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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended December 31, 2003 Commission File Number 0-23702

STEVEN MADDEN, LTD.
(Exact name of registrant as specified in its charter)

Delaware 13-3588231
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)

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

(718) 446-1800
(Registrant's Telephone Number, Including Area Code)

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

Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
Preferred Stock Purchase Rights

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 [ ].

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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ].

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, 2003, the last business day of the registrant's most recently completed
second fiscal quarter, was approximately $281,283,263 (based on the closing sale
price of the registrant's common stock on that date as reported on The Nasdaq
National Market).

The number of outstanding shares of the registrant's common stock as of
March 9, 2004 was 13,323,905 shares.

DOCUMENTS INCORPORATED BY REFERENCE:

PART III INCORPORATES CERTAIN INFORMATION BY REFERENCE FROM THE
REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
SCHEDULED FOR MAY 21, 2004.


TABLE OF CONTENTS

Page
----

ITEM 1 BUSINESS..........................................................1
ITEM 2 PROPERTIES........................................................8
ITEM 3 LEGAL PROCEEDINGS.................................................9
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............10


PART II

ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................ ...................10
ITEM 6 SELECTED FINANCIAL DATA..........................................12
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................13
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......24
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................24
ITEM 9 CHANGES IN AND DISAGREEMENTs WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................24
ITEM 9A CONTROLS AND PROCEDURES..........................................24


PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............25
ITEM 11 EXECUTIVE COMPENSATION...........................................25
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT and Related Stockholder Matters.....................25
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................25
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES...........................25


PART IV

ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K......................................................25

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ITEM 1 BUSINESS

Steven Madden, Ltd. (together with its subsidiaries, the "Company")
designs, sources, markets and sells fashion-forward footwear brands for women,
men and children. The Company distributes products through its retail stores,
its e-commerce website, department and specialty stores throughout the United
States and Canada and through special distribution arrangements in Europe and in
Central and South America. The Company's product line includes core products,
which are sold year-round, complemented by a broad range of updated styles which
are designed to establish or capitalize on market trends.

The Company's business is comprised of three (3) distinct segments
(wholesale, retail and private label). The wholesale division includes seven (7)
brands: Steve Madden(R), Steven(R), l.e.i.(R), Candie's(R), Stevies(R),
Unionbay(R) and the Steve Madden Mens brand. Steven Madden Retail, Inc., the
Company's wholly-owned retail subsidiary, operates Steve Madden, Steven and Shoe
Biz retail stores as well as the Company's outlet store and e-commerce website.
The Company's wholly-owned private label subsidiary, Adesso-Madden, Inc.,
designs and sources footwear products under private labels for many of the
country's large mass merchandisers. The Company also licenses its Steve
Madden(R) trademark for several accessory and apparel categories.

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. The
Company has established a reputation for its creative designs, popular styles
and quality products at accessible price points. The Company completed its
initial public offering in December 1993 and its shares of Common Stock
currently trade on The Nasdaq National Market under the symbol "SHOO".

The Company maintains its principal executive offices at 52-16 Barnett
Avenue, Long Island City, NY 11104, telephone number (718) 446-1800.

The Company's website is http://www.stevemadden.com. This website primarily
operates as an internet store where the Company's customers can purchase
numerous styles of the Company's Steve Madden and Steve Madden Mens footwear
products. At this time, the Company's Annual Reports on Form 10-K; Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, are not made available on the Company's
website because the website is not equipped to make such filings available. The
Company is looking into alternatives which will enable it to make such filings
available on its website. The Company will provide paper copies of such filings
free of charge upon request.

Wholesale Divisions

Madden Women's Wholesale

The Steve Madden(R) Women's Wholesale Division ("Madden Women's Wholesale")
designs, produces, sources, sells and markets the Company's Steve Madden(R)
brand to major department stores, better specialty stores, and shoe stores
throughout the United States. The Steve Madden(R) product line has become a
leading footwear brand in the fashion conscious junior marketplace. To serve its
customers (primarily women ages 16 to 25), Madden Women's Wholesale creates and
markets fashion forward footwear designed to appeal to customers seeking
exciting, new footwear designs at affordable prices.

As the Company's largest division, Madden Women's Wholesale accounted for
$109,285,000 of net sales in 2003, or approximately 34% of the Company's total
sales. Many newly created styles of Madden Women's Wholesale are test marketed
at the Company's retail stores. Within a few days, the Company can determine if
the test product appeals to customers. This enables the Company to use its
flexible sourcing model to rapidly respond to changing preferences which the
Company believes is essential for success in the fashion footwear marketplace.

l.e.i.(R) - Wholesale Division

Pursuant to the Company's license agreement with Jones Investment Company,
Inc., the Company has the right to use the l.e.i.(R) trademark in connection
with the sale and marketing of footwear. The l.e.i.(R) trademark is well

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known for jeanswear in the junior marketplace sold nationally through department
and specialty stores. The Company's l.e.i.(R) footwear products are targeted to
attract girls and young women ages 6 to 20 years old, a majority of which are
younger than the typical Steve Madden(R) brand customer. The l.e.i. Wholesale
Division generated net sales of $60,623,000 for the year ended December 31,
2003, or approximately 19% of the Company's total revenues.

Madden Men's Wholesale

The Steve Madden Men's Wholesale Division ("Madden Men's Wholesale")
markets a full collection of directional young men's shoes through major
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 18 to 44 years old.

Madden Men's Wholesale accounted for $34,881,000 of net sales in 2003, or
approximately 11% of the Company's total sales. Madden Men's Wholesale, which is
primarily produced in China, maintains open stock inventory positions in select
patterns to serve the replenishment programs of its wholesale customers.

Candie's Footwear

On May 12, 2003 the Company entered into a long-term license agreement with
Candie's, Inc. to design, manufacture, and distribute Candie's(R) branded
footwear for women and children worldwide through the Company's Candie's(R)
division. The Candie's(R) footwear line has been an important resource for
fashion and casual footwear primarily for young women and girls for over two
decades. The Candie's(R) division, which began shipping product in the fourth
quarter of 2003, generated net sales of $938,000 for the year ended December 31,
2003.

Diva Acquisition Corp. - Steven(R) Wholesale Division

Diva Acquisition Corp. ("Steven") designs and markets women's fashion
footwear under the "Steven(R)" trademark through major department and better
footwear specialty stores and one (1) Company owned retail shoe store located in
New York, New York. Priced a tier above the Steve Madden(R) brand, Steven's
products are designed to appeal principally to fashion conscious women, ages 26
to 45, who shop at department stores and footwear boutiques. The Company
recorded wholesale sales from the Steven(R) brand of $12,519,000 for the year
ended December 31, 2003, or approximately 4% of the Company's total net sales.

Stevies Inc. - Wholesale Division

The Company's Stevies Wholesale Division ("Stevies Wholesale") generated
net sales of $10,120,000 for the year ended December 31, 2003, or approximately
3% of the Company's total net sales. Stevies(R) products are marketed through
department stores such as May Department Stores, Belk, Limited Too, as well as
independent children's stores throughout the country.

Unionbay Men's Footwear

On January 7, 2003, the Company entered into a long-term license with
Seattle Pacific Industries, Inc., under which the Company has the right to use
the Unionbay(R) trademark in connection with the sale and marketing of footwear
for men and boys. Unionbay(R) is known for casual apparel in the young men,
junior and children's marketplace and is distributed nationally through
department and specialty stores. The Unionbay(R) division, which began shipping
product in the third quarter of 2003, generated net sales of $320,000 for the
year ended December 31, 2003.

Steven Madden Retail, Inc. - Retail Division

As of December 31, 2003, the Company owned and operated seventy-six (76)
retail shoe stores under the Steve Madden(R) name, one (1) under the Steven(R)
name, five (5) outlet stores and one (1) Internet store (through the
www.stevemadden.com website). In 2003, the Company opened six (6) new stores and
closed three (3) under-performing stores. Most of the Steve Madden stores are
located in major shopping malls in Arizona, California, Colorado, Connecticut,
District of Columbia, Florida, Georgia, Illinois, Louisiana, Maryland,
Massachusetts,

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Michigan, Minnesota, Nevada, New Jersey, New York, Ohio, Pennsylvania, Puerto
Rico, Rhode Island, Texas, Virginia and Wisconsin. The retail stores generated
annual sales in excess of $644 per square foot. Sales are primarily from the
sale of the Company's Steve Madden(R) product line. Comparative store sales
decreased 4% in 2003 compared to 2002 while growth in sales was generated by new
stores. Total sales for the retail division were $95,518,000 for 2003. Sales
from the retail division for the year ended December 31, 2003 were approximately
29% of the Company's net sales.

The Company believes that the retail division will continue to enhance
overall sales and profits of the Company while building equity in the Steve
Madden brand. The Company plans to add eight to ten (8-10) new retail stores
during 2004. The expansion of the retail division enables the Company to test
and react to new products and classifications which, in turn, strengthens the
product development efforts of the Steve Madden wholesale division.

The Adesso-Madden, Inc. - Private Label Division

In September 1995, the Company incorporated Adesso-Madden, Inc. as a wholly
owned subsidiary ("A-M"). A-M was formed to serve as a buying agent to mass
market merchandisers, shoe store chains and other value-priced retailers in
connection with their procurement of private label shoes. As a buying agent, A-M
arranges for shoe manufacturers to produce private label shoes to the
specifications of its clients. The Company believes that by operating in the
private label, mass merchandising market, the Company is able to maximize
additional non-branded sales opportunities. This leverages the Company's overall
sourcing and design capabilities. Currently, this division serves as a buying
agent for the procurement of women's, men's and children's footwear for large
retailers including Sears, Payless, Wal-Mart and Target. A-M receives buying
agent's commissions from its clients. The private label division generated
commission income of $5,056,000 for the year ended December 31, 2003.

Licensing

As of December 31, 2003, the Company licensed its Steve Madden trademark
for use in connection with the manufacturing, marketing and sale of outerwear
(including leather outerwear), belts, sunglasses, eyewear and hosiery. Each
license agreement requires the licensee to pay to the Company a royalty based on
net sales, a minimum royalty in the event that specified net sales targets are
not achieved and a percentage of sales for advertising of the Steve Madden(R)
brand.

Design

The Company has established a reputation for its creative designs, popular
styles and quality products at affordable price points. The Company believes
that its future success will depend in substantial part on its ability to
continue to anticipate and react to changing consumer demands in a timely
manner. To meet this objective, the Company has developed a unique design
process that allows it to recognize and act quickly to changing consumer
demands. The Company's design team works together to create designs which they
believe fit the Company's 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, which is reviewed and refined prior to the
commencement of limited production. Most new Steve Madden designs are then
tested in the Steve Madden(R) retail stores. Designs that prove popular are then
offered to wholesale and retail distribution nationwide. The Company believes
that its unique design and testing process and flexible sourcing model is a
significant competitive advantage allowing the Company to mitigate the risk of
the costly production and distribution of unpopular designs.

Product Sourcing and Distribution

The Company sources each of its product lines separately based on the
individual design, styling and quality specifications of such products. The
Company does not own or operate any manufacturing facility and sources its
branded products through independently owned manufacturers in Brazil, China,
Italy, Mexico, Spain, Taiwan and the United States. The Company has established
relationships with a number of manufacturers in each country. Although the
Company has not entered into any long-term manufacturing or supply contracts,
the Company believes that a sufficient number of alternative sources exist for
the manufacture of its products. The principal materials used in the Company's
footwear are available from any number of sources, both within the United States
and in foreign countries.

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The Company's design and distribution processes are intended to be
flexible, allowing the Company to respond to and accommodate changing consumer
demand. The Company's production staff tracks warehouse inventory on a regular
basis, monitors sell-through data and incorporates input on product demand from
wholesale customers. The Company can use product feedback to adjust production
or manufacture new products in as little as five weeks. Constant inventory
tracking allows the Company to manage inventory on a continuous flow basis with
the goal of optimizing inventory turns.

The Company distributes its products from two (2) third party distribution
warehouse centers located in California and New Jersey. The Company also
distributes its Internet shipments from a third party fulfillment center located
in Michigan. By utilizing distribution facilities that specialize in
distributing products to certain customers (wholesale accounts, Steve Madden
retail stores and Internet fulfillment), the Company believes that its customers
are better served.

Customers

The Company's customers consist principally of department stores and
specialty stores, including shoe boutiques. Presently, the Company sells
approximately forty-one percent (41%) of its products at wholesale to department
stores, including Federated Department Stores (Bloomingdale's, Bon Marche,
Burdines, Macy's and Rich's), May Department Stores (Famous Barr, Filene's,
Foley's, Hecht's, Lord and Taylor and Robinsons May), Dillard's, Marshall
Field's and Nordstrom; and approximately forty percent (40%) to specialty
stores, including Journeys, Limited Too and Mandees; and catalog retailers,
including Victoria's Secret and Fingerhut. For the year ended December 31, 2003,
May Department Stores and Federated Department Stores accounted for
approximately fourteen percent (14%) and thirteen percent (13%) of the Company's
wholesale sales, respectively.

Distribution Channels

The Company sells its products principally through its Company-owned retail
stores, department stores, specialty shoe stores and discount stores in the
United States and abroad. For the year 2003, retail stores and wholesale sales
accounted for approximately twenty-nine percent (29%) and seventy-one percent
(71%) of total sales, respectively. The following paragraphs describe each of
these distribution channels.

Steve Madden and Steven Retail Stores

As of December 31, 2003, the Company operated seventy-seven (77)
Company-owned retail stores (including one Internet store) under the Steve
Madden(R) name and one (1) under the Steven(R) name. The Company believes that
its retail stores will continue to enhance overall sales, profitability, and its
ability to react to changing consumer trends. The stores are also a marketing
tool which allows the Company to strengthen brand recognition and to showcase
selected items from its full line of branded and licensed products. Furthermore,
the retail stores provide the Company with a venue to test and introduce new
products and merchandising strategies. Specifically, the Company often tests new
designs at its Steve Madden(R) retail stores before scheduling them for mass
production and wholesale distribution. In addition to these test marketing
benefits, the Company has been able to leverage sales information gathered at
Steve Madden(R) retail stores to assist its wholesale accounts in order
placement and inventory management.

A typical Steve Madden(R) store is approximately 1,400 to 1,600 square feet
and is located in malls and street locations which attract the highest
concentration of the Company's core demographic -- style-conscious young women
ages 16 to 25 years old. The Steven(R) store has a more sophisticated design and
format styled to appeal to its more mature target audience. In addition to
carefully analyzing mall demographics, the Company also sets profitability
guidelines for each potential store site. Specifically, the Company targets
sites at which the demographics fit the consumer profile, the positioning of the
site is well trafficked and the projected fixed annual rent expense does not
exceed a specified percentage of sales over the life of the lease. By setting
these standards, the Company believes that each store will contribute to the
Company's overall profits both in the near- and longer-terms.

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Outlet Stores

Shoe Biz, Inc., a wholly owned subsidiary of the Company ("Shoe Biz"),
operates five (5) outlet stores in New Jersey and New York, four (4) of which
operate under the Shoe Biz name and one (1) of which operates as a Steve Madden
Outlet store. Shoe Biz sells many product lines, including Steve Madden, Steven,
Stevies and l.e.i.(R) footwear, at a price lower than typically charged by other
"full price" retailers.

Department Stores

The Company currently sells to over 2,750 doors of twenty-two (22)
department stores throughout the United States and Canada. The Company's major
accounts include Federated Department Stores (Macy's, Bloomingdale's, Bon
Marche, Burdine's and Rich's), May Department Stores (Filene's, Hecht's, Famous
Barr, Foley's, Lord and Taylor and Robinsons May), Nordstrom, Dillard's and
Marshall Field's.

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

In addition to merchandising support, the Company's senior account
executives maintain weekly communications with their accounts to guide them in
placing orders and to assist them in managing inventory, assortment and retail
sales. The Company leverages its sell-through data gathered at its 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.

Specialty Stores/Catalog Sales

The Company currently sells to specialty store locations throughout the
United States and Canada. The Company's major specialty store accounts include
Journeys, Limited Too and Mandees. The Company offers its specialty store
accounts the same merchandising, sell-through and inventory tracking support
offered to its department store accounts. Sales of the Company's products are
also made through various catalogs, such as Victoria's Secret.

Internet Sales

The Company operates one (1) Internet website: www.stevemadden.com.
Customers can purchase numerous styles of the Company's Steve Madden, Steven and
Steve Madden Mens footwear, accessory and clothing products. Sales derived from
the Company's Internet store increased 8% to $5,200,000 in 2003 from $4,800,000
in 2002.

Distribution Agreements

In June 2002, the Company and Dabsan International, S.A. ("Dabsan") entered
into an agreement whereby the Company granted Dabsan the exclusive right to sell
Steve Madden products in certain Central and South American countries and the
right to develop Steve Madden retail stores in certain Central and South
American countries. Under the terms of the agreement, Dabsan is required to open
two (2) Steve Madden stores by October 31, 2004 and is also required to purchase
certain minimum amounts of Steve Madden shoes.

In February 2003, the Company and F.E.E.T. sas ("FEET") entered into a
distribution and license agreement whereby the Company granted FEET the
exclusive right to sell Steve Madden products in certain European countries with
a provision that expands the territory covered to include certain additional
European countries and in North Africa. Under the terms of the agreement, FEET
is required to purchase certain minimum amounts of Steve Madden shoes.

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Competition

The fashion footwear industry is highly competitive. The Company's
competitors include specialty shoe companies as well as companies with
diversified footwear product lines. The recent substantial 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 Diesel, Kenneth Cole, Nine West, DKNY, Skechers, Nike and Guess, may
have significantly greater financial and other resources than the Company. The
Company believes effective advertising and marketing, fashionable styling, high
quality and value are the most important competitive factors and intends to
continue to employ these elements as it develops its products.

In 2001, the Company launched the Steve Madden Mens brand which competes
with several brands that are more established with greater consumer awareness,
including Kenneth Cole, Skechers Collection, Tommy Hilfiger and Dr. Martin.

Marketing and Sales

Prior to 1997, the Company's marketing plans relied heavily on its few
Steve Madden(R) retail store locations and word-of-mouth referrals. In 1998, the
Company focused on creating a more integrated brand building program to
establish Steve Madden as the leading designer of fashion footwear for
style-conscious young women. As a result, the Company developed a national
advertising campaign for lifestyle and fashion magazines which was also used in
regional marketing programs such as radio advertisements, television
commercials, outdoor media, college event sponsorship and live online chat
forums. The Company also continues to promote its website (www.stevemadden.com)
where consumers can purchase Steve Madden(R), Steven and Steve Madden Mens
products and interact with both the Company and other customers.

The Company commenced a marketing campaign for the Stevies brand with
separate marketing, advertising, promotional events and in-store displays
targeting the Stevies customer. As for Steve Madden Mens, the Company supported
the brand's roll-out with strategic marketing and advertising initiatives.

In order to service its wholesale accounts, the Company retains a sales
force of eighteen independent sales representatives. These sales representatives
work on a commission basis and are responsible for placing the Company's
products with its principal customers, including department and specialty
stores. The sales representatives are supported by the Company's senior
executives, a staff of fifteen account executives, one merchandise coordinator
and twenty-seven customer service representatives who continually cultivate
relationships with wholesale customers. This group of professionals assist
accounts in merchandising and assessing customer preferences and inventory
requirements, which ultimately serves to increase sales and profitability.

Management Information Systems (MIS) Operations

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

Receivables Financing; Line of Credit

Under the terms of a factoring agreement with Capital Factors, Inc., the
Company is permitted to draw down 80% of its invoiced receivables at an interest
rate of two points below the Prime Rate (as defined in such agreement). The
agreement provides that Capital Factors is not required to purchase all the
Company's receivables and requires the Company to pay an unused line fee of .25%
of the average daily unused portion of the maximum amount of the credit line. On
September 1, 1998, the Company and Capital Factors amended its Factoring

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Agreement to, among other things, provide the Company with a credit line of up
to $15,000,000, subject to certain limitations. The Company has not recently
borrowed funds under its credit line with Capital Factors. The agreement with
Capital Factors was renewed for the period beginning June 30, 2002 through
December 31, 2004. Capital Factors maintains a lien on all of the Company's
inventory and receivables and assumes the credit risk for all assigned accounts
approved by it.

Trademarks and Service Marks

The STEVE MADDEN and STEVE MADDEN plus Design trademarks and service marks
have been registered in numerous International Classes (Int'l Cl. 25 for
clothing and footwear; Int'l Cl. 18 for leather goods, such as handbags and
wallets; Int'l Cl. 9 for eyewear; Int'l Cl. 14 for jewelry; Int'l Cl. 3 for
cosmetics and fragrances; Int'l Cl. 20 for picture frames and furniture; Int'l
Cl. 16 for paper goods; Int'l Cl. 24 for bedding; and Int'l Cl. 35 for retail
store services) in the United States. The Company also has trademark
registrations in the United States for the marks EYESHADOWS BY STEVE MADDEN
(Int'l Cl. 9 for eyewear), ICE TEE (Int'l Cl. 25 for clothing and footwear),
SOHO COBBLER (Int'l. Cl. 9 for eyewear; and Int'l Cl. 25 for clothing and
footwear), SHOE BIZ By STEVE MADDEN (Int'l Cl. 25 for clothing and footwear; and
Int'l Cl. 35 for retail store services) and STEVEN M. (Int'l Class 25 for
clothing and footwear). Additionally, the Company has several pending trademark
and service mark applications in the United States for various marks, including
a stylized "H" Design (Int'l Cl. 25 for clothing and footwear), TEST & REACT
(Int'l Cl. 42 for services consisting of conducting market studies), STEVEN
(Int'l Cl. 25 for clothing and footwear) and TORCH STRIPE (Int'l Cl. 25 for
footwear). The Company also has pending trademark and service mark applications
in China and the 15 cooperating countries in Europe for TORCH STRIPE (Int'l Cl.
25 for footwear).

The Company further owns registrations for the STEVE MADDEN and STEVE
MADDEN plus Design trademarks and service marks in various International Classes
in Argentina, Australia, Bahrain, Brazil, Canada, Chile, China, Colombia, Hong
Kong, Israel, Italy, Japan, Korea, Lebanon, Mexico, the Netherlands, Panama,
Saudi Arabia, South Africa, Taiwan, the 15 cooperating countries of Europe and
the Benelux countries and has pending applications for registration of the STEVE
MADDEN and STEVE MADDEN plus Design trademarks and service marks in Bahrain,
Belize, Costa Rica, El Salvador, Guatemala, Honduras, Korea, Kuwait, Lebanon,
Malaysia, Oman, Peru, Qatar, Saudi Arabia, Turkey, the United Arab Emirates and
Venezuela. Additionally, the Company owns registrations for the STEVEN trademark
and service mark in various International Classes in Hong Kong, Lebanon and
Japan and has pending applications for registration of the STEVEN trademark and
service mark in Canada, China, Israel, Italy, Japan, Korea, Malaysia, Oman,
Qatar, South Africa, Saudi Arabia, Taiwan, Thailand, Turkey, the United Arab
Emirates and the United States. There can be no assurance, however, that the
Company will be able to effectively obtain rights to the STEVE MADDEN mark
throughout all of the countries of the world. Moreover, no assurance can be
given that others will not assert rights in, or ownership of, trademarks and
other proprietary rights of the Company or that the Company will be able to
successfully resolve such conflicts. The failure of the Company to protect such
rights from unlawful and improper appropriation may have a material adverse
effect on the Company's business and financial condition.

Additionally, the Company, through its Diva Acquisition Corp. subsidiary,
owns registrations for the DAVID AARON trademark and service mark in various
International Classes in the United States (Int'l Cl. 25 for clothing and
footwear; Int'l Cl. 18 for leather goods, such as handbags and wallets; and
Int'l Cl. 35 for retail store services), Australia, Canada, Hong Kong, Japan,
South Africa and the 15 cooperating countries in Europe and for its D. AARON
trademark in Spain. Also, the Company own registrations for the DAVID AARON
trademark in International Class 3 for perfume and cosmetics; International
Class 9 for eyewear; International Class 14 for jewelry; International Class 16
for paper goods; International Class 18 for bags; International Class 24 for bed
and bath products; International Class 25 for clothing and footwear and
International Class 26 hair accessories in Korea. The Company believes that the
DAVID AARON trademark has a significant value and is important to the marketing
of the Company's products.

The Company, through its Stevies, Inc. subsidiary, also owns various
registrations for the STEVIES and STEVIES plus Design trademark and service mark
in a number of International Classes in the United States (Int'l Cl. 18 for
leather goods, such as handbags and wallets; Int'l Cl. 9 for eyewear;
International Class 35 for retail store services and, International Class 26 for
hair accessories) and for its STEVIES plus Design mark for various goods in
Argentina, Bahrain, China, Hong Kong, Israel, Japan, Korea, Lebanon, Mexico,
Taiwan and the 15 cooperating countries in Europe. Additionally Stevies, Inc.
has several pending trademark and service mark applications for

-7-


registration of the STEVIES and STEVIES plus Design marks in various
International Classes in the United States (Int'l Cl. 25 for clothing and
footwear; Int'l Cl. 14 for jewelry; Int'l Cl. 28 for toys; Int'l Cl. 26 for hair
accessories; International Class 16 for paper goods; International Class 3 for
perfume and cosmetics and, International Class 9 for CDs and eyewear) and in
Brazil, Canada, Colombia, Indonesia, Kuwait, Malaysia, Mexico, Oman, Panama,
Peru, Qatar, Saudi Arabia, South Africa, Thailand, Turkey, the United Arab
Emirates and Venezuela. Finally, Stevies, Inc. also owns several pending
trademark and service mark applications for registration of the STEVIES BY STEVE
MADDEN mark in various International Classes in the United States (Int'l Cl. 25
for clothing and footwear; Int'l Cl. 14 for jewelry; Int'l Cl. 18 for leather
goods, such as handbags and wallets; Int'l Cl. 16 for paper goods; Int'l Cl. 3
for cosmetics and fragrances; Int'l Cl. 9 for eyewear; Int'l Cl. 26 for hair
accessories; Int'l Cl. 28 for toys; and Int'l Cl. 35 for retail store services).

Employees

On March 4, 2004, the Company employed approximately 1,150 employees, of
whom approximately 500 work on a full-time basis and approximately 650 work on a
part-time basis. The management of the Company considers relations with its
employees to be good.


ITEM 2 PROPERTIES

The Company maintains approximately 33,000 square feet for its executive
offices and sample production facilities at 52-16 Barnett Avenue, Long Island
City, NY 11104. The lease for the Company's headquarters expires on June 30,
2008.

The Company's showroom is located at 1370 Avenue of the Americas, New York,
NY. All of the Company's brands are displayed for sale from this 3,762 square
foot space. The lease for the Company's showroom expires on February 28, 2013.

The Company also maintains a 1,080 square foot showroom located at 2300
Stemmons Freeway, Dallas, Texas. The lease for this showroom expires on
September 30, 2004.

Currently, the Company engages three independent distributors to warehouse
and distribute its products.

The Company's private label division, Adesso Madden, maintains
approximately 3,120 square feet of office and showroom space at 99 Seaview
Boulevard, Port Washington, N.Y. The lease for Adesso Madden expires on May 31,
2006.

All of the Company's retail stores are leased pursuant to leases that
extend for terms which average ten years in length. A majority of the leases
include clauses that provide for contingent rental payments if gross sales
exceed certain targets. In addition, a majority of the leases enable the Company
and/or the landlord to terminate the lease in the event that the Company's 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 the Company's retail store leases expire as follows:

Years Lease Terms Expire Number of Stores
------------------------ ----------------
2004 2
2005 4
2006 2
2007 6
2008 12
2009 10
2010 11
2011 15
2012 9
2013 11

-8-


ITEM 3 LEGAL PROCEEDINGS

Except as set forth below, no material legal proceedings are pending to
which the Company or any of its property is subject.

Class Action

Between June and August 2000, eight putative securities fraud class action
lawsuits have been commenced in the United States District Court for the Eastern
District of New York against the Company, Steven Madden and, in five of the
actions, Rhonda J. Brown (the former President and a former director of the
Company) and Arvind Dharia. These actions are captioned: Wilner v. Steven
Madden, Ltd., et al., 00 CV 3676 (filed June 21, 2000); Connor v. Steven Madden,
et al., 00 CV 3709 (filed June 22, 2000); Blumenthal v. Steven Madden, Ltd., et
al., 00 CV 3709 (filed June 23, 2000); Curry v. Steven Madden, Ltd., et al., 00
CV 3766 (filed June 26, 2000); Dempster v. Steven Madden Ltd., et al., 00 CV
3702 (filed June 30, 2000); Salafia v. Steven Madden, Ltd., et al., 00 CV 4289
(filed July 24, 2000); Fahey v. Steven Madden, Ltd., et al., 00 CV 4712 (filed
August 11, 2000); Process Engineering Services, Inc. v. Steven Madden, Ltd., et
al., 00 CV 5002 (filed August 22, 2000). By Order dated December 8, 2000, the
Court consolidated these eight actions, appointed Process Engineering, Inc.,
Michael Fasci and Mark and Libby Adams as lead plaintiffs and approved their
selection of lead counsel. On February 26, 2001, Plaintiffs served a
Consolidated Amended Complaint. On or about October 31, 2001, plaintiffs filed a
Second Consolidated Amended Class Action Complaint. The pleading names the
Company, Steven Madden, Rhonda J. Brown and Arvind Dharia as defendants. It
principally alleges that the Company and the individual defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated under the 1934 Act by issuing false and misleading statements, and
failing to disclose material adverse information, generally relating to matters
arising from Mr. Madden's June 2000 indictment. The plaintiffs seek an
unspecified amount of damages, costs and expenses on behalf of themselves and
all other purchasers of the Company's common stock during the period June 21,
1997 through June 20, 2000. On November 30, 2001, all of the defendants served
motions to dismiss the Consolidated Amended Complaint. The motions were fully
briefed on January 14, 2002. Since that time, an agreement has been reached to
resolve all claims in this action, subject to notices to the putative class
members, a hearing and approval by the District Court. The tentative settlement
is within the limits of the Company's insurance coverage.

Shareholder Derivative Actions

On or about September 26, 2000, a putative shareholders derivative action
was commenced in the United States District Court for the Eastern District of
New York, captioned Herrera v. Steven Madden and Steven Madden, Ltd., 00 CV 5803
(JG). The Company is named as a nominal defendant in the action. The complaint
seeks to recover alleged damages on behalf of the Company from Mr. Madden
arising from his June 2000 indictment and to require him to disgorge certain
profits, bonuses and stock option grants he received. On January 3, 2001,
plaintiff filed an Amended Shareholder's Derivative Complaint. On February 2,
2001, both the Company and Mr. Madden filed motions to dismiss the Amended
Complaint because of plaintiff's failure to make a pre-litigation demand upon
the Company's board of directors. On October 1, 2001, plaintiff filed a Second
Amended Complaint. On November 2, 2001, the Company filed a motion to dismiss
this pleading on grounds that plaintiff had failed to make a pre-litigation
demand upon the Company's board of directors. On February 7, 2002, the
Magistrate Judge filed a Report recommending that the Company's motion to
dismiss be denied. The Company filed its objections to the Report on March 4,
2002. On March 22, 2002, the District Judge entered an order adopting the
Magistrate Judge's report and recommendation in full. Since that time, an
agreement has been reached to resolve all claims in this action, subject to such
notice to the Company's shareholders (if any) as may be required by the District
Court, a hearing and approval by the District Court. The Company believes, after
consultation with counsel, that its defense costs and certain attorneys fees in
connection with this action will be subject to coverage by the Company's
insurance.

On or about November 28, 2001, a purported shareholder derivative complaint
was filed in the United States District Court for the Eastern District of New
York, captioned Herrera v. Karson, et al., 00 CV 7868. Named as defendants
therein are the Company (as nominal defendant) and certain of the Company's
present and/or former directors. The complaint alleges that the individual
defendants breached their fiduciary duties to the Company in connection with a
decision by the Board of Directors of the Company to enter into an employment
agreement with Mr. Steven Madden in or about May 2001. The complaint seeks
declaratory and other equitable relief, as well as an unspecified amount of
compensatory damages, costs and expenses. On or about February 1, 2002,
plaintiff filed an

-9-


Amended Shareholder Derivative Complaint (the "Amended Complaint"). The Amended
Complaint contains substantially the same allegations and names the same
defendants as the original complaint. Since that time, an agreement has been
reached to resolve all claims in this action, subject to such notice to the
Company's shareholders (if any) as may be required by the District Court, a
hearing and approval by the District Court. The Company believes, after
consultation with counsel, that its defense costs and certain attorneys fees in
connection with this action will be subject to coverage by the Company's
insurance.

Other Actions

The Company and certain of the Company's present and/or former directors
have been named in an action commenced in the United States District Court for
the Eastern District of New York by the Safeco Surplus Lines Insurance Company
captioned, Safeco Surplus Lines Ins. Co. v. Steven Madden Ltd., et al., 02 CV
1151 (JG). The complaint principally seeks rescission of the excess insurance
policy issued by Safeco to the Company for the February 4, 2000 to June 13, 2001
period and an order declaring that Safeco does not owe any indemnity obligation
to the Company or any of its officers and directors in connection with the
putative shareholder class action and derivative cases described in the Form 10Q
filed by the Company for the quarter ended March 31, 2002. The parties have
agreed to a resolution of Safeco's claims, the implementation of which is
conditioned upon judicial approval of the settlements of the shareholder class
action and derivative claims discussed above.

On or about June 6, 2003, an action was commenced in the United States
District Court for the Central District of California, captioned Global Brand
Marketing, Inc. v. Steve Madden LTD., Case Number 03-4029. The complaint seeks
injunctive relief and unspecified monetary damages for infringement of two
separate patents. The Company believes it has substantial defenses to the claims
asserted in the lawsuit. The parties are currently involved in settlement
negotiations.


ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the holders of the Company's Common
Stock during the last quarter of its fiscal year ended December 31, 2003.


PART II

ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's shares of common stock trade on The Nasdaq National Market.
The following table sets forth the range of high and low bid quotations for the
Company's Common Stock for the two year period ended December 31, 2003 as
reported by The Nasdaq National Market. The quotes represent inter-dealer prices
without adjustment or mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions. The trading volume of the Company's
securities fluctuates and may be limited during certain periods. As a result,
the liquidity of an investment in the Company's securities may be adversely
affected.

-10-


Common Stock



High Low High Low
------ ------ ------ ------

2003 2002
Quarter ended 19.35 14.83 Quarter ended 17.79 13.32
March 31, 2003 March 29, 2002
Quarter ended 22.35 15.27 Quarter ended 20.25 15.79
June 30, 2003 June 28, 2002
Quarter ended 22.34 18.76 Quarter ended 19.79 13.43
September 30, September 30,
2003 2002
Quarter ended 22.65 18.98 Quarter ended 18.85 13.59
December 31, December 31,
2003 2002


On March 10, 2004, the final quoted price as reported by The Nasdaq
National Market was $19.52 for each share of common stock. As of March 2, 2004,
there were 13,223,905 shares of Common Stock outstanding, held of record by 65
record holders and approximately 3,254 beneficial owners.

Absence of Dividends. The Company did not declare or pay cash dividends
during the two year period ended December 31, 2003. The Company anticipates that
all of its earnings in the foreseeable future will be retained to finance the
continued growth and expansion of its business and has no current intention to
pay cash dividends.

Equity Compensation Plans. Information regarding our equity compensation
plans as of December 31, 2003 is disclosed in Item 12. "Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters."

-11-


ITEM 6 SELECTED FINANCIAL DATA

The following selected financial data has been derived from the Company's
audited financial statements. The Income Statement Data relating to 2003, 2002,
2001, 2000 and 1999 and the Balance Sheet Data as of December 31, 2003, 2002,
2001, 2000 and 1999 should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto appearing elsewhere herein.



Year Ended December 31,
----------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------

INCOME STATEMENT DATA:
Net sales $324,204,000 $326,136,000 $243,391,000 $205,113,000 $163,036,000
Cost of sales 198,185,000 199,453,000 143,518,000 115,495,000 94,536,000
Gross profit 126,019,000 126,683,000 99,873,000 89,618,000 68,500,000
Commissions and licensing fee 7,894,000 6,603,000 5,911,000 4,847,000 3,367,000
Operating expenses (100,287,000) (100,074,000) (79,472,000) (68,833,000) (52,946,000)
Cost of loss mitigation coverage (6,950,000)
Income from operations 33,626,000 33,212,000 19,362,000 25,632,000 18,921,000
Interest income 1,611,000 1,166,000 1,344,000 1,744,000 909,000
Interest expense (54,000) (16,000) (66,000) (102,000) (90,000)
Gain on sale of marketable
securities 136,000 66,000 71,000 230,000
Income before provision for
income taxes 35,319,000 34,428,000 20,711,000 27,504,000 19,740,000
Provision for income taxes 14,865,000 14,587,000 8,595,000 11,461,000 8,274,000
Net Income 20,454,000 19,841,000 12,116,000 16,043,000 11,466,000
Basic income per share $ 1.58 $ 1.58 $ 1.04 $ 1.42 $ 1.06
Diluted income per share $ 1.45 $ 1.45 $ 0.94 $ 1.26 $ 0.92
Basic weighted average common
shares outstanding 12,985,265 12,594,861 11,617,862 11,310,130 10,831,250
Effect of potential common shares
from exercise of options and
warrants 1,153,246 1,115,018 1,330,002 1,387,244 1,634,102
Diluted weighted average common
shares outstanding 14,138,511 13,709,879 12,947,864 12,697,374 12,465,352
BALANCE SHEET DATA
Total assets 177,870,000 150,500,000 121,862,000 91,733,000 78,135,000
Working capital 105,140,000 86,461,000 82,633,000 57,207,000 48,076,000
Noncurrent liabilities 1,828,000 1,532,000 1,313,000 1,130,000 980,000
Stockholders' equity 159,187,000 130,075,000 102,360,000 76,566,000 62,435,000


-12-


ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Financial Statements and
Notes thereto appearing elsewhere in this document.

Statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this document as well as
statements made in press releases and oral statements that may be made by the
Company or by officers, directors or employees of the Company acting on the
Company's behalf that are not statements of historical or current fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other unknown factors that
could cause the actual results of the Company to be materially different from
the historical results or from any future results expressed or implied by such
forward-looking statements. In addition to statements which explicitly describe
such risks and uncertainties, readers are urged to consider statements labeled
with the terms "believes", "belief", "expects", "intends", "anticipates" or
"plans" to be uncertain forward-looking statements. The forward-looking
statements contained herein are also subject generally to other risks and
uncertainties that are described from time to time in the Company's reports and
registration statements filed with the Securities and Exchange Commission.

The following table sets forth information on operations for the periods
indicated:

Selected Financial Information
------------------------------
Year Ended
----------
December 31
-----------
($ in thousands)



2003 2002 2001
--------------- --------------- ---------------

Consolidated:
- -------------
Net Sales $324,204 100% $326,136 100% $243,391 100%
Cost of Sales 198,185 61 199,453 61 143,518 59
Gross Profit 126,019 39 126,683 39 99,873 41
Other Operating Income 7,894 2 6,603 2 5,911 3
Operating Expenses 100,287 31 100,074 31 79,472 33
Cost of Loss Mitigation Coverage -- -- -- -- 6,950 3
Income from Operations 33,626 10 33,212 10 19,362 8
Interest and Other Income Net 1,693 1 1,216 1 1,349 1
Income Before Income Taxes 35,319 11 34,428 11 20,711 9
Net Income 20,454 6 19,841 6 12,116 5


-13-


Selected Financial Information
------------------------------
Year Ended
----------
December 31
-----------
($ in thousands)



2003 2002 2001
---------------- ---------------- ----------------

By Segment
WHOLESALE DIVISIONS:
- --------------------

Steven Madden, Ltd. (Madden Womens):
- ------------------------------------
Net Sales $ 109,285 100% $ 108,577 100% $ 92,413 100%
Cost of Sales 77,313 71 75,080 69 60,052 65
Gross Profit 31,972 29 33,497 31 32,361 35
Other Operating Income 2,827 3 1,736 2 1,462 2
Operating Expenses 27,630 25 27,714 26 24,929 27
Cost of Loss Mitigation Coverage -- -- -- -- 6,950 8
Income from Operations 7,169 7 7,519 7 1,944 2

l.e.i. Footwear:
- ----------------
Net Sales $ 60,623 100% $ 55,665 100% $ 42,592 100%
Cost of sales 38,016 63 35,368 64 26,859 63
Gross Profit 22,607 37 20,297 36 15,733 37
Operating Expenses 13,658 22 14,165 25 9,833 23
Income from Operations 8,949 15 6,132 11 5,900 14

Madden Mens:
- ------------
Net Sales $ 34,881 100% $ 45,153 100% $ 10,461 100%
Cost of sales 22,803 65 29,022 64 6,737 64
Gross Profit 12,078 35 16,131 36 3,724 36
Operating Expenses 8,277 24 10,330 23 3,340 32
Income from Operations 3,801 11 5,801 13 384 4

Candie's Footwear:
- ------------------
Net Sales $ 938 100% -- -- -- --
Cost of sales 532 57 -- -- -- --
Gross Profit 406 43 -- -- -- --
Operating Expenses 748 80 -- -- -- --
Loss from Operations (342) (37) -- -- -- --

Diva Acquisition Corp. (Steven):
- --------------------------------
Net Sales $ 12,519 100% $ 11,194 100% $ 7,454 100%
Cost of sales 8,031 64 8,117 73 5,384 72
Gross Profit 4,488 36 3,077 27 2,070 28
Operating Expenses 3,360 27 2,645 23 1,796 24
Income from Operations 1,128 9 432 4 274 4

Stevies Inc.:
- -------------
Net Sales $ 10,120 100% $ 13,664 100% $ 10,984 100%
Cost of sales 6,611 65 8,777 64 7,014 64
Gross Profit 3,509 35 4,887 36 3,970 36
Other Operating Income 11 0 97 1 249 2
Operating Expenses 2,262 22 3,205 24 2,626 24
Income from Operations 1,258 13 1,779 13 1,593 14


-14-


Selected Financial Information
------------------------------
Year Ended
----------
December 31
-----------
($ in thousands)



2003 2002 2001
--------------- --------------- ---------------

By Segment (Continued)

WHOLESALE DIVISIONS (Continued)
- -------------------------------

Unionbay Men's Footwear:
- ------------------------
Net Sales $ 320 100% -- -- -- --
Cost of Sales 213 67 -- -- -- --
Gross Profit 107 33 -- -- -- --
Operating Expenses 481 150 -- -- -- --
Loss from Operations (374) (117) -- -- -- --

STEVEN MADDEN RETAIL INC.:
- --------------------------

Net Sales $ 95,518 100% $ 91,883 100% $ 79,487 100%
Cost of Sales 44,666 47 43,089 47 37,472 47
Gross Profit 50,852 53 48,794 53 42,015 53
Operating Expenses 41,719 44 39,793 43 34,992 44
Income from Operations 9,133 9 9,001 10 7,023 9
Number of Stores 83 80 73

ADESSO MADDEN INC.:
- -------------------
(FIRST COST)

Other Operating Revenue $ 5,056 100% $ 4,770 100% $ 4,200 100%
Operating Expenses 2,152 43 2,222 47 1,956 47
Income from Operations 2,904 57 2,548 53 2,244 53



RESULTS OF OPERATIONS
($ in thousands)

Year Ended December 31, 2003 vs. Year Ended December 31, 2002


Consolidated:
-------------

Total net sales for the year ended December 31, 2003 decreased to $324,204
from $326,136 for the year ended December 31, 2002. The decrease was primarily
due to a decline in net sales from the Madden Men's and the Stevies, Inc.
Wholesale Divisions and the sustained promotional environment. The Company
maintained a substantial portion of the sales and market share gains that it
achieved in the prior year. During the year 2002, the Company generated a 34%
growth in total net sales over the previous year. Gross profit as a percentage
of sales remained the same as last year at 39%.

Operating expenses remained virtually unchanged ($100,287 in 2003 as
compared to $100,074 in 2002). Total operating expenses as a percentage of sales
remained at 31% in 2003, the same as 2002. The increase in dollars resulted from
the Company's opening of six additional retail stores and costs associated with
the addition of

-15-


Candie's and Unionbay Wholesale Divisions as well as an increase in licensing
fees paid by the Company. These increases were partially offset by various cost
reductions.

Income from operations for 2003 was $33,626, which represents an increase
of $414 or 1% from $33,212 in 2002. Net income increased by 3% to $20,454 in
2003 from $19,841 in 2002. The increase in net income primarily resulted from
the increase in interest and other income.

Wholesale Divisions:
--------------------

Steven Madden Ltd. (Madden Womens, l.e.i., Madden Mens and Candie's
Footwear):

Sales from the Madden Womens Wholesale Division ("Madden Womens") accounted
for $109,285 or 34%, and $108,577 or 33%, of total sales in 2003 and 2002,
respectively. The increase in sales was driven by first quarter sales of key
styles including the Hi-Jo boot and wood bottom sandals. Gross profit as a
percentage of sales decreased to 29% in 2003 from 31% in 2002 primarily due to
the fourth quarter closeout of slower moving styles and the support to our
wholesale customers' initiatives to clear products at retail. Operating expenses
decreased to $27,630 in 2003 from $27,714 in 2002. Income from operations for
Madden Womens was $7,169 in 2003 compared to $7,519 in 2002.

Sales from the l.e.i. Footwear Wholesale Division ("l.e.i.") accounted for
$60,623 or 19%, and $55,665 or 17%, of total sales in 2003 and 2002,
respectively. The increase in sales was principally due to additional doors with
retailers, such as Kohl's and the Saks Group. Gross profit as a percentage of
sales increased to 37% in 2003 from 36% in 2002 primarily due to changes in
product mix and improved inventory management. Operating expenses decreased to
$13,658 in 2003 from $14,165 in 2002 due to the Company successfully leveraging
its infrastructure while continuing to grow its business. Income from operations
for l.e.i. was $8,949 in 2003 compared to $6,132 in 2002.

Sales from the Madden Mens Wholesale Division ("Madden Mens") accounted for
$34,881 or 11%, and $45,153 or 14%, of total sales in 2003 and 2002,
respectively. The sales decrease resulted from two primary factors. First, the
downturn in sell-throughs at retail in the young men's fashion casual and sports
casual business created substantial inventory and margin challenges. Second,
there was a strong downturn in the casual business, the largest category of
Madden Mens, as consumer demand and trends shifted more toward dressy and dress
casual classifications. Gross profit as a percentage of sales decreased to 35%
in 2003 from 36% in 2002 primarily due to an increase in markdown allowances
caused by higher levels of promotional activities at retail. Operating expenses
decreased to $8,277 in 2003 from $10,330 in 2002, due to decreases in selling
and related expenses. Income from operations for Madden Mens was $3,801 in 2003
compared to $5,801 in 2002.

Candie's Footwear, which began shipping for the first time in the fourth
quarter of 2003, generated net sales of $938. The line was well received by both
retailers and consumers and the Company anticipates that the brand will continue
to infiltrate the market place during 2004.

Diva Acquisition Corp. ("Steven"):

Sales from Steven accounted for $12,519 or 4%, and $11,194 or 3%, of total
sales in 2003 and 2002, respectively. The increase in sales was principally due
to the addition of new retail doors, including Dillards and Macy's West. Gross
profit as a percentage of sales increased to 36% in 2003 from 27% in 2002,
primarily the result of cost effective sourcing and improved inventory
management. Operating expenses increased to $3,360 in 2003 from $2,645 in 2002
due to increases in selling, designing, marketing and advertising expenses.
Income from operations for Steven was $1,128 in 2003 compared to $432 in 2002.

Stevies Inc. ("Stevies"):

Sales from Stevies accounted for $10,120 or 3%, and $13,664 or 4%, of total
sales in 2003 and 2002, respectively. The decrease in sales was due to
diminished reorder demand. Also, the decrease in sales was partly anticipated
when Meldisco, the lease operator of the Federated Department Store children's
departments and a division of Footstar, experienced temporary credit issues
relating to its K-Mart business. This led to shipping delays and some
cancellations. Gross profit as a percentage of sales decreased to 35% in 2003
from 36% in 2002,

-16-


primarily due to an increase in promotional activity. Operating expenses
decreased to $2,262 in 2003 from $3,205 in 2002 due to decreases in selling and
selling-related expenses. Income from operations for Stevies was $1,258 in 2003
compared to $1,779 in 2002.

Unionbay Men's Footwear ("Unionbay"):

Unionbay Men's Footwear, the Company's new license generated net sales of
$320 in the second half of 2003. The product placed consists primarily of test
quantities.

Retail Division:
----------------

Sales from the Retail Division accounted for $95,518 or 29% and $91,883 or
28% of total sales in 2003 and 2002, respectively. The increase in sales was due
to the increase in number of Steve Madden retail stores. During 2003, the
Company opened six (6) new retail stores and closed three (3) of its
under-performing stores. As of December 31, 2003, there were 83 retail stores
compared to 80 retail stores as of December 31, 2002. Comparable store sales for
the year ended December 31, 2003 decreased 4% over the same period of 2002. This
decrease in sales was partially caused by the popularity of sneakers. These
offerings were available at $49.99 and below, pressuring the higher priced
casual closed shoe category. Gross profit as a percentage of sales remained at
53% in 2003, the same as in 2002. Operating expenses for the Retail Division
were $41,719 in 2003 and $39,793 in 2002. This increase was due to higher costs
associated with the opening of the six (6) additional stores during 2003. Income
from operations for the Retail Division was $9,133 in 2003 compared to $9,001 in
2002.

Adesso-Madden Division:
-----------------------

Adesso-Madden, Inc. generated commission revenues of $5,056 for the year
ended December 31, 2003, which represents a 6% increase over commission revenues
of $4,770 for the same period in 2002. This increase was primarily the result of
growth in discount retail accounts. Income from operations for Adesso-Madden was
$2,904 in 2003 compared to $2,548 in 2002.

Year Ended December 31, 2002 vs. Year Ended December 31, 2001

Consolidated:
-------------

Sales for the year ended December 31, 2002 were $326,136 or 34% higher than
the $243,391 for the year ended December 31, 2001. The increase in sales was due
in part to a $34,692 increase in sales from Madden Mens, double-digit percentage
gains in each of our other Wholesale Divisions and sales gains of $12,396 or 16%
in our Retail Division. Sales gains were attributable to greater acceptance of
the Company's product offerings and to an increase in the Company's brand
recognition as well as the Company's opening of ten additional retail stores.

Consolidated gross profit as a percentage of sales decreased to 39% in 2002
from 41% in 2001. The decrease was primarily due to sluggish business
conditions, which required increased markdowns, selling and advertising
allowances to facilitate sales in 2002 vs. 2001.

Total operating expenses increased to $100,074 in 2002 from $79,472 in
2001. Such increase resulted from expenses related to the first full year of
operations of Madden Mens, growth in other segments of business and provision
for management incentives. Advertising and marketing related expenses increased
to $7,451 in 2002 from $6,596 in 2001 because of the Company's increased focus
in this area. Selling, design and licensing expenses also increased to $18,346
in 2002 from $12,499 in 2001 because of overall growth in sales and the
Company's concentration in its design and licensing areas. Additionally,
remaining operating expenses increased to $20,007 in 2002 from $16,845 primarily
because the Company opened 10 additional retail stores during 2002. Also, total
legal expenses in 2002 increased to $2,650 from $922 in 2001 because of
incremental legal and defense costs.

Income from operations for 2002 was $33,212, which represents an increase
of $13,850 or 72% over income from operations of $19,362 in 2001. Net income
increased by 64% to $19,841 in 2002 from $12,116 in 2001. The increase in income
resulted from the growth in sales and absorption of overhead by the growth in
business. Also contributing to the increase in net income was the fact that in
2001, the Company had a non-recurring charge in the amount of $6,950 in
connection with the purchase of loss mitigation insurance coverage.

-17-


Wholesale Divisions:
--------------------

Steven Madden Ltd. (Madden Womens, l.e.i. and Madden Mens):

Sales from Madden Womens accounted for $108,577 or 33%, and $92,413 or 38%,
of total sales in 2002 and 2001, respectively. The increase in sales was driven
by the sales of key styles including euro casuals, open stock dress sandals and
classic platform round toe boots. Gross profit as a percentage of sales
decreased to 31% in 2002 from 35% in 2001 primarily due to earlier action by the
division to sell off slow moving styles to create open-to-buy for new best
sellers. In addition higher markdowns were taken by the division due to the
general softness in the economy. Operating expenses increased to $27,714 in 2002
from $24,929 in 2001 due to increases in employee incentives and performance
related expenses. Additionally, selling and designing expenses increased due to
an increase in sales in 2002. Income from operations for Madden Womens was
$7,519 in 2002 compared to $1,944 in 2001. Income from operations in 2001
included a pretax charge of $6,950 in connection with the purchase of a loss
mitigation policy.

Sales from l.e.i. accounted for $55,665 or 17%, and $42,592 or 17%, of
total sales in 2002 and 2001, respectively. The increase in sales was
principally due to the addition of new accounts with retailers including The Bon
Marche, Dayton Hudson, Stage Stores and Foot Action and higher sales of key
styles such as euro casual and lug bottom casuals. Gross profit as a percentage
of sales decreased to 36% in 2002 from 37% in 2001 primarily due to an increase
in markdown allowances caused by higher levels of promotional activities at
retail and general softness in the economy in the year 2002. Operating expenses
increased to $14,165 in 2002 from $9,833 in 2001 due to increased sales
commission, freight out and licensing costs as well as employee incentives and
performance related expenses. Income from operations for l.e.i. was $6,132 in
2002 compared to $5,900 in 2001.

Sales from Madden Mens, which commenced shipping in the first quarter of
2001, accounted for $45,153 or 14%, and $10,461 or 4%, of total sales in 2002
and 2001, respectively. The sales increase resulted from doubling the number of
Madden Mens doors and wider acceptance of Madden Mens products throughout the
department store distribution channels. Sales were driven by key styles
including euro casual and the sport-active look. Gross profit as a percentage of
sales remained at 36% in 2002, the same as 2001. Operating expenses increased to
$10,330 in 2002 from $3,340 in 2001 due to increases in payroll and other
payroll-related expenses, which were due to growth in the business, and the fact
that year 2002 was the first full year of operation for this product line.
Additionally, selling and designing expenses increased due to the increase in
sales in 2002. Madden Mens income from operations increased to $5,801 in 2002
compared to $384 in 2001.

Diva Acquisition Corp. ("Diva"):

Sales from Diva accounted for $11,194 or 3%, and $7,454 or 3%, of total
sales in 2002 and 2001, respectively. The increase in sales was achieved partly
through the third quarter inclusion of sales of products from the newly
introduced Steven brand (which had net sales of $860 in 2002) within the Diva
division. The increase in sales was also driven by key styles including pointy
toe dress shoes, sport active shoes, driving moccasins and mid-heel dress shoes.
Gross profit as a percentage of sales decreased to 27% in 2002 from 28% in 2001,
primarily due to an increase in markdown allowances, resulting from higher
levels of promotional activities caused by general softness in the economy in
2002. Operating expenses increased to $2,645 in 2002 from $1,796 in 2001 due to
increases in payroll and other payroll-related expenses due to the growth in the
business. Additionally, selling and related expenses increased due to the
increase in sales in 2002. Diva's income from operations increased to $432 in
2002 compared to $274 in 2001.

Stevies Inc.

Sales from Stevies accounted for $13,664 or 4%, and $10,984 or 5%, of total
sales in 2002 and 2001, respectively. The increase in sales was driven by the
addition of new accounts with retailers including Meldisco children's
departments, Zutopia, and the Wet Seals' children's division. This increase in
sales was also due to the growth in accounts such as Limited Too, Journey's
Kidz, Nordstrom and Filenes. Gross profit as a percentage of sales remained at
36% in 2002 same as 2001. Operating expenses increased to $3,205 in 2002 from
$2,626 in 2001 due to increases in payroll and other payroll-related expenses.
Additionally, selling and related expenses increased due to an increase in sales
in the current period. Stevies income from operations increased to $1,779 in
2002 compared to $1,593 in 2001.

-18-


Retail Division:
----------------

Sales from the Retail Division accounted for $91,883 or 28% and $79,487 or
33% of total sales in 2002 and 2001, respectively. This increase in sales was
due to the increase in the number of Steve Madden retail stores as well as an
increase in comparable store sales. During 2002, the Company opened ten (10) new
stores and closed three (3) of its low performing stores. As of December 31,
2002, there were 80 retail stores compared to 73 stores as of December 31, 2001.
Comparable store sales for the year ended December 31, 2002 increased 6% over
such sales in 2001. This increase was achieved through the early delivery of
fresh products to the Company's stores and the prompt replenishment of inventory
in season. Additionally the increase in sales was driven by key styles including
women's dress and casual shoes as well as an increase in the sale of men's
footwear in the Company's retail stores. Gross profit as a percentage of sales
remained at 53% in 2002, the same as 2001. Operating expenses for the Retail
Division increased to $39,793 or 43% of sales in 2002 from $34,992 or 44% of
sales in 2001. This increase primarily resulted from the addition of new stores.
Income from operations for the Retail Division was $9,001 in 2002 compared to
$7,023 in 2001.

Adesso-Madden Division:
-----------------------

Adesso-Madden, Inc. generated commission revenues of $4,770 for the year
ended December 31, 2002, which represents a 14% increase over commission
revenues of $4,200 in 2001. This increase was primarily due to the growth in
accounts such as Wal-Mart, Target, JC Penney and Mervyn's and the addition of
children's products to the assortment mix. Operating expenses increased to
$2,222 in 2002 from $1,956 in 2001 due to increases in payroll and other
payroll-related expenses. Income from operations for Adesso-Madden was $2,548 in
2002 compared to $2,244 in 2001.

LICENSE AGREEMENTS

Revenues from licensing increased to $2,838 in 2003 from $1,833 in 2002.
Revenue from the license product increased resulting in higher royalty income.
As of December 31, 2003, the Company had six license partners covering six
product categories of its Steve Madden brand. The product categories include
handbags, hosiery, sunglasses, eyewear, belts and outerwear.

LIQUIDITY AND CAPITAL RESOURCES

The Company had working capital of $105,140 at December 31, 2003 compared
to $86,461 of working capital at December 31, 2002, representing an increase of
$18,679. The Company's 2003 net income was the primary contributor to the
increase in working capital. The Company believes that based upon its financial
position and available cash and marketable securities, it will meet all of its
financial commitments and operating needs for at least the next twelve months.

Under the terms of a factoring agreement with Capital Factors, Inc., the
Company is eligible to draw down 80% of its invoiced receivables at an interest
rate of two points below the Prime Rate (as defined in such agreement). The
agreement with Capital Factors expires December 31, 2004. Capital Factors
maintains a lien on all of the Company's inventory and receivables and assumes
the credit risk for all assigned accounts approved by them. Under the agreement,
the Company has a credit line of $15 million dollars. The Company did not use
any portion of the credit line during 2003.

As of December 31, 2003 the Company had invested approximately $32,659 in
marketable securities consisting of corporate bonds, U.S. Treasury notes and
government asset-backed securities.

OPERATING ACTIVITIES

During the year ended December 31, 2003, net cash provided by operating
activities was $7,903. Uses of cash was caused primarily by an increase in
factored accounts receivable of $6,583, an increase in prepaid expenses, prepaid
taxes, deposits and others of $5,535 and a decrease in accrued incentive
compensation of $2,234. In addition, inventory increased by $4,413 principally
due to the early receipt of spring 2004 merchandise. Sources of cash were
provided principally by net income of $20,454.

-19-


At December 31, 2003, the Company had un-negotiated open letters of credit
for the purchase of imported merchandise of approximately $7,458.

The Company has an employment agreement with Steve Madden, its Creative and
Design Chief, which provides for an annual salary of $700,000 through June 30,
2011. The agreement also provides for an annual performance bonus, an annual
option grant at exercise prices equal to the market price on the date of grant
and a non-accountable expense allowance.

The Company has employment agreements with certain executives, which
provide for the payment of compensation aggregating approximately $1,818 in
2004, $1,060 in 2005 and $234 in 2006. In addition, such employment agreements
provide for incentive compensation based on various performance criteria as well
as other benefits.

Significant portions of the Company's products are produced at overseas
locations, the majority of which are located in Brazil, China, Italy and Spain.
The Company has not entered into any long-term manufacturing or supply contracts
with any of these foreign companies. The Company believes that a sufficient
number of alternative sources exist outside of the United States for the
manufacture of its products. In addition, the Company currently makes
approximately ninety-seven percent (97%) of its purchases in U.S. dollars.

INVESTING ACTIVITIES

During the year ended December 31, 2003, the Company invested $47,059 in
marketable securities and received $36,785 from maturities and sales of
securities. In addition, the Company incurred capital expenditures of $6,061
principally for leasehold improvements to its corporate office space, the
addition of six (6) new stores and computer systems upgrades.

FINANCING ACTIVITIES

During the year ended December 31, 2003, the Company received $4,805 in
connection with the exercise of stock options.

INFLATION

The Company does not believe that the relatively low rates of inflation
experienced over the last few years in the United States, where it primarily
competes, have had a significant effect on sales, expenses or profitability.

CONTRACTUAL OBLIGATIONS

The Company's contractual obligations as of December 31, 2003 were as
follows:



------------------------------------------------------

Payment due by period (in thousands)
- -----------------------------------------------------------------------------------------------------------------

Less than 1-3 3-5 More than
Contractual Obligations Total 1 year years years 5 years
- -----------------------------------------------------------------------------------------------------------------

Long-Term Debt Obligations $ 0 $ 0 $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------

Capital Lease Obligations 1 1 0 0 0
- -----------------------------------------------------------------------------------------------------------------

Operating Lease Obligations 61,259 9,386 18,406 16,015 17,452
- -----------------------------------------------------------------------------------------------------------------

Purchase Obligations 7,458 7,458 0 0 0
- -----------------------------------------------------------------------------------------------------------------

Other Long-Term Liabilities (future minimum royalty payments) 23,030 240 9,490 8,750 4,550
- -----------------------------------------------------------------------------------------------------------------

Total $91,748 $17,085 $27,896 $24,765 $22,002
- -----------------------------------------------------------------------------------------------------------------

-20-


OTHER CONSIDERATIONS

Fashion Industry Risks: The success of the Company will depend in
significant part upon its 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 the Company's
products will correspond to the changes in taste and demand or that the Company
will be able to successfully market products that respond to such trends. If the
Company misjudges the market for its products, it may be faced with significant
excess inventories for some products and missed opportunities with others. In
addition, misjudgments in merchandise selection could adversely affect the
Company's image with its customers resulting in lower sales and increased
markdown allowances for customers which could have a material adverse effect on
the Company's business, financial condition and results of operations.

The industry in which the Company operates 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. While the Company has
fared well in recent years in a difficult retail environment, there can be no
assurance that the Company will be able to return to its historical rate of
growth in 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 and have a
material adverse effect on the Company's business, financial condition and
results of operations.

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 consolidate, undergo restructurings or reorganizations, or
realign their affiliations, any of which could decrease the number of stores
that carry the Company's 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 the Company's business or financial condition,
there can be no assurance as to the future effect of any such changes.

Inventory Management: The fashion-oriented nature of the Company's products
and the rapid changes in customer preferences leave the Company vulnerable to an
increased risk of inventory obsolescence. Thus, the Company's ability to manage
its inventories properly is an important factor in its 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. The inability of the Company to
effectively manage its inventory would have a material adverse effect on the
Company's business, financial condition and results of operations.

Dependence Upon Customers and Risks Related to Extending Credit to
Customers: The Company's customers consist principally of department stores and
specialty stores, including shoe boutiques. Certain of the Company's department
store customers, including some under common ownership, account for significant
portions of the Company's wholesale business.

The Company generally enters into a number of purchase order commitments
with its customers for each of its lines every season and does not enter into
long-term agreements with any of its customers. Therefore, a decision by a
significant customer of the Company, whether motivated by competitive
conditions, financial difficulties or otherwise, to decrease the amount of
merchandise purchased from the Company or to change its manner of doing business
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company sells its products primarily to
retail stores across the United States and extends credit based on an evaluation
of each customer's financial condition, usually without collateral. While
various retailers, including some of the Company's customers, have experienced
financial difficulties in the past few years which increased the risk of
extending credit to such retailers, the Company's losses due to bad debts have
been limited. Pursuant to the Factoring Agreement between Capital Factors and
the Company, Capital Factors currently assumes the credit risk related to
approximately 95% of the Company's accounts receivables. However, financial
difficulties of a customer could cause the Company to curtail business with such
customer or require the Company to assume more credit risk relating to such
customer's account receivable.

Impact of Foreign Manufacturers: Substantial portions of the Company's
products are currently sourced outside the United States through arrangements
with a number of foreign manufacturers in four different countries.

-21-


During the year ended December 31, 2003, approximately 85% of the Company's
products were purchased from sources outside the United States, primarily from
China, Brazil, Italy and Spain.

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 the
Company's 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 the Company's business, financial
condition and results of operations. The Company does not believe that any such
economic or political condition will materially affect the Company's ability to
purchase products, since a variety of materials and alternative sources are
available. The Company cannot be certain, however, that it will be able to
identify such alternative sources without delay (if ever) or without greater
cost to the Company. The Company's inability to identify and secure alternative
sources of supply in this situation would have a material adverse effect on the
Company's business, financial condition and results of operations.

The Company's imported products are also subject to United States customs
duties. The United States and the countries in which the Company's 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 the Company's
business, financial condition and results of operations.

Possible Adverse Impact of Unaffiliated Manufacturers' Inability to
Manufacture in a Timely Manner, Meet Quality Standards or to Use Acceptable
Labor Practices: As is common in the footwear industry, the Company contracts
for the manufacture of a majority of its products to its specifications through
foreign manufacturers. The Company does not own or operate any manufacturing
facilities and is therefore dependent upon independent third parties for the
manufacture of all of its products. The Company's products are manufactured to
its specifications by both domestic and international manufacturers. The
inability of a manufacturer to ship orders of the Company's products in a timely
manner or to meet the Company's quality standards could cause the Company to
miss the delivery date requirements of its 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 the Company's business, financial condition and results of operations.

Although the Company enters 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, the Company does
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 the Company believes that other facilities are available for the
manufacture of the Company's products, both within and outside of the United
States, there can be no assurance that such facilities would be available to the
Company on an immediate basis, if at all, or that the costs charged to the
Company by such manufacturers will not be greater than those presently paid.

The Company requires its licensing partners and independent manufacturers
to operate in compliance with applicable laws and regulations. While the Company
promotes ethical business practices and the Company's staff periodically visits
and monitors the operations of its independent manufacturers, the Company does
not control such manufacturers or their labor practices. The violation of labor
or other laws by an independent manufacturer of the Company or by one of the
Company's licensing partners, or the divergence of an independent manufacturer's
or licensing partner's labor practices from those generally accepted as ethical
in the United States, could have a material adverse effect on the Company's
business, financial condition and results of operations.

Intense Industry Competition: The fashion footwear industry is highly
competitive and barriers to entry are low. The Company's competitors include
specialty companies as well as companies with diversified product lines. The
recent market growth in the sales of fashionable footwear has encouraged the
entry of many new competitors and increased competition from established
companies. Most of these competitors, including Diesel, Kenneth Cole, Nine West,
DKNY, Skechers, Nike and Guess, may have significantly greater financial and
other resources than the Company and there can be no assurance that the Company
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 the Company's business, financial condition and results of operations. The
Company believes effective advertising and marketing, branding of the Steve
Madden name, fashionable styling, high quality and value are the most important
competitive factors and plans to continually

-22-


employ these elements as it develops its products. The Company's inability to
effectively advertise and market its products could have a material adverse
effect on the Company's business, financial condition and results of operations.

Expansion of Retail Business: The Company's continued growth depends to a
significant degree on further developing the Steve Madden(R), Stevies, Steven,
Steve Madden Mens, l.e.i.(R) , Unionbay(R) and Candie's(R) brands, creating new
product categories and businesses and operating Company-owned stores on a
profitable basis. During the year ended December 31, 2003 the Company opened six
(6) Steve Madden retail stores and has plans to open approximately eight to ten
(8-10) additional stores in the year 2004. The Company's recent and planned
expansion 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 the Company in its existing markets. There can be no
assurance that the Company 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. The Company's retail expansion is
dependent on a number of factors, including the Company's ability to locate and
obtain favorable store sites, the performance of the Company's wholesale and
retail operations, and the ability of the Company 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 the Company's
comparable store sales results can be maintained or will increase in the future.
In addition, there can be no assurance that the Company's strategies to increase
other sources of revenue, which may include expansion of its licensing
activities, will be successful or that the Company's overall sales or
profitability will increase or not be adversely affected as a result of the
implementation of such retail strategies.

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

Seasonal and Quarterly Fluctuations: The Company's 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 the Company's products, the
mix, pricing and presentation of the products offered and sold, the hiring and
training of additional personnel, inventory write downs, the cost of materials,
the product mix between wholesale and licensing businesses, the incurrence of
other operating costs and factors beyond the Company's control, such as general
economic conditions and actions of competitors. In addition, the Company expects
that its 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.

Trademark and Service Mark Protection: The Company believes that its
trademarks and service marks and other proprietary rights are important to its
success and its competitive position. Accordingly, the Company devotes
substantial resources to the establishment and protection of its trademarks on a
worldwide basis. Nevertheless, there can be no assurance that the actions taken
by the Company to establish and protect its trademarks and other proprietary
rights will be adequate to prevent imitation of its products by others or to
prevent others from seeking to block sales of the Company's products on the
basis that they 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 the Company or that the
Company 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. The failure of the Company to
establish and then protect such proprietary rights from unlawful and improper
utilization could have a material adverse effect on the Company's business,
financial condition and results of operations.

Foreign Currency Fluctuations: The Company generally purchases its products
in U.S. dollars. However, the Company sources substantially all of its 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

-23-


prices at which the Company and foreign competitors sell their products in the
same market. There can be no assurance that foreign currency fluctuations will
not have a material adverse effect on the Company's business, financial
condition and results of operations.

Outstanding Options: As of March 4, 2004 the Company had outstanding
options to purchase an aggregate of approximately 2,274,475 shares of Common
Stock. Holders of such options are likely to exercise them when, in all
likelihood, the market price of the Company's stock is significantly higher than
the exercise price of the options. Further, while its options are outstanding,
they may adversely affect the terms on which the Company could obtain additional
capital, if required.

Economic and Political Risks: The present economic condition in the United
States and concern about uncertainties could significantly reduce the disposable
income available to the Company's customers for the purchase of our products. In
addition, current unstable political conditions, including the potential or
actual conflicts in Iraq, North Korea or elsewhere, or the continuation or
escalation of terrorism, could have an adverse effect on the Company's business,
financial condition and results of operations.


ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not engage in the trading of market risk sensitive
instruments in the normal course of business. Financing arrangements for the
Company are subject to variable interest rates primarily based on the prime
rate. An analysis of the Company's credit agreement with Capital Factors, Inc.
can be found in Note C. "Due From Factor" to the Consolidated Financial
Statements included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2003. On December 31, 2003 and December 31, 2002, there
were no direct borrowings outstanding under the credit agreement.

As of December 31, 2003, the Company had investments in marketable
securities valued at $32,659, which consists principally of federal and state
obligations. These obligations have various maturities through December 2008.
These investments are subject to interest rate risk and will decrease in value
if market interest rates increase. The Company currently has the ability to hold
these investments until maturity. Should there be a significant increase in
interest rates, the value of these investments would be negatively affected
unless they were held to maturity. In addition, any further decline in interest
rates would reduce the Company's interest income.


ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See financial statements following Item 15 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

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of its disclosure controls and procedures as of the end of the fiscal year
covered by this annual report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company's 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.
As required by Rule 13a-15(d) under the Exchange Act, the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer, has
evaluated the Company's internal controls over financial reporting to determine
whether any changes occurred during the fourth quarter of 2003 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. Based on that evaluation,
there has been no such change during the fourth quarter of 2003.

-24-


PART III


ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The other information required to be furnished pursuant to this item will
be set forth in the Company's proxy statement for the 2004 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 the Company's proxy statement for the 2004 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 the Company's proxy statement for the 2004 Annual Meeting of
Stockholders, and is incorporated herein by reference.


ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required to be furnished pursuant to this item will be set
forth in the Company's proxy statement for the 2004 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 the Company's proxy statement for the 2004 Annual Meeting of
Stockholders, and is incorporated herein by reference.


PART IV


ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Financial Statements
The following consolidated financial statements of Steven Madden, Ltd. and
subsidiaries are included in Item 8:

-25-


STEVEN MADDEN, LTD. AND SUBSIDIARIES




Contents

Page
----

Consolidated Financial Statements

Independent auditors' report F-2

Balance sheets as of December 31, 2003 and 2002 F-3

Statements of income for the years ended December 31, 2003, 2002
and 2001 F-4

Statements of changes in stockholders' equity for the years
ended December 31, 2003, 2002 and 2001 F-5

Statements of cash flows for the years ended December 31,
2003, 2002 and 2001 F-7

Notes to financial statements F-8

F-1


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Steven Madden, Ltd.
New York, New York

We have audited the accompanying consolidated balance sheets of Steven Madden,
Ltd. and subsidiaries (the "Company") as of December 31, 2003 and 2002, 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,
2003. 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 auditing standards generally accepted
in the United States of America. 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 enumerated above present fairly, in all
material respects, the consolidated financial position of Steven Madden, Ltd.
and subsidiaries as of December 31, 2003 and 2002, 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, 2003 in conformity with accounting
principles generally accepted in the United States of America.



Eisner LLP

New York, New York
February 10, 2004

F-2


STEVEN MADDEN, LTD. AND SUBSIDIARIES

Consolidated Balance Sheets


December 31,
------------------------------
2003 2002
------------- -------------

ASSETS
Current assets:
Cash and cash equivalents $ 53,073,000 $ 56,713,000
Accounts receivable - net of allowances of $452,000 and $497,000 4,281,000 3,039,000
Due from factor - net of allowances of $1,926,000 and $1,718,000 28,748,000 22,373,000
Inventories 23,858,000 19,445,000
Marketable securities - available for sale 3,229,000 500,000
Prepaid expenses and other current assets 2,844,000 1,651,000
Prepaid taxes 4,270,000
Deferred taxes 1,692,000 1,633,000
------------- -------------

Total current assets 121,995,000 105,354,000

Property and equipment, net 18,391,000 17,073,000
Deferred taxes 5,618,000 3,699,000
Deposits and other 370,000 298,000
Marketable securities - available for sale 29,430,000 22,010,000
Cost in excess of fair value of net assets acquired - net of accumulated
amortization of $714,000 2,066,000 2,066,000
------------- -------------

$ 177,870,000 $ 150,500,000
============= =============

LIABILITIES
Current liabilities:
Capital lease obligations $ 1,000 $ 14,000
Accounts payable 11,087,000 9,044,000
Accrued expenses 5,300,000 7,134,000
Accrued incentive compensation 467,000 2,701,000
------------- -------------

Total current liabilities 16,855,000 18,893,000

Deferred rent 1,828,000 1,532,000
------------- -------------

18,683,000 20,425,000
------------- -------------

Commitments, contingencies and other

STOCKHOLDERS' EQUITY
Preferred stock - $.0001 par value, 5,000,000 shares authorized; none issued
Series A Junior Participating preferred stock - $.0001 par value, 60,000
shares authorized; none issued
Common stock - $.0001 par value, 60,000,000 shares authorized, 14,459,109
and 14,016,059 shares issued, 13,213,905 and 12,770,855 shares
outstanding at December 31, 2003 and 2002, respectively 1,000 1,000
Additional paid-in capital 79,136,000 70,683,000
Retained earnings 91,176,000 70,722,000
Unearned compensation (3,008,000) (3,476,000)
Other comprehensive gain (loss):
Unrealized (loss) gain on marketable securities (net of taxes) (127,000) 136,000
Treasury stock - 1,245,204 shares at cost (7,991,000) (7,991,000)
------------- -------------

159,187,000 130,075,000
------------- -------------

$ 177,870,000 $ 150,500,000
============= =============


See notes to financial statements

F-3


STEVEN MADDEN, LTD. AND SUBSIDIARIES

Consolidated Statements of Income


Year Ended December 31,
-----------------------------------------------
2003 2002 2001
------------- ------------- -------------

Net sales:
Wholesale $ 228,686,000 $ 234,253,000 $ 163,904,000
Retail 95,518,000 91,883,000 79,487,000
------------- ------------- -------------

324,204,000 326,136,000 243,391,000
------------- ------------- -------------

Cost of sales:
Wholesale 153,519,000 156,364,000 106,046,000
Retail 44,666,000 43,089,000 37,472,000
------------- ------------- -------------

198,185,000 199,453,000 143,518,000
------------- ------------- -------------

Gross profit 126,019,000 126,683,000 99,873,000
Commission and licensing fee income 7,894,000 6,603,000 5,911,000
Operating expenses (100,287,000) (100,074,000) (79,472,000)
Cost of loss mitigation coverage (6,950,000)
------------- ------------- -------------

Income before other income (expenses) and provision
for income taxes 33,626,000 33,212,000 19,362,000

Other income (expenses):
Interest income 1,611,000 1,166,000 1,344,000
Interest expense (54,000) (16,000) (66,000)
Gain on sale of marketable securities 136,000 66,000 71,000
------------- ------------- -------------

Income before provision for income taxes 35,319,000 34,428,000 20,711,000
Provision for income taxes 14,865,000 14,587,000 8,595,000
------------- ------------- -------------

Net income $ 20,454,000 $ 19,841,000 $ 12,116,000
============= ============= =============

Basic income per share $ 1.58 $ 1.58 $ 1.04
============= ============= =============

Diluted income per share $ 1.45 $ 1.45 $ 0.94
============= ============= =============

Basic weighted average common shares outstanding 12,985,265 12,594,861 11,617,862
Effect of dilutive securities - options 1,153,246 1,115,018 1,330,002
------------- ------------- -------------


Diluted weighted average common shares outstanding 14,138,511 13,709,879 12,947,864
============= ============= =============


See notes to financial statements

F-4


STEVEN MADDEN, LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity



Common Stock Additional
------------------------- Paid-in Retained Unearned
Shares Amount Capital Earnings Compensation
----------- ----------- ----------- ----------- -----------

Balance - December 31, 2000 12,306,684 $ 1,000 $46,688,000 $38,765,000 $ (897,000)
Exercise of stock options 1,122,336 8,998,000
Tax benefit from exercise of options 2,765,000
Compensation in connection with
issuance of stock options 2,004,000 (810,000)
Compensation in connection with
issuance of restricted stock 10,000 188,000
Net income 12,116,000
Amortization of unearned compensation 533,000
----------- ----------- ----------- ----------- -----------

Balance - December 31, 2001 13,439,020 1,000 60,643,000 50,881,000 (1,174,000)
Exercise of stock options 567,039 4,364,000
Tax benefit from exercise of options 1,146,000
Deferred compensation in connection
with issuance of stock options and
restricted stock 3,930,000 (3,930,000)
Compensation in connection with
issuance of stock options 412,000
Compensation in connection with
issuance of restricted stock 10,000 188,000
Amortization of unearned compensation 1,628,000
Unrealized holding gain on marketable
securities (net of taxes)
Net income 19,841,000
Comprehensive income
----------- ----------- ----------- ----------- -----------

Balance - December 31, 2002 14,016,059 1,000 70,683,000 70,722,000 (3,476,000)
Exercise of stock options 443,050 4,805,000
Tax benefit from exercise of options 1,239,000
Deferred compensation in connection
with issuance of stock options and
restricted stock 2,409,000 (2,409,000)
Amortization of unearned compensation 2,877,000
Unrealized holding loss on marketable
securities (net of taxes of
$190,000)
Net income 20,454,000
Comprehensive income
----------- ----------- ----------- ----------- -----------

Balance - December 31, 2003 14,459,109 $ 1,000 $79,136,000 $91,176,000 $(3,008,000)
=========== =========== =========== =========== ===========


See notes to financial statements

F-5


STEVEN MADDEN, LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity (Continued)



Accumulated
Other Treasury Stock Total
Comprehensive ----------------------------- Stockholders' Comprehensive
Gain (Loss) Shares Amount Equity Income
------------- ------------- ------------- ------------- -------------

Balance - December 31, 2000 1,245,204 $ (7,991,000) $ 76,566,000
Exercise of stock options 8,998,000
Tax benefit from exercise of options 2,765,000
Compensation in connection with
issuance of stock options 1,194,000
Compensation in connection with
issuance of restricted stock 188,000
Net income 12,116,000
Amortization of unearned compensation 533,000
------------- ------------- ------------- ------------- -------------

Balance - December 31, 2001 1,245,204 (7,991,000) 102,360,000
Exercise of stock options 4,364,000
Tax benefit from exercise of options 1,146,000
Deferred compensation in connection
with issuance of stock options and
restricted stock 0
Compensation in connection with
issuance of stock options 412,000
Compensation in connection with
issuance of restricted stock 188,000
Amortization of unearned compensation 1,628,000
Unrealized holding gain on marketable
securities (net of taxes) $ 136,000 136,000 $ 136,000
Net income 19,841,000 19,841,000
-------------
Comprehensive income $ 19,977,000
------------- ------------- ------------- ------------- =============

Balance - December 31, 2002 136,000 1,245,204 (7,991,000) 130,075,000
Exercise of stock options 4,805,000
Tax benefit from exercise of options 1,239,000
Deferred compensation in connection
with issuance of stock options and
restricted stock
Amortization of unearned compensation 2,877,000
Unrealized holding loss on marketable
securities (net of taxes of $190,000) (263,000) (263,000) $ (263,000)
Net income 20,454,000 20,454,000
-------------
Comprehensive income $ 20,191,000
------------- ------------- ------------- ------------- =============

Balance - December 31, 2003 $ (127,000) 1,245,204 $ (7,991,000) $ 159,187,000
============= ============= ============= =============


See notes to financial statements

F-6


STEVEN MADDEN, LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows


Year Ended December 31,
--------------------------------------------
2003 2002 2001
------------ ------------ ------------

Cash flows from operating activities:
Net income $ 20,454,000 $ 19,841,000 $ 12,116,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity-based compensation 2,877,000 2,228,000 1,915,000
Depreciation and amortization 4,743,000 3,706,000 3,447,000
Deferred taxes (1,978,000) (1,090,000) (480,000)
Tax benefit from exercise of options 1,239,000 1,146,000 2,765,000
Provision for doubtful accounts and chargebacks 163,000 571,000 219,000
Deferred rent expense 296,000 233,000 225,000
Realized gain on sale of marketable securities (136,000) (66,000) (71,000)
Changes in:
Accounts receivable (1,196,000) (1,207,000) 862,000
Due from factor (6,583,000) 79,000 (8,364,000)
Inventories (4,413,000) (3,627,000) 6,000
Prepaid expenses, prepaid taxes, deposits and other assets (5,535,000) 7,046,000 (7,484,000)
Accounts payable and accrued expenses 206,000 (1,556,000) 4,054,000
Accrued incentive compensation (2,234,000) 2,289,000 183,000
------------ ------------ ------------

Net cash provided by operating activities 7,903,000 29,593,000 9,393,000
------------ ------------ ------------

Cash flows from investing activities:
Purchase of property and equipment (6,061,000) (5,072,000) (3,415,000)
Purchases of marketable securities (47,059,000) (26,349,000) (54,000)
Maturity/sale of marketable securities 36,785,000 4,041,000 125,000
------------ ------------ ------------

Net cash used in investing activities (16,335,000) (27,380,000) (3,344,000)
------------ ------------ ------------

Cash flows from financing activities:
Proceeds from exercise of stock options 4,805,000 4,364,000 8,998,000
Payments of lease obligations (13,000) (43,000) (127,000)
------------ ------------ ------------

Net cash provided by financing activities 4,792,000 4,321,000 8,871,000
------------ ------------ ------------

Net (decrease) increase in cash and cash equivalents (3,640,000) 6,534,000 14,920,000
Cash and cash equivalents - beginning of year 56,713,000 50,179,000 35,259,000
------------ ------------ ------------

Cash and cash equivalents - end of year $ 53,073,000 $ 56,713,000 $ 50,179,000
============ ============ ============


Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 54,000 $ 16,000 $ 66,000
Income taxes $ 18,700,000 $ 6,522,000 $ 14,389,000


See notes to financial statements

F-7


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

[1] Organization:

Steven Madden, Ltd., a Delaware corporation, designs and sources women's,
girl's and men's shoes, for sale through its wholesale and retail
channels under the Steve Madden, Steven, Stevies, Madden Mens, Lei (under
license), Candie's (under license) and Unionbay (under license) brand
names. Revenue is generated predominately through the sale of the
Company's brand name merchandise and certain licensed products. At
December 31, 2003 and 2002, the Company operated 83 and 80 retail stores
(including its website as a store), respectively. Such revenue is subject
to seasonal fluctuations. See Note K for operating segment information.

[2] 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., Unionbay Men's
Footwear, Inc. and Stevies, Inc. (collectively referred to as the
"Company"). All significant intercompany balances and transactions have
been eliminated.

[3] Use of estimates:

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

[4] Cash equivalents:

Cash equivalents at December 31, 2003 and 2002, amounted to approximately
$44,829,000 and $46,024,000, respectively, and consist of money market
accounts, certificates of deposit and commercial paper. The Company
considers all highly liquid instruments with an original maturity of
three months or less to be cash equivalents.

[5] Marketable securities:

Marketable securities consist primarily of corporate bonds, U.S. treasury
notes and government asset-backed securities with maturities greater than
three months up to 5 years at the time of purchase. These securities,
which are classified as available for sale, are carried at fair value,
with unrealized gains and losses, net of any tax effect, reported in
stockholders' equity as accumulated other comprehensive income, and are
held at an investment bank in the schedule of maturities as follows:



Maturities
-------------------------------
1 Year or Less 1 to 5 Years
-------------- --------------

Schedule of maturities:
Municipal bonds $ 154,000 $ 14,229,000
US Government and Federal agency bonds 2,560,000 6,507,000
Corporate bonds (domestic) 6,606,000
Corporate bonds (international) 515,000 2,088,000
-------------- --------------

$ 3,229,000 $ 29,430,000
============== ==============


F-8


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[6] Inventories:

Inventories, which consist of finished goods, are stated at the lower of
cost (first-in, first-out method) or market.

[7] 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. No impairment losses have been incurred for the years
presented.

[8] Cost in excess of fair value of net assets acquired:

Cost in excess of fair value of net assets acquired relates to two
acquisitions, and through December 31, 2001 was being amortized over 20
years.

During 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). Amortization of indefinite lived
intangible assets was no longer allowed under FAS 142, however these
identified assets are subject to annual impairment tests. The Company has
determined that such goodwill is allocable to the wholesale segment and
the carrying amount of these assets is not impaired at December 31, 2003.

[9] Net income per share:

Basic income per share is based on the weighted average number of common
shares outstanding during the year. Diluted income per share reflects the
potential dilution assuming common shares were issued upon the exercise
of outstanding in-the-money options and the proceeds (including the
amount of compensation cost, if any, attributed to future services and
not yet recognized and the amount of tax benefits, if any, that would be
credited to additional paid-in capital assuming exercise of the options)
thereof were used to purchase treasury stock at the average market price
during the period. For the years ended December 31, 2003 and 2002,
options exercisable into approximately 100,000 and 741,000 shares of
common stock, respectively, have not been included in the calculation of
diluted income per share as the result would have been antidilutive.

[10] 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 $7,666,000 in
2003, $7,451,000 in 2002 and $6,596,000 in 2001.

[11] Fair value of financial instruments:

The carrying value of the Company's financial instruments approximate
fair value due to their short-term nature or their underlying terms.
Marketable securities are carried at quoted market prices which represent
fair value.

F-9


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[12] Stock-based compensation:

At December 31, 2003, the Company had various stock option plans, which
are described more fully in Note D. The Company has elected to continue
to follow the intrinsic value method in accounting for its stock-based
employee compensation arrangements. The following table illustrates the
effect on net income and earnings per share if the company had applied
the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation.



Year Ended December 31,
--------------------------------------------------
2003 2002 2001
-------------- -------------- --------------

Reported net income $ 20,454,000 $ 19,841,000 $ 12,116,000
Stock-based employee compensation included in
reported net income, net of tax 412,000 932,000 935,000
Stock-based employee compensation determined
under the fair value based method, net of tax (2,838,000) (2,663,000) (2,272,000)
-------------- -------------- --------------

Pro forma net income $ 18,028,000 $ 18,110,000 $ 10,779,000
============== ============== ==============

Basic income per share:
As reported $ 1.58 $ 1.58 $ 1.04
Pro forma $ 1.39 $ 1.44 $ 0.93

Diluted income per share:
As reported $ 1.45 $ 1.45 $ 0.94
Pro forma $ 1.28 $ 1.32 $ 0.83


The weighted average fair value of options granted in 2003, 2002 and 2001
was approximately $10.62, $10.60 and $9.44, respectively, using the
Black-Scholes option-pricing model with the following assumptions:



2003 2002 2001
------------ ------------- -------------

Volatility 71% 73% 75%
Risk free interest rate 2.18% - 3.0% 2.60% - 4.15% 3.56% - 4.98%
Expected life in years 4 4 4
Dividend yield 0 0 0


[13] Revenue recognition:

Wholesale revenue is recognized upon shipment. Allowances for estimated
discounts and allowances are recognized when sales are recorded.
Commission revenue is recognized when title of product transfers to the
customer. Retail sales are recognized when the payment is received from
customers and are recorded net of returns. Licensing revenue is
recognized on the basis of net sales reported by the licensees or, if
greater, minimum guaranteed royalties when received.

F-10


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

[14] Impairment of long-lived assets:

During fiscal 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144"). 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 in accordance with FAS 144.

[15] 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 makes
discretionary matching contributions of 25% 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 2003, 2002 and 2001 were approximately $162,000, $142,000 and
$120,000, respectively.

[16] Recently issued accounting standards:

SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity," which was issued in May
2003, will require redeemable preferred stock to be classified, in
certain circumstances, as a liability, upon adoption by a public company
at the beginning of the first interim period beginning after June 15,
2003. SFAS No. 150 provides that mandatorily redeemable preferred stock
should be classified as a liability if it embodies an unconditional
obligation requiring the issuer to redeem the shares by transferring its
assets at a specified or determinable date or upon an event certain to
occur. The Company does not currently have any financial instruments with
these characteristics. SFAS No. 150 had no effect on the Company's
results of operations and financial position.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosures Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45
requires that upon issuance of a guarantee, the guarantor must recognize
a liability for the fair value of the obligation it assumes under that
guarantee. FIN 45 is effective on a prospective basis to guarantees
issued or modified after December 15, 2002, but has certain disclosure
requirements effective for financial statements of interim or annual
periods ending after December 15, 2002. The Company does not currently
have any guarantees. The adoption of the disclosure requirements of FIN
45 had no effect on its financial position or results of operations of
the Company.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities" ("FIN 46"). FIN 46 relates to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient capital at risk for the
entity to finance its activities without additional subordinated
financial support from other parties. Under certain circumstances, an
enterprise may be required to consolidate such an entity if it will
absorb a majority of the entity's expected losses, receive a majority of
the entity's residual returns, or both. FIN 46 became effective for
variable interest entities created after January 31, 2003, and had no
effect on the Company's financial position as of December 31, 2003, and
its results of operations for the year then ended.

F-11


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE B - PROPERTY AND EQUIPMENT

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



December 31,
----------------------------
2003 2002
------------ ------------

Leasehold improvements $ 22,005,000 $ 19,478,000
Machinery and equipment 730,000 719,000
Furniture and fixtures 3,885,000 3,157,000
Computer equipment 4,767,000 3,959,000
Equipment under capital lease 194,000
------------ ------------

31,387,000 27,507,000
Less accumulated depreciation and amortization (12,996,000) (10,434,000)
------------ ------------

Property and equipment - net $ 18,391,000 $ 17,073,000
============ ============


NOTE C - DUE FROM FACTOR

Under the terms of its factoring agreement, as amended, the Company may request
advances from the factor up to 80% of aggregate receivables purchased by the
factor at an interest rate of prime minus 2%. The Company also pays a fee equal
to 0.45% of the gross invoice amount of each receivable purchased. In addition,
the factor charges an annual unused line fee of .25% of the average daily unused
portion of the Company's $15,000,000 credit line. The Company sells and assigns
a substantial portion of its receivables, principally without recourse, to the
factor. At December 31, 2003 and 2002, $512,000 and $865,000 of factored
receivables were sold by the Company with recourse. The factor assumes the
credit risk of all assigned accounts approved by it, but maintains liens on all
inventory, trade receivables (whether or not assigned) and the goods represented
thereby.


NOTE D - STOCK OPTIONS

The Company established various stock option plans under which options to
purchase shares of common stock may be granted to employees, directors,
officers, agents, consultants and independent contractors. The plans provide
that the option price shall not be less than the fair market value of the common
stock on the date of grant and that no portion of the option may be exercised
beyond ten years from that date. No incentive stock option can be granted and
exercised beyond five years to a stockholder owning 10% or more of the Company's
outstanding common stock. Options granted under the plans during the three years
ended December 31, 2003 vest on the date of grant or up to three years from such
date.

F-12


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE D - STOCK OPTIONS (CONTINUED)

The Company has several stock option plans. The 1993 Incentive Stock Option
Plan, The 1995 Stock Plan, The 1996 Stock Plan and The 1997 Stock Plan provide
for options to be granted to employees and directors.

The 1993 Incentive Stock Option Plan expired in 2003.

In June 1999, the Company adopted The 1999 Stock Plan which authorized the
issuance of up to 400,000 shares. In May 2000, the stockholders approved an
amendment to this Plan to increase the maximum number of shares to be issued
under the Plan to 975,000 shares. In July 2001, the stockholders approved an
amendment to this Plan to increase the maximum number of shares to be issued
under the Plan to 1,600,000 shares. In May 2002, the stockholders approved a
further amendment to this Plan to increase the maximum number of shares to be
issued under the Plan to 2,280,000. In 2003, the stockholders approved a further
amendment to this Plan to increase the maximum number of shares to be issued
under the Plan to 2,920,000. Terms of the 1999 Stock Plan are not materially
different from the various existing stock option plans.

Through December 31, 2003, 2,643,000 options had been granted under The 1999
Stock Plan, as amended, and as of such date 277,000 shares were available for
grant.

In connection with the amended employment agreement of the former Chief
Executive Officer ("CEO"), who is now the Company's Creative and Design Chief,
the Company issued options to purchase 500,000 shares of its common stock. The
options, which vested in August 1998, have an exercise price of $3.31 and are
exercisable over 10 years expiring in March 2005. Unearned compensation was
recorded in the amount of $1,345,000 which represented the difference between
the exercise price and the fair value of the stock on the date of grant, and is
classified as a component of stockholders' equity. The unearned compensation is
being amortized over the ten-year term of the amended agreement. Accordingly,
$128,000 in each year has been charged to operations for 2003, 2002 and 2001.

In connection with the Chief Operating Officer's employment agreement (the "COO
Agreement"), the Company issued options to purchase 75,000 shares of its common
stock. The options which vested quarterly through December 31, 2001, have an
exercise price of $8.00. The market value of the stock on the date of grant was
$18.80 per share. Unearned compensation was recorded in the amount of $810,000,
which represented the difference between the exercise price and the fair value
of the stock on the date of grant, and is classified as a component of
stockholders' equity. The unearned compensation was amortized over the two-year
term of the employment agreement. Accordingly, $405,000 has been charged to
operations in each year 2002 and 2001. As an amendment to the COO Agreement
dated July 1, 2002, the Company issued 20,000 restricted shares of its common
stock, which vest quarterly through January 1, 2005. The market value of the
stock on the date of grant was $18.74 per share. Unearned compensation was
recorded in the amount of $375,000 and is classified as a component of
stockholders' equity. The unearned compensation is being amortized over the 2
1/2-year term of the employment agreement. Accordingly, $225,000 has been
charged to operations in 2003.

F-13


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE D - STOCK OPTIONS (CONTINUED)

Activity relating to stock options granted under the Company's plans and outside
the plans during the three years ended December 31, 2003 is as follows:



2003 2002 2001
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------

Outstanding at January 1 2,345,000 $ 10.14 2,231,000 $ 7.25 2,749,000 $ 6.36
Granted 403,000 17.81 696,000 17.53 614,000 12.68
Exercised (443,000) 10.79 (567,000) 7.70 (1,122,000) 8.02
Cancelled (31,000) 11.87 (15,000) 16.71 (10,000) 9.98
---------- ---------- ----------

Outstanding at December 31 2,274,000 11.35 2,345,000 10.14 2,231,000 7.25
========== ========== ==========

Exercisable at December 31 1,885,000 10.33 1,813,000 8.01 2,131,000 7.22
========== ========== ==========


The following table summarizes information about stock options at December 31,
2003:



Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Range of Exercise Price Outstanding (in Years) Price Exercisable Price
----------------------------- ------------- ------------- ---------- ------------- ----------

$ 1.75 to $ 3.31 820,000 2.1 $ 2.36 820,000 $ 2.36
$ 5.50 to $ 7.00 89,000 3.7 5.76 89,000 5.76
$ 8.00 to $ 9.12 125,000 7.4 8.97 125,000 8.97
$ 9.55 to $12.00 42,000 7.6 9.68 42,000 9.68
$13.50 to $17.41 211,000 9.0 14.48 121,000 19.72
$18.00 to $20.98 987,000 8.5 19.02 688,000 19.05
------------- -------------

2,274,000 6.0 11.35 1,885,000 10.33
============= =============


In May 2003, the Company granted 100,000 options to a director exercisable at
$13.50 per share which vest over one year on a quarterly basis. The difference
between the market price of $19.00 per share and the option exercise price has
been reflected as unearned compensation to be amortized over the one-year
vesting period. In addition, the Company issued 303,000 options exercisable at
the market price of the underlying common stock on the date of grant which
principally vest over one year.

NOTE E - RESTRICTED STOCK AWARDS

Restricted stock awards have been granted to certain key executives in
management. These awards vest on various dates between January 2004 and January
2006. Awards of 101,000 shares, 190,000 and 20,000 shares were granted in 2003,
2002 and 2001, respectively. The average market price on the date of grant for
awards granted in 2003, 2002 and 2001 as $18.41, $17.15 and $18.80,
respectively. Restricted stock compensation charged to expense was $842,000,
$871,000 and $188,000 for 2003, 2002 and 2001, respectively.

F-14


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE F - PREFERRED STOCK

The Company has authorized 5,000,000 shares of preferred stock. The Board of
Directors have 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
a $1,000 per share, and is not redeemable by the Company. No preferred shares
have been issued.


NOTE G - 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 one
one-thousandth (1/1,000) of a share of Series A Preferred at a price of $75 per
one one-thousandth (1/1,000) 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 H - OPERATING LEASES

The Company leases office, showroom and retail facilities under noncancelable
operating leases with terms expiring at various times through 2013. Future
minimum annual lease payments under noncancelable operating leases consist of
the following at December 31:

2004 $ 9,386,000
2005 9,161,000
2006 9,245,000
2007 8,814,000
2008 7,201,000
Thereafter 17,452,000
--------------

$ 61,259,000
==============

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, 2003, 2002 and 2001 was
approximately $12,340,000, $10,795,000 and $9,142,000, respectively. Included in
such amounts are contingent rents of $99,465, $151,000 and $125,000 in 2003,
2002 and 2001, respectively.

Pursuant to certain leases, rent expense charged to operations differs from rent
paid because of scheduled rent increases. Accordingly, the Company has recorded
deferred rent. Rent expense is calculated by allocating total rental payments,
including those attributable to scheduled rent increases, on a straight-line
basis, over the lease term.

F-15


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE I - INCOME TAXES

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

2003 2002 2001
------------ ------------ ------------
Current:
Federal $ 12,183,000 $ 11,411,000 $ 6,899,000
State and local 4,660,000 4,266,000 2,176,000
------------ ------------ ------------

16,843,000 15,677,000 9,075,000
------------ ------------ ------------

Deferred:
Federal (1,648,000) (793,000) (365,000)
State and local (330,000) (297,000) (115,000)
------------ ------------ ------------

(1,978,000) (1,090,000) (480,000)
------------ ------------ ------------

$ 14,865,000 $ 14,587,000 $ 8,595,000
============ ============ ============

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

December 31,
-------------------------------
2003 2002 2001
------- ------- -------
Income taxes at federal statutory rate 35.0% 35.0% 35.0%
State income taxes - net of federal
income tax benefit 8.3 8.3 6.5
Nondeductible items 0.1 0.1 0.3
Other (1.3) (1.0) (0.3)
------- ------- -------

Effective rate 42.1% 42.4% 41.5%
======= ======= =======

The Company applies the 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.

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

December 31,
------------------------
2003 2002
---------- ----------
Current deferred tax assets:
Receivable allowances $1,007,000 $ 930,000
Inventory 685,000 703,000
---------- ----------

1,692,000 1,633,000
---------- ----------

Non-current deferred tax assets:
Depreciation 3,169,000 2,242,000
Deferred compensation 1,682,000 813,000
Deferred rent 767,000 644,000
---------- ----------

5,618,000 3,699,000
---------- ----------

Deferred tax assets $7,310,000 $5,332,000
========== ==========

F-16


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE J - COMMITMENTS, CONTINGENCIES AND OTHER

[1] Indictment:

On June 20, 2000, Steven Madden, the Company's former Chairman and Chief
Executive Officer, was indicted in the United States District Courts for
the Southern District and Eastern District of New York. The indictments
alleged that Mr. Madden engaged in securities fraud and money laundering
activities. In addition, the Securities and Exchange Commission filed a
complaint in the United States District Court for the Eastern District of
New York alleging that Mr. Madden violated Section 17(a) of the
Securities Exchange Act of 1934, as amended. On May 21, 2001, Steven
Madden entered into a plea agreement with the U.S. Attorney's Office,
pursuant to which he pled guilty to four of the federal charges filed
against him. In addition, Mr. Madden reached a separate settlement
agreement with the Securities and Exchange Commission regarding the
allegations contained in its complaint. As a result, Mr. Madden resigned
as the Company's Chief Executive Officer and as a member of the Company's
Board of Directors effective July 1, 2001. Mr. Madden has agreed to serve
as the Company's Creative and Design Chief, a non-executive position. On
April 4, 2002, Mr. Madden was sentenced in the United States District
Court for the Southern District of New York to forty-one (41) months'
imprisonment in connection with two of the federal charges to which he
pled guilty. On May 3, 2002, Mr. Madden was sentenced in the United
States District Court for the Eastern District of New York to forty-one
(41) months' imprisonment in connection with the remaining two charges to
which he pled guilty. The sentences will run concurrently. Under the
settlement agreement with the Securities and Exchange Commission, Mr.
Madden has agreed to not serve as an officer or director of a publicly
traded company for 7 years. Neither the indictments nor the Securities
and Exchange Commission complaint allege any wrongdoing by the Company or
its other officers and directors. Mr. Madden began serving his sentence
in September of 2002.

In December 2001, the Company purchased a loss mitigation policy to cover
costs arising out of lawsuits related to the June 2000 federal indictment
of Steven Madden described above. The policy covers the Company's
anticipated damages and legal costs in connection with such lawsuits. The
Company is obligated to pay for damages and costs in excess of the policy
limits. The cost of the policy was $6,950,000.

[2] Class action litigation:

Between June and August 2000 several class action lawsuits were
commenced in the United States District Court for the Eastern District of
New York against the Company, Steven Madden personally, and, in some of
the actions, the Company's then President and its Chief Financial
Officer.

A settlement in principle of these actions has been reached, subject
to execution of definitive settlement documentation, notices to class
members, a hearing and approval by the District Court. The tentative
settlement is within the limits of insurance coverage described above.

[3] Shareholder derivative actions:

On or about September 26, 2000, a shareholder derivative action was
commenced in the United States District Court for the Eastern District of
New York, captioned, Herrera v. Steven Madden and Steven Madden, Ltd. An
agreement in principle has been reached to resolve all claims in this
action, subject to execution of definitive documentation, such notice to
the Company's shareholders (if any) as may be required by the District
Court, and approval by the District Court. The Company believes, after
consultation with counsel, that its defense costs and certain attorneys'
fees in connection with this action will be subject to coverage by the
Company's insurance as supplemented by the loss mitigation policy
described above.

F-17


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE J - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)

[3] Shareholder derivative actions: (continued)

On or about November 28, 2001, a shareholder derivative complaint was
filed in the United States District Court for the Eastern District of New
York, captioned Herrera v. Karson, et al. Named as defendants therein are
the Company and certain of the Company's present and/or former directors.
An agreement in principle has been reached to resolve all claims in this
action, subject to execution of definitive documentation, such notice to
the Company's shareholders (if any) as may be required by the District
Court, and approval by the District Court. The Company believes, after
consultation with counsel, that its defense costs and certain attorneys'
fees in connection with this action will be subject to coverage by the
Company's insurance as supplemented by the loss mitigation policy
described above.

The Company and certain of the Company's present and/or former directors
have been named in an action commenced in the United States District
Court for the Eastern District of New York by the Safeco Surplus Lines
Insurance Company captioned, Safeco Surplus Lines Ins. Co. v. Steven
Madden Ltd., et al. The complaint principally seeks rescission of the
excess insurance policy issued by Safeco to the Company for the February
4, 2000 to June 13, 2001 period and an order declaring that Safeco does
not owe any indemnity obligation to the Company or any of its officers
and directors in connection with the shareholder class action and
derivative cases referred to above. The parties have agreed to a
resolution of Safeco's claims, the implementation of which is conditional
upon judicial approval of the settlements of the shareholder class action
and shareholder derivative actions discussed above.

[4] Other actions:

(a) On or about January 22, 2002, an action was commenced against the
Company in the United States District Court for the District of
Oregon, captioned Adidas America, Inc. and Adidas Salomon AG v.
Steven Madden, Ltd. and Steven Madden Retail, Inc. The complaint
sought injunctive relief and unspecified monetary damages for
trademark infringement, trademark dilution, unfair competition and
deceptive trade practices arising from the Company's use of four
stripes as a design element on footwear. On or about September 3,
2002, Adidas commenced a second action against the Company in the
United States District Court for the District of Oregon, captioned
Adidas America, Inc. and Adidas Salomon AG v. Steven Madden, Ltd.
and Steven Madden Retail, Inc. The second complaint sought the
same injunctive relief and unspecified monetary damages for
various trademark infringement claims arising from the Company's
use of two stripes as a design element on footwear. In August
2003, the Company settled this litigation. The amount of
settlement was previously covered in an accrual made with respect
to this matter. The settlement did not have a material effect on
the Company's financial position or results of operations.

(b) On October 4, 2002, Skechers U.S.A., Inc. and Skechers U.S.A.,
Inc. II filed suit against Steven Madden Ltd. and R.S.V. Sport,
Inc. in the United States District Court for the Central District
of California. Skechers alleged claims for patent infringement,
federal unfair competition, federal antidilution violation,
California unfair competition, California antidilution violation,
and common law unfair competition. Skechers asked for unspecified
monetary damages. In April 2003, the Company settled this
litigation. The amount of settlement was previously covered in an
accrual made with respect to this matter. The settlement did not
have a material effect on the Company's financial position or
results of operations.

F-18


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE J - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)

[4] Other actions: (continued)

(c) In 2003, an action was commenced in the United States District
Court for the Central District of California, against Steve Madden
Ltd. The complaint seeks injunctive relief and unspecified
monetary damages for infringement of two separate patents. The
Company believes it has substantial defenses to the claims
asserted in the lawsuit. The parties are currently involved in
settlement negotiations.

(d) The Company has been named as a defendant in various other
lawsuits in the normal course of business. In the opinion of
management, after consulting with legal counsels, the liabilities,
if any, resulting from these matters should not have a material
effect on the Company's financial position or results of
operations.

[5] Employment agreements:

The Company has an employment agreement with Steve Madden, its former CEO
and President, to serve as the Company's Creative and Design Chief. The
employment agreement, as amended, provides for an annual salary of
$700,000 through June 30, 2011. The agreement also provides for an annual
performance bonus, an annual option grant at exercise prices equal to the
market price on the date of grant and a non-accountable expense
allowance.

The Company has employment agreements with other executives (the
"executives") which expire between June 1, 2004 and December 31, 2005.
These agreements provide for cash bonuses based 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:

2004 $ 1,818,000
2005 1,060,000
2006 234,000
-------------

$ 3,112,000
=============

In connection with their employment agreements, two executives are
entitled to receive an aggregate of 40,000 shares of restricted common
stock from the Company. The restricted shares vest equally each quarter
over the period of their employment agreements through December 2005.
Accordingly, the Company has recorded a charge to operations in the
amount of $324,000 and $188,000 for the 19,000 and 10,000 shares that
vested during the years ended December 31, 2003 and 2002, respectively.
Further, one executive received 100,000 stock options exercisable at
$19.00 per share, the market price on the date of grant. 20,000 of these
options vested on June 30, 2003 and the balance vest equally, each
quarter, through June 30, 2005.

In addition, the Company accrued an aggregate of approximately $300,000
for bonuses under these agreements for 2003.

[6] Letters of credit:

At December 31, 2003 and 2002, the Company had open letters of credit for
the purchase of imported merchandise of approximately $7,458,000 and
$10,066,000, respectively.

F-19


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE J - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)

[7] Royalty agreements:

The Company entered into two license agreements to sell "Candie's" and
"Unionbay" brand name shoes. The licenses expire in December 2009 and
December 2006, respectively. Aggregate minimum future royalties under
these agreements are as follows:

Year Ending
December 31,

2004 $ 240,000
2005 4,200,000
2006 5,290,000
2007 4,200,000
2008 4,550,000
Thereafter 4,550,000
-------------

$ 23,030,000
=============

[8] 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 and a money
account are principally held at one brokerage company.

During the year ended December 31, 2003, the Company purchased
approximately 13% of its merchandise from a supplier in Brazil. Total
inventory purchases for the year ended December 31, 2003 from Brazil was
approximately 19%. The Company also purchased inventory during the year
ended December 31, 2003 from two vendors in China totaling approximately
32%.

During the year ended December 31, 2002, the Company purchased
approximately 29% of its merchandise from a supplier in Brazil and 18%
and 16% of their merchandise from two suppliers in China, respectively.
Total inventory purchases for the year ended December 31, 2002 from
Brazil and China were approximately 30% and 54%, respectively.

During the year ended December 31, 2001, the Company purchased
approximately 28% and 21% of its inventory from a supplier in China and
Brazil, respectively. Total inventory purchases for the year ended
December 31, 2001 from Brazil and China were approximately 28% and 53%,
respectively.

Sales to two customers accounted for 10% and 11% of total net sales for
the year ended December 31, 2003. These customers each represented 17% of
accounts receivable at December 31, 2003, respectively.

Sales to two customers accounted for 13% and 10% of total net sales for
the year ended December 31, 2002. These customers represented 17% and 10%
of accounts receivable at December 31, 2002, respectively.

Sales to two customers accounted for 13% and 11% of total net sales for
the year ended December 31, 2001. These customers represented 18% and 15%
of accounts receivable at December 31, 2001, respectively.

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

F-20


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE J - COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)

[9] 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 Factor for the years ended December 31:



2003 2002 2001
------------ ------------ ------------

Balance at beginning of year $ 2,215,000 $ 1,644,000 $ 1,640,000
Charged to expense 163,000 630,000 219,000
Uncollectible accounts written off, net of recoveries (59,000) (215,000)
------------ ------------ ------------

Balance at end of year $ 2,378,000 $ 2,215,000 $ 1,644,000
============ ============ ============


The following is a summary of property and equipment and the related
accounts of accumulated depreciation and amortization for the years ended
December 31:



2003 2002 2001
------------ ------------ ------------

Cost basis
Balance at beginning of year $ 27,507,000 $ 27,512,000 $ 24,097,000
Additions 6,061,000 5,072,000 3,415,000
Write-off of fully depreciated assets (2,181,000) (5,077,000)
------------ ------------ ------------

Balance at end of year 31,387,000 27,507,000 27,512,000
------------ ------------ ------------

Accumulated depreciation and amortization
Balance at beginning of year 10,434,000 11,805,000 8,497,000
Depreciation and amortization 4,743,000 3,706,000 3,308,000
Write-off of fully depreciated assets (2,181,000) (5,077,000)
------------ ------------ ------------

Balance at end of year 12,996,000 10,434,000 11,805,000
------------ ------------ ------------

Property and equipment, net $ 18,391,000 $ 17,073,000 $ 15,707,000
============ ============ ============


The following is a summary of cost in excess of fair value of net assets
acquired and the related accumulated amortization for the years ended
December 31:



2003 2002 2001
------------ ------------ ------------

Cost basis
Balance at beginning and end of year $ 2,780,000 $ 2,780,000 $ 2,780,000
------------ ------------ ------------

Accumulated amortization
Balance at beginning of year 714,000 714,000 575,000
Amortization 0 0 139,000
------------ ------------ ------------

Balance at end of year 714,000 714,000 714,000
------------ ------------ ------------

Cost in excess of fair value of net assets acquired $ 2,066,000 $ 2,066,000 $ 2,066,000
============ ============ ============


F-21


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE K - OPERATING SEGMENT INFORMATION

The Company's reportable segments are primarily based on methods used to
distribute its products. The wholesale and retail segments derive revenue from
sales of women's, men's, girl's and children's footwear. The wholesale segment,
through sales to department and specialty stores, and the retail segment,
through our operation of retail stores, derive revenue from sales of branded
women's, men's, girl's and children's footwear. In addition, the wholesale
segment has a licensing program that extends the Steve Madden and Stevies brands
to accessories and ready-to-wear apparel. The other segment represents
activities of a subsidiary which earns commissions for serving as a buying agent
to mass-market merchandisers, shoe chains and other off-price retailers with
respect to their purchase of private label shoes.

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:



Wholesale Retail Other Consolidated
------------- ------------- ------------- -------------

Year ended December 31, 2003:
Net sales to external customers (a) $ 228,686,000 $ 95,518,000 $ 324,204,000
Gross profit 75,167,000 50,852,000 126,019,000
Commissions and licensing fees 2,838,000 $ 5,056,000 7,894,000
Income from operations 21,589,000 9,133,000 2,904,000 33,626,000
Depreciation and amortization 1,136,000 3,604,000 3,000 4,743,000
Other significant items:
Deferred compensation 2,877,000 2,877,000
Deferred rent expense 33,000 262,000 1,000 296,000
Provision for doubtful accounts 163,000 163,000
Segment assets (b) 139,625,000 37,828,000 417,000 177,870,000
Capital expenditures 2,667,000 3,394,000 6,061,000

Year ended December 31, 2002:
Net sales to external customers (a) 234,253,000 91,883,000 326,136,000
Gross profit 77,889,000 48,794,000 126,683,000
Commissions and licensing fees 1,833,000 4,770,000 6,603,000
Income from operations 21,664,000 9,000,000 2,548,000 33,212,000
Depreciation and amortization 739,000 2,966,000 1,000 3,706,000
Other significant items:
Deferred compensation 2,228,000 2,228,000
Deferred rent expense (reversal) (14,000) 243,000 4,000 233,000
Provision for doubtful accounts 570,000 1,000 571,000
Segment assets (b) 113,477,000 36,166,000 857,000 150,500,000
Capital expenditures 1,246,000 3,826,000 5,072,000

Year ended December 31, 2001:
Net sales to external customers (a) 163,904,000 79,487,000 243,391,000
Gross profit 57,858,000 42,015,000 99,873,000
Commissions and licensing fees 1,711,000 4,200,000 5,911,000
Income from operations (c) 10,095,000 7,023,000 2,244,000 19,362,000
Depreciation and amortization 869,000 2,577,000 1,000 3,447,000
Other significant items:
Deferred compensation 533,000 533,000
Deferred rent expense (reversal) (21,000) 249,000 (3,000) 225,000
Provision for doubtful accounts 219,000 219,000
Segment assets (b) 90,061,000 30,922,000 879,000 121,862,000
Capital expenditures 551,000 2,864,000 3,415,000


(a) Attributed to the United States, based on the location in which the sale
originated.

(b) All long-lived assets, consisting of property and equipment and cost in
excess of fair value of net assets acquired, are located in the United
States.

(c) Loss mitigation coverage expense of $6,950,000 is reflected in the
wholesale segment.

F-22


STEVEN MADDEN, LTD. AND SUBSIDIARIES


Notes to Financial Statements
December 31, 2003 and 2002

NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the quarterly results of operations for the years
ended December 31, 2003 and 2002 (000's omitted):



March 31, June 30, September 30, December 31,
------------- ------------- ------------- -------------

2003:
Wholesale, net $ 57,592 $ 63,335 $ 65,601 $ 42,158
Retail, net 21,106 22,409 23,062 28,941
------------- ------------- ------------- -------------
Net sales 78,698 85,744 88,663 71,099
Cost of sales 47,733 53,436 53,067 43,949
Gross profit 30,965 32,308 35,596 27,150
Commissions and licensing fee income 1,690 2,145 2,205 1,854
Net income 5,049 5,780 7,073 2,552
Net income per share:
Basic 0.39 0.45 0.54 0.20
Diluted 0.36 0.41 0.50 0.18

2002:
Wholesale, net $ 47,835 $ 65,742 $ 70,742 $ 49,934
Retail, net 18,776 22,369 22,276 28,462
------------- ------------- ------------- -------------
Net sales 66,611 88,111 93,018 78,396
Cost of sales 40,070 55,127 56,763 47,493
Gross profit 26,541 32,984 36,255 30,903
Commissions and licensing fee income 1,244 1,574 1,819 1,966
Net income 4,093 5,262 6,268 4,218
Net income per share:
Basic 0.33 0.42 0.49 0.33
Diluted 0.30 0.38 0.46 0.31


F-23


(b) Reports on Form 8-K

During the fourth quarter of 2003, the Company filed the following
Current Reports on Form 8-K.

(i) A Current Report on Form 8-K dated October 28, 2003 and filed on
November 3, 2003, pertaining to the Company's financial results
for the three months ended September 30, 2003.

(c) Exhibits.

EXHIBITS

3.01* Certificate of Incorporation of the Company.

3.02* Amended & Restated By-Laws of the Company.

4.01* Specimen Certificate for shares of Common Stock.

4.02* Rights Agreement between the Company and American Stock Transfer and
Trust Company.

10.07* Employment Agreement of Arvind Dharia.

10.08* Employment Agreement of Richard Olicker.

10.09* Second Amended Employment Agreement between the Company and Steven
Madden.

10.10* Employment Agreement of Jamieson Karson.

10.11* Amendment No. 1 to Employment Agreement of Arvind Dharia.

10.12* Employment Agreement between Adesso-Madden, Inc. and Gerald
Mongeluzo.

10.13* Employment Agreement between Steven Madden Retail, Inc. and Mark
Jankowski.

10.14* Amendment No. 1 to Employment Agreement of Richard Olicker.

10.15* Amendment No. 2 to Employment Agreement of Arvind Dharia.

10.16 Amendment No. 1 to Employment Agreement of Jamieson Karson.

21.01* Subsidiaries of Registrant.

23.01 Consent of Eisner LLP.

31.01 Certification of Chief Executive Officer pursuant to Rule 13a-14 or
15d-14 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 or
15d-14 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, as 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, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

* Previously filed with the Securities and Exchange Commission.



SIGNATURE

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, 2004

STEVEN MADDEN, LTD.

By: /s/ JAMIESON KARSON
---------------------------------
Jamieson Karson
Chief Executive Officer

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/ CHARLES KOPPELMAN Chairman of the Board March 12, 2004
- ----------------------------
Charles Koppelman

/s/ JAMIESON KARSON Chief Executive Officer and Vice Chairman of the Board March 12, 2004
- ----------------------------
Jamieson Karson

/s/ ARVIND DHARIA Chief Financial Officer and Director March 12, 2004
- ----------------------------
Arvind Dharia

/s/ JEFFREY BIRNBAUM Director March 12, 2004
- ----------------------------
Jeffrey Birnbaum

/s/ MARC COOPER Director March 12, 2004
- ----------------------------
Marc Cooper

/s/ ROGER GLADSTONE Director March 12, 2004
- ----------------------------
Roger Gladstone

/s/ JOHN L. MADDEN Director March 12, 2004
- ----------------------------
John L. Madden

/s/ PETER MIGLIORINI Director March 12, 2004
- ----------------------------
Peter Migliorini









/s/ GERALD MONGELUZO Director March 12, 2004
- ----------------------------
Gerald Mongeluzo

/s/ AWADHESH SINHA Director March 12, 2004
- ----------------------------
Awadhesh Sinha




STEVEN MADDEN, LTD.
FORM 10-K

EXHIBIT INDEX


Exhibit No Description
---------- -----------

10.16 Amendment No. 1 to Employment Agreement of
Jamieson Karson.

23.1 Independent Auditors' Consen

31.1 Certification of Chief Executive Officer pursuant
to Rule 13a-14 or 15d-14 of the Securities
Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant
to Rule 13a-14 or 15d-14 of the Securities
Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002