segment for the nine months ended September 30 - Royalty income increased to $6,987K from $5,989K[105] - Income from operations increased to $5,826K from $3,416K in the prior year, also benefiting from decreased operating expenses[105] Corporate This subsection details the corporate operating expenses for the nine months ended September 30 - Corporate operating expenses increased 23.4% to $61,372K, primarily due to the impact of the COVID-19 pandemic in the prior year[106] Liquidity and Capital Resources This section discusses the company's cash flow, capital structure, and ability to meet its financial obligations - As of September 30, 2021, the Company had $259,913K in cash, cash equivalents, and short-term investments, with no cash borrowings and $1,400K in letters of credit outstanding under its $150,000K revolving credit facility[108][109] - Working capital was $492,527K as of September 30, 2021[109] - The Company believes its current financial position and available liquidity will meet all financial commitments and operating needs for at least the next twelve months[110] Operating Activities This subsection details the cash generated or used by the company's primary business operations - Cash provided by operations was $96,184K for the nine months ended September 30, 2021, a significant increase from $607K in the prior year, driven by higher net income and favorable changes in accounts payable and accrued expenses[111] Investing Activities This subsection details the cash flows related to the acquisition and disposal of long-term assets and investments - Net cash provided by investing activities was $2,408K, including $8,000K from the sale of a trademark and $4,599K in capital expenditures[112] Financing Activities This subsection details the cash flows related to debt, equity, and dividend transactions - Net cash used in financing activities was $126,429K, primarily due to $74,685K in share repurchases, $36,990K in cash dividends, and $19,127K for the acquisition of incremental ownership of joint ventures[113] Contractual Obligations This subsection outlines the company's future financial commitments under various agreements Contractual Obligations as of September 30, 2021 (in thousands): | Obligation | Total | Remainder of 2021 | 2022-2023 | 2024-2025 | 2026 and after | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating lease obligations | $129,469 | $9,997 | $59,984 | $36,039 | $23,449 | | Purchase obligations | $128,646 | $128,646 | — | — | — | | Future minimum royalty and advertising payments | $16,000 | $2,312 | $13,688 | — | — | | Transition tax | $14,847 | $1,563 | $4,493 | $8,791 | — | | Total | $288,962 | $142,518 | $78,165 | $44,830 | $23,449 | - The majority of products are produced by independent manufacturers overseas, primarily in China, with growing percentages in Cambodia, Mexico, Brazil, and some European nations[115] Dividends This subsection provides information on the company's dividend policy and recent declarations - The Board of Directors approved a quarterly cash dividend of $0.15 per share, payable on December 27, 2021, to stockholders of record as of December 17, 2021[118] - Future dividend payments are subject to Board discretion and contingent upon future earnings, financial condition, capital requirements, and general business conditions[119] Inflation This subsection discusses the impact of inflation on the company's sales and profitability - Management does not believe inflation and price changes significantly affected sales or profitability for the three months ended September 30, 2021[120] - Historically, the Company has mitigated product cost increases by raising prices, renegotiating costs, changing suppliers, and improving operating efficiencies[120] Off-Balance Sheet Arrangements This subsection confirms the absence of any off-balance sheet financial arrangements - The Company has no off-balance sheet arrangements[121] Critical Accounting Policies and the Use of Estimates This subsection refers to the company's key accounting policies and the significant judgments involved - There have been no material changes to the Company's critical accounting policies and use of estimates from those reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[122] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, primarily from variable interest rates on financing and foreign currency exchange rate fluctuations, and describes the strategies employed to manage these risks, including the use of forward foreign exchange contracts - The Company is exposed to market risk from variable interest rates on its financing arrangements, primarily based on the prime rate and LIBOR[123] - Foreign currency exchange risk, particularly from inventory purchases in foreign jurisdictions, is managed by denominating purchases in U.S. dollars and using forward foreign exchange contracts for terms up to two years[126] - A hypothetical 10% increase or decrease in the U.S. dollar against foreign currencies would result in a net change of approximately $2,267K in the fair value of the derivatives portfolio as of September 30, 2021[127] - The Company also faces translation risk from its foreign operations in Canada, Mexico, Europe, South Africa, China, Taiwan, and Israel, where local currencies are functional[128] ITEM 4. Controls and Procedures Management, including the CEO and CFO, assessed the effectiveness of the company's disclosure controls and procedures, concluding they were effective as of September 30, 2021. No material changes to internal control over financial reporting were identified, and the COVID-19 pandemic did not materially impact these controls Disclosure Controls and Procedures The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of September 30, 2021, concluding they were effective - The Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of disclosure controls and procedures as of September 30, 2021, concluding they were effective[129] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2021, and the COVID-19 pandemic did not materially impact these controls - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2021[130] - The COVID-19 pandemic has not had a material impact on the Company's internal controls over financial reporting[130] PART II – OTHER INFORMATION This part includes legal proceedings, risk factors, equity security sales, and required exhibits and signatures ITEM 1. Legal Proceedings The company is involved in routine legal proceedings, but management anticipates that any resulting liabilities will not materially affect its financial position, results of operations, or cash flows - The Company is a defendant in certain lawsuits in the normal course of business[132] - Management believes that any liabilities resulting from these matters should not have a material impact on the Company's financial position, results of operations, or cash flows[132] ITEM 1A. Risk Factors This section directs readers to previously disclosed risk factors in the company's annual and prior quarterly reports, while specifically restating the risk associated with disruptions in product delivery systems and the challenges of effective inventory management, exacerbated by recent supply chain issues - The risk factor regarding disruptions to product delivery systems and failure to effectively manage inventory is restated, emphasizing its potential material adverse effect on business, financial condition, results of operations, and liquidity[134] - In the three months ended September 30, 2021, the supply chain was disrupted by increased consumer demand, pandemic-related outbreaks in Asia, domestic port and warehouse delays, container shortages, and global inflation, leading to higher freight costs[135] - Reliance on ocean freight transportation exposes the Company to risks such as port congestion, severe weather, natural disasters, and terrorism, which can cause delivery delays, increase costs, and disrupt business[134] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase activities during the third quarter of 2021 under its Share Repurchase Program, including the number of shares bought back and the average price paid Common Stock Repurchases (Three Months Ended September 30, 2021, in thousands, except per share data): | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | 7/1/2021 - 7/31/2021 | 251,740 | $42.16 | | 8/1/2021 - 8/31/2021 | 323,968 | $41.62 | | 9/1/2021 - 9/30/2021 | 197,355 | $39.49 | | Total | 773,063 | $41.25 | - As of September 30, 2021, approximately $49,509K remained available for future repurchases under the Share Repurchase Program[138] ITEM 6. Exhibits This section lists all exhibits accompanying the Form 10-Q, including required certifications from the CEO and CFO, and the financial statements formatted in iXBRL - The report includes certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[140] - The Condensed Consolidated Financial Statements and Notes are provided in iXBRL (Inline Extensible Business Reporting Language) format[140] Signatures This section contains the official signatures of the company's Chairman and Chief Executive Officer, Edward R. Rosenfeld, and Chief Financial Officer, Zine Mazouzi, certifying the Form 10-Q report - The report was duly signed on November 4, 2021, by Edward R. Rosenfeld, Chairman and Chief Executive Officer, and Zine Mazouzi, Chief Financial Officer[142][143]