10-Q 1 icon-10q_20210331.htm 10-Q icon-10q_20210331.htm

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2021 

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From                      to                     .

Commission file number 1-10593

 

ICONIX BRAND GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

11-2481903

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1450 Broadway, New York, NY

 

10018

(Address of principal executive offices)

 

(Zip Code)

 

(212) 730-0030

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

ICON

 

The Nasdaq Global Select Market

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

  

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company  

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes      No  

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

As of May 7, 2021, 14,480,623 shares of the registrant’s Common Stock, par value $.001 were outstanding.

 

 

 


 

 

Part I. Financial Information

Item 1. Financial Statements

Iconix Brand Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except par value)

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Assets

 

(Unaudited)

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents (includes VIE assets of $6,876 and $7,332, respectively)

 

$

48,184

 

 

$

49,797

 

Restricted cash

 

 

14,166

 

 

 

9,380

 

Accounts receivable, net (includes VIE assets of $5,557 and $3,237, respectively)

 

 

17,260

 

 

 

24,736

 

Contract asset (includes VIE assets of $717 and $689, respectively)

 

 

14,098

 

 

 

13,842

 

Other assets – current (includes VIE assets of $670 and $806, respectively)

 

 

1,680

 

 

 

2,276

 

Total Current Assets

 

 

95,388

 

 

 

100,031

 

Property and equipment, net:

 

 

 

 

 

 

 

 

Furniture, fixtures and equipment

 

 

20,753

 

 

 

20,672

 

Less: Accumulated depreciation

 

 

(18,985

)

 

 

(18,703

)

 

 

 

1,768

 

 

 

1,969

 

Other Assets:

 

 

 

 

 

 

 

 

Other assets

 

 

5,726

 

 

 

5,796

 

Contract asset (includes VIE assets of $2,538 and $2,692, respectively)

 

 

9,670

 

 

 

11,415

 

Right-of-use asset

 

 

4,517

 

 

 

4,894

 

Trademarks and other intangibles, net (includes VIE assets of $114,274 and $114,263, respectively)

 

 

242,396

 

 

 

246,786

 

Investments and joint ventures

 

 

15,818

 

 

 

15,746

 

Goodwill

 

 

26,099

 

 

 

26,099

 

 

 

 

304,226

 

 

 

310,736

 

Total Assets

 

$

401,382

 

 

$

412,736

 

Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses (includes VIE liabilities of $1,127 and $1,685, respectively)

 

$

26,956

 

 

$

30,125

 

Deferred revenue (includes VIE liabilities of $978 and $1,085, respectively)

 

 

4,705

 

 

 

5,093

 

Current portion of long-term debt

 

 

31,510

 

 

 

28,433

 

Other liabilities – current

 

 

2,728

 

 

 

3,863

 

Total Current Liabilities

 

 

65,899

 

 

 

67,514

 

Deferred income tax liability

 

 

5,743

 

 

 

5,196

 

Long-term debt, less current maturities (includes $53,644 and $50,868, respectively, at fair value)

 

 

518,218

 

 

 

535,968

 

Other liabilities (includes VIE liabilities of $1,537 and $1,604, respectively)

 

 

34,385

 

 

 

28,603

 

Total Liabilities

 

 

624,245

 

 

 

637,281

 

Redeemable Non-Controlling Interest

 

 

24,518

 

 

 

24,321

 

Commitments and contingencies (refer to Note 11)

 

 

 

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

 

 

Common stock, $.001 par value shares authorized 260,000; shares issued 18,140 and

   16,650, respectively

 

 

18

 

 

 

17

 

Additional paid-in capital

 

 

1,051,642

 

 

 

1,049,104

 

Accumulated losses

 

 

(433,252

)

 

 

(437,440

)

Accumulated other comprehensive loss

 

 

(49,082

)

 

 

(42,625

)

Less: Treasury stock – 3,674 and 3,490 shares at cost, respectively

 

 

(844,906

)

 

 

(844,526

)

Total Iconix Brand Group, Inc. Stockholders’ Deficit

 

 

(275,580

)

 

 

(275,470

)

Non-Controlling Interest

 

 

28,199

 

 

 

26,604

 

Total Stockholders’ Deficit

 

 

(247,381

)

 

 

(248,866

)

Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Deficit

 

$

401,382

 

 

$

412,736

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

2


 

 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except earnings per share data)

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2021

 

 

2020

 

 

Licensing revenue

 

$

23,634

 

 

$

27,951

 

 

Selling, general and administrative expenses

 

 

13,094

 

 

 

17,150

 

 

Depreciation and amortization

 

 

298

 

 

 

273

 

 

Equity (earnings) loss on joint ventures

 

 

(72

)

 

 

1,645

 

 

Gain on sale of trademarks

 

 

(14,959

)

 

 

 

 

Trademark impairment

 

 

 

 

 

13,733

 

 

Operating income (loss)

 

 

25,273

 

 

 

(4,850

)

 

Other expenses (income):

 

 

 

 

 

 

 

 

 

Interest expense

 

 

14,655

 

 

 

17,056

 

 

Interest income

 

 

 

 

 

(40

)

 

Other loss (income), net

 

 

2,777

 

 

 

(795

)

 

Foreign currency translation gain

 

 

(1,359

)

 

 

(65

)

 

Other expenses – net

 

 

16,073

 

 

 

16,156

 

 

Income (loss) before income taxes

 

 

9,200

 

 

 

(21,006

)

 

Provision (Benefit) for income taxes

 

 

2,261

 

 

 

(5

)

 

Net income (loss)

 

 

6,939

 

 

 

(21,001

)

 

Less: Net income attributable to non-controlling interest

 

 

2,751

 

 

 

825

 

 

Net income (loss) attributable to Iconix Brand Group, Inc.

 

$

4,188

 

 

$

(21,826

)

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.30

 

 

$

(1.89

)

 

Diluted

 

$

0.26

 

 

$

(1.89

)

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

13,805

 

 

 

11,772

 

 

Diluted

 

 

31,628

 

 

 

11,772

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

3


 

 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2021

 

 

2020

 

 

Net income (loss)

 

$

6,939

 

 

$

(21,001

)

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

 

(6,457

)

 

 

(2,369

)

 

Total other comprehensive loss

 

 

(6,457

)

 

 

(2,369

)

 

Comprehensive income (loss)

 

$

482

 

 

$

(23,370

)

 

Less: comprehensive income attributable to non-controlling interest

 

 

2,751

 

 

 

825

 

 

Comprehensive loss attributable to Iconix Brand Group, Inc.

 

$

(2,269

)

 

$

(24,195

)

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

4


 

 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statement of Stockholders’ Deficit

(in thousands)

 

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2021

 

 

2020

 

 

Beginning balance (shares)

 

 

16,650

 

 

 

15,138

 

 

Shares issued on vesting of restricted stock

 

 

492

 

 

 

196

 

 

Shares issued as payment of interest on 5.75% Convertible Notes

 

 

998

 

 

 

 

 

Common Stock (shares)

 

 

18,140

 

 

 

15,334

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance (amount)

 

$

17

 

 

$

16

 

 

Shares issued as payment of interest on 5.75% Convertible Notes

 

 

1

 

 

 

 

 

Common Stock (amount)

 

$

18

 

 

$

16

 

 

Beginning balance

 

 

1,049,104

 

 

 

1,045,307

 

 

Shares issued as payment of interest on 5.75% Convertible Notes

 

 

2,714

 

 

 

 

 

Change in redemption value of redeemable non-controlling interest

 

 

(222

)

 

 

(394

)

 

Sale of 10% of Danskin China Equity

 

 

1,772

 

 

 

 

 

Purchase of 25% of US Pony Holdings Equity

 

 

(1,866

)

 

 

 

 

Equity compensation expense

 

 

140

 

 

 

172

 

 

Additional Paid-In Capital

 

$

1,051,642

 

 

$

1,045,085

 

 

Beginning balance

 

 

(437,440

)

 

 

(429,117

)

 

Net income (loss)

 

 

4,188

 

 

 

(21,826

)

 

Accumulated Losses

 

$

(433,252

)

 

$

(450,943

)

 

Beginning balance

 

 

(42,625

)

 

 

(54,643

)

 

Foreign currency translation

 

 

(6,457

)

 

 

(2,369

)

 

Accumulated Other Comprehensive Loss

 

$

(49,082

)

 

$

(57,012

)

 

Beginning balance

 

 

(844,526

)

 

 

(844,442

)

 

Shares repurchased on vesting of restricted stock

 

 

(380

)

 

 

(65

)

 

Treasury Stock

 

$

(844,906

)

 

$

(844,507

)

 

Beginning balance

 

 

26,604

 

 

 

26,521

 

 

Sale of 10% of Danskin China Equity

 

 

28

 

 

 

 

 

Purchase of 25% of US Pony Holdings Equity

 

 

(134

)

 

 

 

 

Net income

 

 

1,718

 

 

 

3,333

 

 

Distributions to joint ventures

 

 

(17

)

 

 

(1,183

)

 

Non-Controlling Interest

 

$

28,199

 

 

$

28,671

 

 

Total Stockholders' Deficit

 

$

(247,381

)

 

$

(278,690

)

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

5


 

 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

For the Three Months

Ended March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

6,939

 

 

$

(21,001

)

Adjustments to reconcile net income (loss) to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

298

 

 

 

273

 

Amortization of deferred financing costs and debt discount

 

 

1,512

 

 

 

2,462

 

Interest expense on 5.75% Convertible Notes paid in shares

 

 

679

 

 

 

 

Stock-based compensation expense

 

 

140

 

 

 

172

 

Provision for doubtful accounts

 

 

(2,082

)

 

 

2,392

 

Periodic lease cost

 

 

574

 

 

 

565

 

(Earnings) loss on equity investments in joint ventures

 

 

(72

)

 

 

1,645

 

Contract asset impairment

 

 

149

 

 

 

468

 

Trademark impairment

 

 

 

 

 

13,733

 

Mark to market adjustment on convertible note

 

 

2,776

 

 

 

(792

)

Gain on sale of trademarks and other investments

 

 

(14,959

)

 

 

 

Deferred income tax expense

 

 

546

 

 

 

95

 

(Gain) Loss on foreign currency translation

 

 

(1,359

)

 

 

(65

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

9,153

 

 

 

(3,484

)

Other assets – current

 

 

(30

)

 

 

3,041

 

Other assets

 

 

686

 

 

 

(905

)

Deferred revenue

 

 

216

 

 

 

602

 

Accounts payable and accrued expenses

 

 

(2,152

)

 

 

(4,783

)

Other liabilities

 

 

5,024

 

 

 

3,723

 

Net cash provided by (used in) operating activities

 

 

8,038

 

 

 

(1,859

)

Cash flows provided by (used in) investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(99

)

 

 

(113

)

Acquisition of trademarks and other investments

 

 

(59

)

 

 

(2,232

)

Issuance of loan to equity investee

 

 

 

 

 

(2,750

)

Proceeds from sale of trademarks and investments

 

 

16,000

 

 

 

 

Net cash provided by (used in) investing activities

 

 

15,842

 

 

 

(5,095

)

Cash flows used in financing activities:

 

 

 

 

 

 

 

 

Payment of long-term debt

 

 

(18,961

)

 

 

(12,400

)

Proceeds from sale of 10% of Danskin China equity

 

 

1,800

 

 

 

 

Acquisition of 25% of US Pony Holdings equity

 

 

(2,000

)

 

 

 

Distributions to non-controlling interests

 

 

(17

)

 

 

(1,183

)

Distributions to redeemable non-controlling interests

 

 

(1,056

)

 

 

(1,003

)

Cost of shares repurchased on vesting of restricted stock

 

 

(380

)

 

 

(66

)

Net cash used in financing activities

 

 

(20,614

)

 

 

(14,652

)

Effect of exchange rate changes on cash and restricted cash

 

 

(93

)

 

 

(364

)

Net increase (decrease) in cash and cash equivalents, and restricted cash

 

 

3,173

 

 

 

(21,970

)

Cash, cash equivalents, and restricted cash, beginning

   of period

 

 

59,177

 

 

 

71,411

 

Cash, cash equivalents, and restricted cash, end of period

 

$

62,350

 

 

$

49,441

 

 

6


 

 

Supplemental disclosure of cash flow information:

 

 

 

For the Three Months

Ended March 31,

 

 

 

2021

 

 

2020

 

Cash paid during the period:

 

 

 

 

 

 

 

 

Income taxes (net of refunds received)

 

$

1,197

 

 

$

1,996

 

Interest

 

$

6,113

 

 

$

11,712

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Non-cash additions to operating lease assets

 

$

50

 

 

$

 

Shares issued for payment of interest on 5.75% Convertible Notes

 

$

2,035

 

 

$

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

7


 

 

Iconix Brand Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2021

(dollars in thousands (unless otherwise noted) except per share data)

 

 

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of Iconix Brand Group, Inc. (the “Company,” “we,” “us,” or “our”), all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2021 (“Current Quarter”) are not necessarily indicative of the results that may be expected for a full fiscal year.  The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Correction of an Immaterial Error

During the first quarter of FY 2021, the Company determined certain equity transactions were incorrectly recorded by the Company in the second and fourth quarters of FY2020 in the Company’s consolidated financial statements and has been corrected in the consolidated financial statements included in this Form 10-Q. Management evaluated the materiality of these errors from a quantitative and qualitative perspective and concluded that the adjustments related to these transactions individually and in aggregate were not material to any of the Company’s previously issued consolidated financial statements and disclosures.  However, the impact of the out-of-period adjustments were material to the consolidated financial statements for the three months ended March 31, 2021. Accordingly, no amendments to previously filed reports are deemed necessary. A summary of the effects of these revisions for FY 2020 and quarterly consolidated financial statements are presented below. The information in the tables below represent the statements of operations, balance sheets, and statements of cash flows line items affected by the revisions. The financial information included in the accompanying consolidated financial statements and notes thereto reflect the effects of the corrections and other adjustments described in the preceding discussion and following tables.

 

8


 

 

Revised Consolidated Statement of Operations (in thousands,

 

 

 

 

 

 

 

 

 

 

 

 

 

except earnings per share data)

 

For the Twelve Months Ended December 31, 2020

 

 

 

 

As Reported

 

 

Adjustment

 

 

As Revised

 

 

Selling, general and administrative expenses

 

$

59,398

 

 

$

278

 

 

$

59,676

 

 

Gain on Sale of Investment

 

 

(1,600

)

 

 

1,600

 

 

 

 

 

Operating Income

 

 

67,601

 

 

 

(1,878

)

 

 

65,723

 

 

Net Loss

 

 

(2,976

)

 

 

(1,878

)

 

 

(4,854

)

 

Net Loss per share - basic and diluted

 

 

(0.60

)

 

$

(0.15

)

 

$

(0.75

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revised Consolidated Balance Sheet (in thousands)

 

December 31, 2020

 

 

 

 

As Reported

 

 

Adjustments

 

 

As Revised

 

 

Accounts payable and accrued expenses

 

$

29,847

 

 

$

278

 

 

 

30,125

 

 

Additional Paid-in Capital

 

 

1,047,504

 

 

 

1,600

 

 

 

1,049,104

 

 

Accumulated Losses

 

 

(435,562

)

 

 

(1,878

)

 

 

(437,440

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revised Consolidated Statement of Cash Flows (in thousands)

 

For the Twelve Months Ended December 31, 2020

 

 

 

 

As Reported

 

 

Adjustment

 

 

As Revised

 

 

Net cash used in investing activities

 

$

77,141

 

 

$

(1,600

)

 

 

75,541

 

 

Net cash used in financing activities

 

 

(110,339

)

 

 

1,600

 

 

 

(108,739

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revised Consolidated Statement of Operations (in thousands,

 

 

 

 

 

 

 

 

 

 

 

 

 

except earnings per share data)

 

For the Three Months Ended June 30, 2020

 

 

 

 

As Reported

 

 

Adjustment

 

 

As Revised

 

 

Gain on Sale of Investment

 

$

(1,600

)

 

$

1,600

 

 

 

 

 

Operating Income

 

 

3,765

 

 

 

(1,600

)

 

 

2,165

 

 

Net Loss

 

 

(15,464

)

 

 

(1,600

)

 

 

(17,064

)

 

Net Loss per share - basic and diluted

 

$

(1.44

)

 

$

(0.13

)

 

$

(1.58

)

 

 

9


 

 

Revised Consolidated Statement of Operations (in thousands,

 

 

 

 

 

 

 

 

 

 

 

 

 

except earnings per share data)

 

For the Six Months Ended June 30, 2020

 

 

 

 

As Reported

 

 

Adjustment

 

 

As Revised

 

 

Gain on Sale of Investment

 

$

(1,600

)

 

$

1,600

 

 

$

 

 

Operating Income

 

 

(1,087

)

 

 

(1,600

)

 

 

(2,687

)

 

Net Loss

 

 

(36,466

)

 

 

(1,600

)

 

 

(38,066

)

 

Net Loss per share - basic and diluted

 

$

(3.33

)

 

$

(0.14

)

 

$

(3.47

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revised Consolidated Balance Sheet (in thousands)

 

June 30, 2020

 

 

 

 

As Reported

 

 

Adjustments

 

 

As Revised

 

 

Additional Paid-in Capital

 

$

1,045,408

 

 

$

1,600

 

 

 

1,047,008

 

 

Accumulated Losses

 

 

(468,162

)

 

 

(1,600

)

 

 

(469,762

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revised Consolidated Statement of Cash Flows (in thousands)

 

For the Six Months Ended June 30, 2020

 

 

 

 

As Reported

 

 

Adjustment

 

 

As Revised

 

 

Net cash used in investing activities

 

$

(1,008

)

 

$

(1,600

)

 

 

(2,608

)

 

Net cash used in financing activities

 

 

(27,291

)

 

 

1,600

 

 

 

(25,691

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revised Consolidated Statement of Operations (in thousands,

 

 

 

 

 

 

 

 

 

 

 

 

 

except earnings per share data)

 

For the Nine Months Ended September 30, 2020

 

 

 

 

As Reported

 

 

Adjustment

 

 

As Revised

 

 

Gain on Sale of Investment

 

 

(1,600

)

 

 

1,600

 

 

 

 

 

Operating Income

 

 

65,263

 

 

 

(1,600

)

 

 

63,663

 

 

Net Loss

 

 

10,263

 

 

 

(1,600

)

 

 

8,663

 

 

Earnings (loss) per share - basic

 

$

0.54

 

 

$

(0.13

)

 

$

0.41

 

 

Earnings (loss) per share - diluted

 

$

0.37

 

 

$

(0.05

)

 

$

0.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revised Consolidated Balance Sheet (in thousands)

 

September 30, 2020

 

 

 

 

As Reported

 

 

Adjustments

 

 

As Revised

 

 

Additional Paid-in Capital

 

$

1,047,167

 

 

$

1,600

 

 

 

1,048,767

 

 

Accumulated Losses

 

 

(422,436

)

 

 

(1,600

)

 

 

(424,036

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revised Consolidated Statement of Cash Flows (in thousands)

 

For the Nine Months Ended September 30, 2020

 

 

 

 

As Reported

 

 

Adjustment

 

 

As Revised

 

 

Net cash used in investing activities

 

$

77,317

 

 

$

(1,600

)

 

 

75,717

 

 

Net cash used in financing activities

 

 

(85,116

)

 

 

1,600

 

 

 

(83,516

)

 

Reclassifications

Certain reclassifications, which were immaterial, have been made to conform prior year data to the current presentation.

Liquidity

These condensed consolidated financial statements are prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities, in each case, in the ordinary course of business consistent with the Company’s prior periods.  The Company has experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of $433.3 million as of March 31, 2021. Net losses incurred for the years ended December 31, 2020 and 2019 amounted to approximately $4.9 million and $99.9 million, respectively. The Company has generated positive cash flows from operations in recent periods and has managed its cost structure, its relationships with licensees and sold non-strategic assets to mitigate the adverse impact of the COVID-19 pandemic on its operating results, liquidity and financial condition. The Company does not expect the occurrence of any payment defaults on its outstanding debt facilities in the next twelve months, and otherwise expects to generate sufficient cash to meet its operating cash flow needs and maintain compliance with the financial covenants set forth in its various debt facilities during such period. Management believes the Company will be able to exist as a going concern for the next twelve months.

10


 

The financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary, should the Company not continue as a going concern.

For additional information, please refer to Note 1 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

COVID-19 Pandemic

The spread of the novel coronavirus or COVID-19 (“COVID-19”) during the first quarter of 2020 and its continued spread into 2021, has caused an economic downturn on a global scale, as well as significant volatility in the financial markets. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic is an ongoing phenomenon with uncertain scale and has had severe global macroeconomic and financial market impacts. and had a material adverse effect on our results of operations and liquidity. Continued material disruptions on discretionary spending and consumer demand could further negatively affect our licenses and impact our financial position, results of operations and cash flows.  Certain of our licensees have been and may continue to be adversely impacted by the pandemic due to manufacturing facility closures, store closures, impacts to their distribution networks and a general decrease in customer traffic.  We have, in many cases, suspended or deferred capital expenditures. We continue to take steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses, and our completed sales of certain of our brands. We have also taken certain precautions to provide a safe work environment for our employees. We continue to evaluate further actions that we determine are in the best interests of our employees or as required by federal, state, or local authorities.

2. Revenue Recognition

Licensing Revenue

The Company licenses its brands across a broad range of product categories, including fashion apparel, footwear, accessories, sportswear, home furnishings and décor, and beauty and fragrance.  The Company seeks licensees with the ability to produce and sell quality products in their licensed categories and to meet and exceed minimum sales and royalty payment thresholds.

The Company maintains direct-to-retail and traditional wholesale licenses.  Typically, in a direct-to-retail license, the Company grants exclusive rights to one of its brands to a national retailer for a broad range of product categories.  Direct-to-retail licenses provide retailers with proprietary rights to national brands at favorable economics.  In a traditional wholesale license, the Company grants the right to a specific brand to a single or small group of related product categories to a wholesale supplier, who is permitted to sell licensed products to multiple retailers within an approved distribution channel.

The Company’s license agreements typically require the licensee to pay the Company royalties based upon net sales with guaranteed minimum royalties in the event that net sales do not reach certain specified targets.  The Company’s licenses also typically require the licensees to pay to the Company certain minimum amounts for the advertising and marketing of the respective licensed brands.  

Licensing revenue is comprised of revenue related to the Company’s entry into various trade name license agreements that provide revenues based on minimum royalties and advertising/marketing fees and additional revenues based on a percentage of defined sales.  In accordance with ASC Topic 606 – Revenue from Contracts with Customers (“Topic 606”), the Company recognizes the minimum royalty revenue on a straight-line basis over the entire contract term and royalties exceeding the defined minimum amounts in a specific contract year (sales-based royalties), as defined in each license agreement, are recognized only in the subsequent periods to when the minimum guarantee for the contract year has been achieved and when the later of the following events occur: (i) the subsequent sale occurs, or (ii) the performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied (or partially satisfied).   

Within the Company's International segment, the Company purchases licensed products for resale to certain licensees. The Company generally does this as an accommodation to its licensees to consolidate ordering from the manufacturers. The revenue associated with such activity is included in licensing revenue and the associated cost of goods sold is included in selling general and administrative expenses and was approximately equal to revenue.  

11


 

The following table presents our revenues disaggregated by license type:

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2021

 

 

2020

 

 

Licensing revenue by license type:

 

 

 

 

 

 

 

 

 

Direct-to-retail license

 

$

3,556

 

 

$

7,808

 

 

Wholesale licenses

 

 

19,589

 

 

 

19,879

 

 

Other licenses

 

 

489

 

 

 

264

 

 

 

 

$

23,634

 

 

$

27,951

 

 

 

The following table represents our revenues disaggregated by geography:

 

 

 

For the Three Months Ended March 31,

 

 

 

 

2021

 

 

2020

 

 

Total licensing revenue by geographic region:

 

 

 

 

 

 

 

 

 

United States

 

$

12,190

 

 

$

16,634

 

 

Other (1)

 

 

11,444

 

 

 

11,317

 

 

 

 

$

23,634

 

 

$

27,951

 

 

 

 

 

 

 

 

 

 

 

 

(1)

No single country outside of the United States represented 10% or more of the Company’s revenues in the periods presented.

Remaining Performance Obligation

We enter into long-term license agreements with our licensees across all operating segments.  Revenues are recognized on a straight-line basis consistent with the nature, timing and extent of our services, which primarily relate to the ongoing brand management and maintenance of the intellectual property.  As of April 1, 2021, the Company and its joint ventures had a contractual right to receive over $380.4 million of aggregate minimum licensing revenue over the balance and the terms of their current licenses, excluding any renewals.

As of March 31, 2021, future minimum license revenue to be recognized under our existing licenses is as follows: $46.7 million, $63.3 million, $60.3 million, $52.0 million, $41.9 million and $116.2 million for the remainder of FY 2021, FY 2022, FY 2023, FY 2024, FY 2025 and thereafter, respectively.

Contract Balances

Timing of revenue recognition may differ from the timing of invoicing to licensees.  We record a receivable when amounts are contractually due or when revenue is recognized prior to invoicing.  Deferred revenue is recorded when amounts are contractually due prior to satisfying the performance obligations of the contracts.  For multi-year license agreements, as the performance obligation is providing the licensee with the right of access to the Company’s intellectual property for the contractual term, the Company uses a time-lapse measure of progress and straight lines the guaranteed minimum royalties over the contract term.

Contract Asset

We record contract assets when revenue is recognized in advance of cash payment being due from our licensees.  As of March 31, 2021, current and long-term contract assets were $14.1 million and $9.7 million, respectively. Our current and long- term contract assets as of December 31, 2020, were $13.8 million and $11.4 million, respectively.  For the Current Quarter, the Company incurred an impairment loss of its contract assets of $0.1 million as a result of certain contract modifications as compared to $0.5 million for the three months ended March 31, 2020 (“Prior Year Quarter”).

12


 

Deferred Revenue

We record deferred revenue when cash payment is received or due in advance of our performance, including amounts which are refundable.  Advanced royalty payments are recognized ratably over the period indicated by the terms of the license and are reflected in the Company’s condensed consolidated balance sheet in deferred revenue at the time the payment is received.  The decrease in deferred revenues as of March 31, 2021 as compared to December 31, 2020 is primarily driven by $2.7 million of revenues recognized that were included in the deferred revenue balance at the beginning of the period partly offset by cash payments received or due in advance of satisfying our performance obligations.

3. Goodwill and Trademarks and Other Intangibles, net

 

Goodwill

There were no changes and no impairment of the Company’s goodwill during the Current Three Months or in the Prior Year Three Months. The annual evaluation of the Company’s goodwill, by segment, is typically performed as of October 1, the beginning of the Company’s fourth fiscal quarter or as deemed necessary due to the identification of a triggering event.  In accordance with ASC 350, in the First Quarter of 2021, the Company did not note any triggering events requiring the reassessment of the fair value of its goodwill of its International reporting unit.  

Trademarks and Other Intangibles, net

Trademarks and other intangibles, net, consist of the following:

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Estimated

Lives in

Years

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

Indefinite-lived trademarks

 

Indefinite

 

$

242,396

 

 

$

 

 

$

246,786

 

 

$

 

Definite-lived trademarks

 

10-15