10-Q 1 icon-10q_20200630.htm 10-Q icon-10q_20200630.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 June 30, 2020 

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 August 7, 2020, 11,859,341 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)

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

(Unaudited)

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,651

 

 

$

55,465

 

Restricted cash

 

 

11,666

 

 

 

15,946

 

Accounts receivable, net

 

 

20,941

 

 

 

31,368

 

Contract asset

 

 

11,326

 

 

 

9,448

 

Other assets – current

 

 

9,632

 

 

 

21,440

 

Total Current Assets

 

 

104,216

 

 

 

133,667

 

Property and equipment:

 

 

 

 

 

 

 

 

Furniture, fixtures and equipment

 

 

20,319

 

 

 

20,087

 

Less: Accumulated depreciation

 

 

(18,028

)

 

 

(17,545

)

 

 

 

2,291

 

 

 

2,542

 

Other Assets:

 

 

 

 

 

 

 

 

Other assets

 

 

6,224

 

 

 

6,780

 

Contract asset

 

 

11,087

 

 

 

11,807

 

Right-of-use asset

 

 

5,425

 

 

 

6,254

 

Trademarks and other intangibles, net

 

 

254,266

 

 

 

274,084

 

Investments and joint ventures

 

 

43,419

 

 

 

44,827

 

Goodwill

 

 

26,099

 

 

 

26,099

 

 

 

 

346,520

 

 

 

369,851

 

Total Assets

 

$

453,027

 

 

$

506,060

 

Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

43,986

 

 

$

51,503

 

Deferred revenue

 

 

5,010

 

 

 

4,701

 

Current portion of long-term debt

 

 

30,927

 

 

 

61,976

 

Other liabilities – current

 

 

14,051

 

 

 

13,775

 

Total Current Liabilities

 

 

93,974

 

 

 

131,955

 

Deferred income tax liability

 

 

4,619

 

 

 

4,464

 

Long-term debt, less current maturities (includes $49,424 and $47,277, respectively, at fair value)

 

 

603,147

 

 

 

583,745

 

Other liabilities

 

 

18,778

 

 

 

7,794

 

Total Liabilities

 

 

720,518

 

 

 

727,958

 

Redeemable Non-Controlling Interest

 

 

26,849

 

 

 

34,461

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

 

 

Common stock, $.001 par value shares authorized 260,000; shares issued 15,334 and

   15,138, respectively

 

 

15

 

 

 

15

 

Additional paid-in capital

 

 

1,045,408

 

 

 

1,045,307

 

Accumulated losses

 

 

(468,035

)

 

 

(429,117

)

Accumulated other comprehensive loss

 

 

(54,666

)

 

 

(54,643

)

Less: Treasury stock – 3,490 and 3,421 shares at cost, respectively

 

 

(844,526

)

 

 

(844,442

)

Total Iconix Brand Group, Inc. Stockholders’ Deficit

 

 

(321,804

)

 

 

(282,880

)

Non-Controlling Interest

 

 

27,464

 

 

 

26,521

 

Total Stockholders’ Deficit

 

 

(294,340

)

 

 

(256,359

)

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

 

$

453,027

 

 

$

506,060

 

 

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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Licensing revenue

 

$

22,277

 

 

$

34,394

 

 

$

50,226

 

 

$

70,336

 

 

Selling, general and administrative expenses

 

 

14,978

 

 

 

16,435

 

 

 

32,128

 

 

 

34,528

 

 

Depreciation and amortization

 

 

306

 

 

 

482

 

 

 

579

 

 

 

974

 

 

Equity (earnings) loss on joint ventures

 

 

(218

)

 

 

(1,095

)

 

 

1,427

 

 

 

(2,137

)

 

Gain on sale of investment

 

 

(1,600

)

 

 

 

 

 

(1,600

)

 

 

 

 

Investment impairment

 

 

100

 

 

 

 

 

 

100

 

 

 

 

 

Trademark impairment

 

 

5,162

 

 

 

 

 

 

18,895

 

 

 

 

 

Operating income (loss)

 

 

3,549

 

 

 

18,572

 

 

 

(1,303

)

 

 

36,971

 

 

Other expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

17,047

 

 

 

14,465

 

 

 

33,760

 

 

 

28,970

 

 

Interest income

 

 

(10

)

 

 

(90

)

 

 

(50

)

 

 

(162

)

 

Other (income) loss, net

 

 

2,933

 

 

 

1,140

 

 

 

2,136

 

 

 

(18,795

)

 

Foreign currency translation (gain) loss

 

 

130

 

 

 

(258

)

 

 

66

 

 

 

369

 

 

Other expenses (income) – net

 

 

20,100

 

 

 

15,257

 

 

 

35,912

 

 

 

10,382

 

 

Income (loss) before income taxes

 

 

(16,551

)

 

 

3,315

 

 

 

(37,215

)

 

 

26,589

 

 

(Benefit) Provision for income taxes

 

 

(871

)

 

 

(130

)

 

 

(876

)

 

 

1,838

 

 

Net income (loss)

 

 

(15,680

)

 

 

3,445

 

 

 

(36,339

)

 

 

24,751

 

 

Less: Net income attributable to non-controlling interest

 

 

1,755

 

 

 

2,174

 

 

 

2,579

 

 

 

5,535

 

 

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

 

$

(17,435

)

 

$

1,271

 

 

$

(38,918

)

 

$

19,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.46

)

 

$

0.12

 

 

$

(3.32

)

 

$

2.04

 

 

Diluted

 

$

(1.46

)

 

$

0.12

 

 

$

(3.32

)

 

$

0.08

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

11,859

 

 

 

10,377

 

 

 

11,816

 

 

 

9,426

 

 

Diluted

 

 

11,859

 

 

 

10,377

 

 

 

11,816

 

 

 

44,779

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

3


 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Net income (loss)

 

$

(15,680

)

 

$

3,445

 

 

$

(36,339

)

 

$

24,751

 

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

 

2,346

 

 

 

1,121

 

 

 

(23

)

 

 

(603

)

 

Total other comprehensive (loss) income

 

 

2,346

 

 

 

1,121

 

 

 

(23

)

 

 

(603

)

 

Comprehensive income (loss)

 

$

(13,334

)

 

$

4,566

 

 

$

(36,362

)

 

$

24,148

 

 

Less: comprehensive income attributable to non-controlling interest

 

 

1,755

 

 

 

2,174

 

 

 

2,579

 

 

 

5,535

 

 

Comprehensive income (loss) attributable to Iconix Brand

   Group, Inc.

 

$

(15,089

)

 

$

2,392

 

 

$

(38,941

)

 

$

18,613

 

 

 

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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Beginning balance (shares)

 

 

15,334

 

 

 

12,207

 

 

 

15,138

 

 

 

11,162

 

 

Shares issued on vesting of restricted stock

 

 

 

 

 

8

 

 

 

196

 

 

 

95

 

 

Shares issued on conversion of 5.75% Convertible Notes

 

 

 

 

 

2,713

 

 

 

 

 

 

3,671

 

 

Common Stock (shares)

 

 

15,334

 

 

 

14,928

 

 

 

15,334

 

 

 

14,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance (amount)

 

$

15

 

 

$

12

 

 

$

15

 

 

$

11

 

 

Shares issued on conversion of 5.75% Convertible Notes

 

 

 

 

 

3

 

 

 

 

 

 

4

 

 

Common Stock (amount)

 

$

15

 

 

$

15

 

 

$

15

 

 

$

15

 

 

Beginning balance

 

 

1,045,085

 

 

 

1,039,474

 

 

 

1,045,307

 

 

 

1,037,372

 

 

Shares issued on conversion of 5.75% Convertible Notes

 

 

 

 

 

4,179

 

 

 

 

 

 

6,179

 

 

Change in redemption value of redeemable non-controlling interest

 

 

84

 

 

 

1,586

 

 

 

(311

)

 

 

1,586

 

 

Equity compensation expense

 

 

239

 

 

 

258

 

 

 

412

 

 

 

398

 

 

Foreign currency translation

 

 

 

 

 

21

 

 

 

-

 

 

 

(17

)

 

Additional Paid-In Capital

 

$

1,045,408

 

 

$

1,045,518

 

 

$

1,045,408

 

 

$

1,045,518

 

 

Beginning balance

 

 

(450,600

)

 

 

(294,460

)

 

 

(429,117

)

 

 

(312,796

)

 

Change in redemption value of redeemable non-controlling interest

 

 

 

 

 

(391

)

 

 

 

 

 

 

 

Net (loss) income

 

 

(17,435

)

 

 

1,271

 

 

 

(38,918

)

 

 

19,216

 

 

Accumulated Losses

 

$

(468,035

)

 

$

(293,580

)

 

$

(468,035

)

 

$

(293,580

)

 

Beginning balance

 

 

(57,012

)

 

 

(54,792

)

 

 

(54,643

)

 

 

(53,068

)

 

Foreign currency translation

 

 

2,346

 

 

 

1,121

 

 

 

(23

)

 

 

(603

)

 

Accumulated Other Comprehensive Loss

 

$

(54,666

)

 

$

(53,671

)

 

$

(54,666

)

 

$

(53,671

)

 

Beginning balance

 

 

(844,507

)

 

 

(844,309

)

 

 

(844,442

)

 

 

(844,253

)

 

Shares repurchased on vesting of restricted stock

 

 

(19

)

 

 

(25

)

 

 

(84

)

 

 

(81

)

 

Treasury Stock

 

$

(844,526

)

 

$

(844,334

)

 

$

(844,526

)

 

$

(844,334

)

 

Beginning balance

 

 

28,671

 

 

 

31,614

 

 

 

26,521

 

 

 

26,999

 

 

Reclass from redeemable NCI

 

 

 

 

 

(4,759

)

 

 

 

 

 

(856

)

 

Net (loss) income

 

 

1,407

 

 

 

1,238

 

 

 

4,740

 

 

 

4,599

 

 

Distributions to joint ventures

 

 

(2,614

)

 

 

(5,481

)

 

 

(3,797

)

 

 

(8,130

)

 

Non-Controlling Interest

 

$

27,464

 

 

$

22,612

 

 

$

27,464

 

 

$

22,612

 

 

Total Stockholders' Deficit

 

$

(294,340

)

 

$

(123,440

)

 

$

(294,340

)

 

$

(123,440

)

 

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 Six Months

Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(36,339

)

 

$

24,751

 

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

   activities:

 

 

 

 

 

 

 

 

Depreciation of property and equipment

 

 

575

 

 

 

934

 

Amortization of trademarks and other intangibles

 

 

4

 

 

 

40

 

Amortization of deferred financing costs and debt discount

 

 

3,853

 

 

 

6,044

 

Stock-based compensation expense

 

 

412

 

 

 

398

 

Provision for doubtful accounts

 

 

3,645

 

 

 

(244

)

Periodic lease cost

 

 

1,122

 

 

 

1,101

 

Earnings on equity investments in joint ventures

 

 

1,427

 

 

 

(2,137

)

Contract asset impairment

 

 

1,208

 

 

 

573

 

Trademark impairment

 

 

18,895

 

 

 

 

Impairment of equity method investment

 

 

100

 

 

 

 

Mark to market adjustment on convertible note

 

 

2,146

 

 

 

(20,275

)

Loss (gain) on debt to equity conversions

 

 

 

 

 

1,572

 

Gain on sale of trademarks and other investments

 

 

(1,600

)

 

 

(209

)

Income on other equity investment

 

 

 

 

 

117

 

Deferred income tax expense

 

 

159

 

 

 

999

 

(Gain) Loss on foreign currency translation

 

 

66

 

 

 

369

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,946

 

 

 

8,130

 

Other assets – current

 

 

10,358

 

 

 

(2,447

)

Other assets

 

 

1,479

 

 

 

(1,635

)

Deferred revenue

 

 

(3

)

 

 

2,198

 

Accounts payable and accrued expenses

 

 

(951

)

 

 

(9,227

)

Other liabilities

 

 

9,031

 

 

 

(1,100

)

Net Cash provided by operating activities

 

 

19,533

 

 

 

9,952

 

Cash flows (used in) investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(344

)

 

 

(367

)

Acquisition of trademarks from Iconix Southeast Asia

 

 

(2,067

)

 

 

(2,067

)

Issuance of loan to equity investee

 

 

(2,750

)

 

 

 

Proceeds from loan to equity investee

 

 

2,750

 

 

 

 

Proceeds from sale of other investments

 

 

1,600

 

 

 

3,000

 

Other investments

 

 

(197

)

 

 

(3,825

)

Net cash used in investing activities

 

 

(1,008

)

 

 

(3,259

)

Cash flows (used in) financing activities:

 

 

 

 

 

 

 

 

Payment of long-term debt

 

 

(18,953

)

 

 

(14,246

)

Proceeds from Paycheck Protection Program Loan

 

 

1,307

 

 

 

 

Distributions to non-controlling interests

 

 

(3,796

)

 

 

(2,860

)

Distributions to redeemable non-controlling interests

 

 

(5,765

)

 

 

(270

)

Cost of shares repurchased on vesting of restricted stock

 

 

(84

)

 

 

(81

)

Net cash used in financing activities

 

 

(27,291

)

 

 

(17,457

)

Effect of exchange rate changes on cash and restricted cash

 

 

(328

)

 

 

187

 

Net decrease in cash and cash equivalents, and restricted cash

 

 

(9,094

)

 

 

(10,577

)

Cash, cash equivalents, and restricted cash, beginning

   of period

 

 

71,411

 

 

 

82,635

 

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

 

$

62,317

 

 

$

72,058

 

 

6


 

Supplemental disclosure of cash flow information:

 

 

 

For the Six Months

Ended June 30,

 

 

 

2020

 

 

2019

 

Cash paid during the period:

 

 

 

 

 

 

 

 

Income taxes (net of refunds received)

 

$

(3,270

)

 

$

3,997

 

Interest

 

$

20,254

 

 

$

23,055

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Non-cash additions to operating lease assets

 

$

-

 

 

$

10,462

 

Shares issued upon conversion of debt to equity

 

$

-

 

 

$

6,183

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

7


 

Iconix Brand Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2020

(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 June 30, 2020 (“Current Quarter”) and the six months ended June 30, 2020 (“Current Six Months”) 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, 2019.

During first quarter of 2020, the, the Company adopted one new accounting pronouncement.  Refer to Note 19 for further details.

Certain reclassifications, which were immaterial, have been made to conform prior year data to the current presentation. During the year ended December 31, 2019 (“FY 2019”), the Company also made a reclassification between redeemable non-controlling interest and non-controlling interest.    

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 $468.0 million as of June 30, 2020. Net losses incurred for the years ended December 31, 2019 and 2018 amounted to approximately $101.9 million and $89.7 million, respectively. While the Company had positive cash flows from operations in recent periods, the potential adverse impact of the COVID-19 pandemic on its operating results, liquidity and financial condition raises substantial doubt the Company can continue as an ongoing business for the next twelve months.

In view of these matters, continuation as a going concern is dependent upon the continued operations of the Company, which, in turn, is dependent upon the Company’s ability to meet its financial requirements, raise additional capital, and successfully carry out its future operations. The Company has taken steps to reduce expenses and discretionary cash outlays and is actively pursuing asset sales, in order to satisfy liquidity needs and financial covenants. In April 2020, the Company announced that it had entered into a share purchase agreement with HK Qiaodan Investment Limited to sell its equity in Umbro China for approximately $62.5 million (the “Umbro China Sale”) and included the sale of the Umbro sports brand in the People’s Republic of China, Hong Kong, Taiwan and Macau. The Umbro China Sale closed on July 31, 2020. The Company received approximately $59.6 million in net proceeds from the Umbro China Sale and in August 2020 repaid approximately $44.7 million under its Senior Secured Term Loan (as defined below).

In June 2020, the Company, entered into a share purchase agreement to sell all of the equity interests of Starter China Limited, a wholly-owned subsidiary of Iconix China (the “Starter China Sale”), for consideration of $16.0 million. The Starter China Sale includes the sale of the Starter brand in the mainland of China, Hong Kong, Taiwan and Macau. The Starter China Sale is anticipated to close on or prior to September 15, 2020. The Company anticipates using the net proceeds from the Starter China Sale to repay amounts due under its existing financing arrangements, and otherwise for general corporate purposes.

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, 2019.

COVID-19 Pandemic

The spread of the novel coronavirus or COVID-19 (“COVID-19”) during the half quarter of 2020 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

8


 

macroeconomic and financial market impacts. 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 are, in many cases, suspending or deferring capital expenditures and are proactively taking steps to increase available cash on hand including, but not limited to, targeted reductions in discretionary operating expenses. We are also taking certain precautions to provide a safe work environment for our employees. We may have to take further actions that we determine are in the best interests of our employees or as required by federal, state, or local authorities.

As the pandemic continues to unfold, the extent of the pandemic’s effect on our operational and financial performance and liquidity will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include changes in the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. Any prolonged material disruption on discretionary spending and consumer demand could negatively affect our licenses and impact our financial position, results of operations and cash flows.

Reverse Stock Split

On March 14, 2019, the Company effected a 1-for-10 reverse stock split (the “Reverse Stock Split”) of its common stock.  Unless the context otherwise requires, all share and per share amounts in this quarterly report on Form 10-Q have been adjusted to reflect the Reverse Stock Split.  Refer to Note 8 for further details.

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.  

9


 

The following table presents our revenues disaggregated by license type:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Licensing revenue by license type:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct-to-retail license

 

$

7,163

 

 

$

10,364

 

 

$

14,971

 

 

$

20,117

 

 

Wholesale licenses

 

 

15,031

 

 

 

23,746

 

 

 

34,908

 

 

 

49,551

 

 

Other licenses

 

 

83

 

 

 

284

 

 

 

347

 

 

 

668

 

 

 

 

$

22,277

 

 

$

34,394

 

 

$

50,226

 

 

$

70,336

 

 

 

The following table represents our revenues disaggregated by geography:

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Total licensing revenue by geographic region:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

11,049

 

 

$

18,988

 

 

$

27,263

 

 

$

41,607

 

 

Other (1)

 

 

11,228

 

 

 

15,406

 

 

 

22,963

 

 

 

28,729

 

 

 

 

$

22,277

 

 

$

34,394

 

 

$

50,226

 

 

$

70,336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 July 1, 2020, the Company and its joint ventures had a contractual right to receive over $364.7 million of aggregate minimum licensing revenue over the balance and the terms of their current licenses, excluding any renewals.

As of June 30, 2020, future minimum license revenue to be recognized under our existing licenses is as follows: $38.7 million, $64.3 million, $61.4 million, $54.4 million, $39.0 million and $106.9 million for the remainder of FY 2020, FY 2021, FY 2022, FY 2023, FY 2024 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 June 30, 2020, current and long term contract assets were $11.3 million and $11.1 million, respectively. Our current and long term contract assets as of December 31, 2019, which were $9.4 million and $11.8 million, respectively.  For the Current Quarter, the Company incurred an impairment loss of its contract assets of $0.7 million as a result of impairments and certain contract modifications as compared to $0.1 million for the three months ended June 30, 2019 (“Prior Year Quarter”). For the Current Six Months, the Company incurred an impairment loss of $1.2 million as a result of certain contract modifications as compared to $0.6 million in Six Months ended June 30, 2019 (“Prior Year Six Months”).

10


 

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 increase in deferred revenues as of June 30, 2020 as compared to December 31, 2019 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $3.8 million of revenues recognized that were included in the deferred revenue balance at the beginning of the period.

3. Goodwill and Trademarks and Other Intangibles, net

 

Goodwill

There were no changes and no impairment of the Company’s goodwill during the Current Six Months or in the Prior Year Six 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, during the First Quarter of 2020, the Company reassessed the fair value of its goodwill considering the impact of the COVID 19 pandemic on current and future cash flows of its International reporting unit.  No triggering event was identified during the Current Quarter that would require a reassessment of the Company’s Goodwill.

Trademarks and Other Intangibles, net

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

 

 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

 

Estimated

Lives in

Years

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

Indefinite-lived trademarks

 

Indefinite

 

$

254,266

 

 

$

 

 

$

274,080

 

 

$

 

Definite-lived trademarks

 

10-15

 

 

8,958

 

 

 

8,958

 

 

 

8,958

 

 

 

8,958

 

Licensing contracts

 

             1-9

 

 

978

 

 

 

978

 

 

 

978

 

 

 

974

 

 

 

 

 

$

264,202

 

 

$

9,936

 

 

$

284,016

 

 

$

9,932

 

Trademarks and other intangibles, net

 

 

 

 

 

 

 

$