Company Quick10K Filing
Quick10K
Sequential Brands Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.88 65 $57
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-06-10 M&A, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2019-06-07 Shareholder Vote
8-K 2019-06-05 Officers, Exhibits
8-K 2019-06-05
8-K 2019-05-08 Earnings, Regulation FD, Exhibits
8-K 2019-04-16 Enter Agreement, Impairments, Officers, Regulation FD, Exhibits
8-K 2019-02-14 Other Events
8-K 2019-01-16
8-K 2018-11-07 Earnings, Regulation FD, Exhibits
8-K 2018-08-07 Enter Agreement, Earnings, Off-BS Arrangement, Regulation FD, Exhibits
8-K 2018-06-08 Shareholder Vote
8-K 2018-05-09 Earnings, Regulation FD, Exhibits
8-K 2018-02-28 Earnings, Regulation FD, Exhibits
8-K 2018-02-27 Officers, Exhibits
NWBI Northwest Bancshares 1,830
OZM Och-Ziff 857
PACQ Pure Acquisition 523
FBIZ First Business Financial Services 210
CCLP CSI Compressco 156
CLWT Euro Tech Holdings 10
RHE Regional Health Properties 6
CLOW Cloudweb 0
HLTY Nature's Best Brands 0
CMDS Canfield Medical Supply 0
SQBG 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Item 2.Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 sqbg-20190331ex3113e9837.htm
EX-31.2 sqbg-20190331ex31247949a.htm
EX-32.1 sqbg-20190331ex321a4cc83.htm

Sequential Brands Group Earnings 2019-03-31

SQBG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sqbg-20190331x10q.htm 10-Q sqbg_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

(Mark One)

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

 

For the quarterly period ended March 31, 2019

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 001‑37656

SEQUENTIAL BRANDS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

47‑4452789

(State or other jurisdiction of incorporation or

(I.R.S. Employer Identification No.)

organization)

 

 

601 West 26th Street, 9th Floor

New York, New York 10001

(Address of principal executive offices) (Zip Code)

(646) 564‑2577

(Registrant’s telephone number, including area code)

 

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 ☒

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

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common stock, par value $0.01 per share

 

SQBG

 

NASDAQ Capital Market

 

As of May 2, 2019, the registrant had 64,653,294 shares of common stock, par value $0.01 per share, outstanding.

 

 

 


 

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

INDEX TO FORM 10‑Q

 

 

2


 

Forward-Looking Statements

This quarterly report on Form 10‑Q (this “Quarterly Report”), including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We use words such as “future,” “seek,” “could,” “can,” “predict,” “believe,” “intend,” “expect,” “anticipate,” “plan,” “may,” “will,” “should,” “estimate,” “potential,” “project” and similar expressions to identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to the following: (i) risks and uncertainties discussed in the reports that the Company has filed with the Securities and Exchange Commission (the “SEC”); (ii) general economic, market or business conditions; (iii) the Company’s ability to identify suitable targets for acquisitions and to obtain financing for such acquisitions on commercially reasonable terms; (iv) the Company’s ability to timely achieve the anticipated results of recent acquisitions and any potential future acquisitions; (v) the Company’s ability to successfully integrate acquisitions into its ongoing business; (vi) the potential impact of the consummation of recent acquisitions or any potential future acquisitions on the Company’s relationships, including with employees, licensees, customers and competitors; (vii) the Company’s ability to achieve and/or manage growth and to meet target metrics associated with such growth; (viii) the Company’s ability to successfully attract new brands and to identify suitable licensees for its existing and newly acquired brands; (ix) the Company’s substantial level of indebtedness, including the possibility that such indebtedness and related restrictive covenants may adversely affect the Company’s future cash flows, results of operations and financial condition and decrease its operating flexibility; (x) the Company’s ability to achieve its guidance; (xi) continued market acceptance of the Company’s brands; (xii) changes in the Company’s competitive position or competitive actions by other companies; (xiii) licensees’ ability to fulfill their financial obligations to the Company; (xiv) concentrations of the Company’s licensing revenues with a limited number of licensees and retail partners; (xv) risks that the Martha sale may not be completed; (xvi) risks related to the effects of the Martha sale and (xvii) other circumstances beyond the Company’s control.

Forward-looking statements speak only as of the date they are made and are based on current expectation and assumptions. You should not put undue reliance on any forward-looking statement. We are not under any obligation, and we expressly disclaim any obligation, to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to such or other forward-looking statements.

Where You Can Find Other Information

Our corporate website address is www.sequentialbrandsgroup.com. The information contained on our website is not part of this Quarterly Report. We file our annual, quarterly and current reports and other information with the SEC. These reports, and any amendments to these reports, are made available on our website and can be viewed and downloaded free of charge as soon as reasonably practicable after such reports are filed with or furnished to the SEC. The public may read and copy any materials filed with the SEC at the SEC’s Public Reference Room located at 100 F Street, NE, Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the SEC at 1‑800‑SEC‑0330. In addition, the SEC maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, which is available at www.sec.gov.

Unless otherwise noted, references in this Quarterly Report to the “Sequential Brands Group,” “Company,” “our Company,” “we,” “us,” “our” or similar pronouns refer to Sequential Brands Group, Inc. and its subsidiaries. References to other companies may include their trademarks, which are the property of their respective owners.

3


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

 

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2019

    

2018

  

 

 

 

(Unaudited)  

 

(Note 2)  

 

Assets

 

 

 

 

 

 

 

Current Assets:

 

 

  

 

 

  

 

Cash

 

$

14,925

 

$

14,106

 

Restricted cash

 

 

2,036

 

 

2,032

 

Accounts receivable, net

 

 

56,465

 

 

66,202

 

Prepaid expenses and other current assets

 

 

9,290

 

 

11,224

 

Total current assets

 

 

82,716

 

 

93,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

8,528

 

 

8,971

 

Intangible assets, net

 

 

803,194

 

 

964,911

 

Right-of-use assets - operating leases

 

 

49,317

 

 

 -

 

Other assets

 

 

12,953

 

 

11,222

 

Total assets

 

$

956,708

 

$

1,078,668

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

  

 

 

  

 

Current Liabilities:

 

 

  

 

 

  

 

Accounts payable and accrued expenses

 

$

21,844

 

$

23,527

 

Current portion of long-term debt

 

 

28,300

 

 

28,300

 

Current portion of deferred revenue

 

 

12,013

 

 

11,695

 

Current portion of lease liabilities - operating leases

 

 

2,761

 

 

 -

 

Total current liabilities

 

 

64,918

 

 

63,522

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

576,737

 

 

582,487

 

Long-term deferred revenue, net of current portion

 

 

7,319

 

 

8,224

 

Deferred income taxes

 

 

27,914

 

 

67,002

 

Lease liabilities - operating leases

 

 

53,623

 

 

 -

 

Other long-term liabilities

 

 

7,376

 

 

12,789

 

Total liabilities

 

 

737,887

 

 

734,024

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

  

 

 

  

 

 

 

 

 

 

 

 

 

Equity:

 

 

  

 

 

  

 

Preferred stock Series A, $0.01 par value; 10,000,000 shares authorized; none issued and outstanding at March 31, 2019 and 2018

 

 

 -

 

 

 -

 

Common stock, $0.01 par value; 150,000,000 shares authorized; 66,447,913 and 65,990,179 shares issued at March 31, 2019 and December 31, 2018, respectively, and 64,650,477 and 64,327,582 shares outstanding at March 31, 2019 and December 31, 2018, respectively

 

 

662

 

 

657

 

Additional paid-in capital

 

 

514,485

 

 

513,764

 

Accumulated other comprehensive loss

 

 

(3,034)

 

 

(1,554)

 

Accumulated deficit

 

 

(360,068)

 

 

(234,723)

 

Treasury stock, at cost;  1,797,436 and 1,662,597 shares at March 31, 2019 and December 31, 2018, respectively

 

 

(4,396)

 

 

(4,226)

 

Total Sequential Brands Group, Inc. and Subsidiaries stockholders’ equity

 

 

147,649

 

 

273,918

 

Noncontrolling interests

 

 

71,172

 

 

70,726

 

Total equity

 

 

218,821

 

 

344,644

 

Total liabilities and equity

 

$

956,708

 

$

1,078,668

 

 

See Notes to Condensed Consolidated Financial Statements.

4


 

 

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2019

    

2018

    

 

 

 

 

 

 

 

 

Net revenue

 

$

36,913

 

$

38,104

 

Operating expenses

 

 

22,770

 

 

18,050

 

Impairment charges

 

 

161,224

 

 

 -

 

Loss on asset held for sale

 

 

 -

 

 

5,142

 

(Loss) income from operations

 

 

(147,081)

 

 

14,912

 

Other income

 

 

(300)

 

 

(135)

 

Interest expense, net

 

 

15,654

 

 

15,392

 

Loss before income taxes

 

 

(162,435)

 

 

(345)

 

Benefit from income taxes

 

 

(38,629)

 

 

(41)

 

Net loss

 

 

(123,806)

 

 

(304)

 

Net income attributable to noncontrolling interests

 

 

(1,539)

 

 

(1,960)

 

Net loss attributable to Sequential Brands Group, Inc. and Subsidiaries

 

$

(125,345)

 

$

(2,264)

 

 

 

 

 

 

 

 

 

Loss per share attributable to Sequential Brands Group, Inc. and Subsidiaries:

 

 

  

 

 

  

 

Basic and diluted

 

$

(1.95)

 

$

(0.04)

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

  

 

 

 

 

Basic and diluted

 

 

64,221,687

 

 

63,232,138

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

5


 

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sequential

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brands

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

 

 

Subsidiaries

 

 

 

 

 

 

 

 

Preferred Stock

 

Common Stock

 

Paid-in

 

Comprehensive

 

Accumulated

 

Treasury Stock

 

Stockholders'

 

Noncontrolling

 

Total

 

    

Shares

    

Amount

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Shares

    

Amount

    

Equity

    

Interests

    

Equity

Balance at January 1, 2018

 

 —

 

$

 —

 

 

63,652,721

 

$

635

 

$

508,444

 

$

80

 

$

(225,369)

 

 

(424,994)

 

$

(1,799)

 

$

281,991

 

$

71,547

 

$

353,538

Cumulative effect of revenue recognition accounting change

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,130

 

 

 —

 

 

 —

 

 

1,130

 

 

355

 

 

1,485

Stock-based compensation

 

 —

 

 

 —

 

 

452,929

 

 

 2

 

 

1,343

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,345

 

 

 —

 

 

1,345

Shares issued under stock incentive plan

 

 —

 

 

 —

 

 

843,486

 

 

 8

 

 

1,492

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,500

 

 

 —

 

 

1,500

Unrealized gain on interest rate caps, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

679

 

 

 —

 

 

 —

 

 

 —

 

 

679

 

 

 —

 

 

679

Repurchase of common stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(986,858)

 

 

(1,919)

 

 

(1,919)

 

 

 —

 

 

(1,919)

Noncontrolling interest distributions

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,244)

 

 

(1,244)

Net income attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,960

 

 

1,960

Net loss attributable to common stockholders

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,264)

 

 

 —

 

 

 —

 

 

(2,264)

 

 

 —

 

 

(2,264)

Balance at March 31, 2018

 

 —

 

$

 —

 

 

64,949,136

 

$

645

 

$

511,279

 

$

759

 

$

(226,503)

 

 

(1,411,852)

 

$

(3,718)

 

$

282,462

 

$

72,618

 

$

355,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

 —

 

$

 —

 

 

65,990,179

 

$

657

 

$

513,764

 

$

(1,554)

 

$

(234,723)

 

 

(1,662,597)

 

$

(4,226)

 

$

273,918

 

$

70,726

 

$

344,644

Stock-based compensation

 

 —

 

 

 —

 

 

457,734

 

 

 5

 

 

721

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

726

 

 

 —

 

 

726

Unrealized loss on interest rate swaps, net of tax

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,480)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,480)

 

 

 —

 

 

(1,480)

Repurchase of common stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(134,839)

 

 

(170)

 

 

(170)

 

 

 —

 

 

(170)

Noncontrolling interest distributions

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,093)

 

 

(1,093)

Net income attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,539

 

 

1,539

Net loss attributable to common stockholders

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(125,345)

 

 

 —

 

 

 —

 

 

(125,345)

 

 

 —

 

 

(125,345)

Balance at March 31, 2019

 

 —

 

$

 —

 

 

66,447,913

 

$

662

 

$

514,485

 

$

(3,034)

 

$

(360,068)

 

 

(1,797,436)

 

$

(4,396)

 

$

147,649

 

$

71,172

 

$

218,821

 

See Notes to Condensed Consolidated Financial Statements.

 

 

6


 

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

2019

 

2018

 

    

 

 

    

 

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(123,806)

 

$

(304)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

  

 

 

  

Provision for bad debts

 

 

80

 

 

 -

Depreciation and amortization

 

 

1,011

 

 

906

Stock-based compensation

 

 

726

 

 

2,845

Amortization of deferred financing costs

 

 

1,325

 

 

944

Impairment charges

 

 

161,224

 

 

 -

Gain on equity securities

 

 

328

 

 

 -

Amortization of operating leases

 

 

1,544

 

 

 -

Loss on sale of assets

 

 

 -

 

 

5,142

Deferred income taxes

 

 

(39,088)

 

 

(53)

Changes in operating assets and liabilities:

 

 

 

 

 

  

Accounts receivable

 

 

9,657

 

 

10,528

Prepaid expenses and other assets

 

 

246

 

 

(1,231)

Accounts payable and accrued expenses

 

 

(1,683)

 

 

(2,165)

Deferred revenue

 

 

(587)

 

 

(154)

Other liabilities

 

 

(1,416)

 

 

1,202

Cash provided by operating activities

 

 

9,561

 

 

17,660

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

  

 

 

  

Investments in intangible assets, including registration and renewal costs

 

 

(42)

 

 

(47)

Purchases of property and equipment

 

 

(33)

 

 

(1,792)

Cash used in investing activities

 

 

(75)

 

 

(1,839)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

  

 

 

  

Payment of long-term debt

 

 

(7,075)

 

 

(7,075)

Guaranteed payments in connection with acquisitions

 

 

(325)

 

 

(650)

Repurchases of common stock

 

 

(170)

 

 

(1,919)

Noncontrolling interest distributions

 

 

(1,093)

 

 

(1,244)

Cash used in financing activities

 

 

(8,663)

 

 

(10,888)

 

 

 

 

 

 

 

Cash and restricted cash:

 

 

 

 

 

 

Net increase in cash and restricted cash

 

 

823

 

 

4,933

Balance — Beginning of period

 

 

16,138

 

 

20,433

Balance — End of period

 

$

16,961

 

$

25,366

 

 

 

 

 

 

 

Reconciliation to amounts on condensed consolidated balance sheets

 

 

  

 

 

  

Cash

 

 

14,925

 

 

23,337

Restricted Cash

 

 

2,036

 

 

2,029

Total cash and restricted cash

 

$

16,961

 

$

25,366

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

  

 

 

  

Cash paid for:

 

 

  

 

 

  

Interest

 

$

14,420

 

$

14,513

Taxes

 

$

 2

 

$

 -

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

  

Accrued purchases of property and equipment at period end

 

$

 -

 

$

1,114

Unrealized gain on interest rate cap, net during the period

 

$

 -

 

$

679

Unrealized loss on interest rate swaps, net during the period

 

$

(1,480)

 

$

 -

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

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Table of Contents

SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

1.           Organization and Nature of Operations

Overview

Sequential Brands Group, Inc. (the “Company”) owns a portfolio of consumer brands in the fashion, active and home categories. The Company aims to maximize the strategic value of its brands by promoting, marketing and licensing its global brands through various distribution channels, including to retailers, wholesalers and distributors in the United States and in certain international territories. The Company’s core strategy is to enhance and monetize the global reach of its existing brands, and to pursue additional strategic acquisitions to grow the scope of and diversify its portfolio of brands. The Company licenses brands to both wholesale and direct-to-retail licensees. In a wholesale license, a wholesale supplier is granted rights (typically on an exclusive basis) to a single or small group of related product categories for a particular brand for sale to multiple accounts within an approved channel of distribution and territory. In a direct-to-retail license, a single retailer is granted the right (typically on an exclusive basis) to sell branded products in a broad range of product categories through its brick and mortar stores and e-commerce sites. As of March 31, 2019, the Company had approximately one-hundred forty licensees, with wholesale licensees comprising a significant majority.  Refer to Note 11 for discussion regarding the sale of Martha Stewart Living Omnimedia, Inc. (“MSLO”) subsequent to March 31, 2019.

 

2.           Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to Form 10‑Q  and Rule 10‑01 of Regulation S-X of the United States Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position, results of operations or cash flows. It is the Company’s opinion, however, that the accompanying unaudited condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018, as filed with the SEC on March 14, 2019, which contains the audited consolidated financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, for the years ended December 31, 2018, 2017 and 2016. The financial information as of December 31, 2018 is derived from the audited consolidated financial statements presented in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018. The interim results for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future interim periods.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

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SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers” (“ASC 606”), which became effective for the Company as of January 1, 2018.  ASC 606 requires a five-step approach to determine the appropriate method of revenue recognition for each contractual arrangement:

Step 1: Identify the Contract(s) with a Customer

Step 2: Identify the Performance Obligation(s) in the Contract

Step 3: Determine the Transaction Price

Step 4: Allocate the Transaction Price to the Performance Obligation(s) in the Contract

Step 5: Recognize Revenue when (or as) the Entity Satisfies a Performance Obligation

The Company has entered into various license agreements for its owned trademarks. Under ASC 606, the Company’s agreements are generally considered symbolic licenses, which contain the characteristics of a right-to-access license since the customer is simultaneously receiving the intellectual property (“IP”) and benefiting from it throughout the license period. The Company assesses each license agreement at inception and determines the performance obligation(s) and appropriate revenue recognition method. As part of this process, the Company applies judgments based on historical trends when estimating future revenues and the period over which to recognize revenue.

The Company generally recognizes revenue for license agreements under the following methods:

1.

Licenses with guaranteed minimum royalties (“GMRs”):  Generally, guaranteed minimum royalty payments (fixed revenue) comprising the transaction price are recognized on a straight-line basis over the term of the contract, as defined in each license agreement.

2.

Licenses with both GMRs (fixed revenue) and earned royalties (variable revenue):  Earned royalties in excess of fixed revenue are only recognized when the Company is reasonably certain that the guaranteed minimum payments for the period, as defined in each license agreement, will be exceeded. Additionally, the Company has categorized certain contracts as variable when there is a history and future expectation of exceeding GMRs. The Company recognizes income for these contracts during the period corresponding to the licensee’s sales.

3.

Licenses that are sales-based only or earned royalties: Earned royalties (variable revenue) are recognized as income during the period corresponding to the licensee’s sales.

Payments received as consideration for the grant of a license or advanced royalty payments are recorded as deferred revenue at the time payment is received and recognized into revenue under the methods described above.

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SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

Contract assets represent unbilled receivables and are presented within accounts receivable, net on the condensed consolidated balance sheets. Contract liabilities represent unearned revenues and are presented within the current portion of deferred revenue on the condensed consolidated balance sheets.

The Company disaggregates its revenue into two categories: licensing agreements and other, which is comprised of revenue from sources such as editorial content for books, television, sales commissions and vendor placement commissions.

With respect to editorial content for books, the Company receives advance payments from the Company’s publishers and recognizes revenue when manuscripts are delivered to and accepted by the publishers. Revenue is also earned from book publishing when sales on a unit basis exceed the advanced royalty.

Television sponsorship revenues are generally recorded ratably across the period when new episodes initially air. Revenue from media content is recognized at a point in time, when the content is delivered and accepted.

Commission revenues and vendor placement commission revenues are recorded in the period the commission is earned.

The Company entered into a transaction with a media company for which it receives advertising credits as part of the consideration exchanged. These transactions are recorded at the estimated fair value of the advertising credits received, as their fair value is deemed more readily determinable than the fair value of the trademark licensing right provided by the Company, in accordance with ASC 845, Nonmonetary Transactions. The fair value of the advertising credits are recorded as revenue and in other assets when earned, and expensed when the advertising credits are utilized.  No revenue was recorded for the three months ended March 31, 2019 and 2018 related to the advertising credits. The Company recorded $0.9 million and less than $0.1 million of expense related to the advertising credits utilized for the three months ended March 31, 2019 and 2018, respectively. 

Restricted Cash

Restricted cash consists of cash deposited with a financial institution required as collateral for the Company’s cash-collateralized letter of credit facilities.

Accounts Receivable

Accounts receivable are recorded net of allowances for doubtful accounts, based on the Company’s ongoing discussions with its licensees and other customers and its evaluation of their creditworthiness, payment history and account aging. Accounts receivable balances deemed to be uncollectible are written off after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts was $1.8 million and $2.1 million as of March 31, 2019 and December 31, 2018, respectively.

The Company’s accounts receivable, net amounted to $56.5 million and $66.2 million as of March 31, 2019 and December 31, 2018, respectively. Two licensees accounted for approximately 35% (22% and 13%) of the Company’s total consolidated accounts receivable balance as of March 31, 2019 and three licensees accounted for approximately 44% (19%, 13% and 12%) of the Company’s total consolidated accounts receivable balance as of December 31, 2018. The Company does not believe the accounts receivable balance from these licensees represents a significant collection risk based on past collection experience.

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SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

Investments

The Company accounts for equity securities under ASC 321, Investments – Equity Securities (“ASC 321”). Such securities are reported at fair value in the consolidated balance sheets and, at the time of purchase, are reported in the consolidated statements of cash flows as an investing activity. Gains and losses on equity securities are recognized through net loss.  The Company recognized a gain on its equity securities of $0.3 million recorded in other income on the condensed consolidated statement of operations for the three months ended March 31, 2019. 

Equity Method Investment

For investments in entities over which the Company exercises significant influence but which do not meet the requirements for consolidation, the Company uses the equity method of accounting. On July 1, 2016, the Company acquired a 49.9% noncontrolling interest in Gaiam Pty. Ltd. in connection with its acquisition of Gaiam Brand Holdco, LLC, which is included in other assets in the condensed consolidated balance sheets. The Company’s share of earnings from its equity method investee, which was not material for the three months ended March 31, 2019 and 2018, is included in other income in the unaudited condensed consolidated statements of operations.

The Company evaluates its equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investment may not be recoverable. The difference between the carrying value of the equity method investment and its estimated fair value is recognized as an impairment charge when the loss in value is deemed other-than-temporary.

Intangible Assets

On an annual basis (October 1st) and as needed, the Company tests indefinite lived trademarks for impairment through the use of discounted cash flow models. Assumptions used in our discounted cash flow models include: (i) discount rates; (ii) projected average revenue growth rates; and (iii) projected long-term growth rates. Our estimates also factor in economic conditions and expectations of management, which may change in the future based on period-specific facts and circumstances.  Other intangibles with determinable lives, including certain trademarks, customer agreements and patents, are evaluated for the possibility of impairment when certain indicators are present, and are otherwise amortized on a straight-line basis over the estimated useful lives of the assets (currently ranging from 2 to 15 years).

During the quarter ended March 31, 2019, the Company recorded non-cash impairment charges of $161.2 million for indefinite-lived intangible assets related to the Martha Stewart and Emeril trademarks.  The impairments arose as a result of the sale process for the Martha Stewart and Emeril Lagasse brands (as discussed in Note 11) due to the difference in the fair value as indicated by the sales price as compared to the carrying values of the intangible assets included in the transaction.  The sale of the Martha Stewart and Emeril Lagasse brands was approved by the Board of Directors on April 15, 2019, to allow the Company to achieve one of its top priorities in significantly reducing its debt.  Going forward the Company’s strategy is to focus on higher margin brands that are well suited for growing health, wellness and beauty categories. These charges are included in impairment charges in the unaudited condensed consolidated statements of operations.  See Note 3, Note 6 and Note 11 for further information. 

Treasury Stock

Treasury stock is recorded at cost as a reduction of equity in the condensed consolidated balance sheets.

Stock-Based Compensation

Compensation cost for restricted stock is measured using the quoted market price of the Company’s common stock at the date the common stock is granted. For restricted stock and restricted stock units, for which restrictions lapse

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SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

with the passage of time (“time-based restricted stock”), compensation cost is recognized on a straight-line basis over the period between the issue date and the date that restrictions lapse. Time-based restricted stock is included in total shares of common stock outstanding upon the lapse of applicable restrictions. For restricted stock, for which restrictions are based on performance measures (“performance stock units” or “PSUs”), restrictions lapse when those performance measures have been deemed achieved. Compensation cost for PSUs is recognized on a straight-line basis during the period from the date on which the likelihood of the PSUs being earned is deemed probable and (x) the end of the fiscal year during which such PSUs are expected to vest or (y) the date on which awards of such PSUs may be approved by the compensation committee of the Company’s board of directors (the “Compensation Committee”) on a discretionary basis, as applicable. PSUs are included in total shares of common stock outstanding upon the lapse of applicable restrictions. PSUs are included in total diluted shares of common stock outstanding when the performance measures have been deemed achieved but the PSUs have not yet been issued.

Fair value for stock options and warrants is calculated using the Black-Scholes valuation model and is expensed on a straight-line basis over the requisite service period of the grant. Compensation cost is reduced for forfeitures as they occur in accordance with ASU 2016‑09 Simplifying the Accounting for Share-Based Payments (“ASU 2016‑09”).

The Company adopted ASU No. 2018-07 Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) as of January 1, 2019 on a modified retrospective basis.  In accordance with ASU 2018-07, the Company recognizes compensation cost for grants to non-employees on a straight-line basis over the period of the grant.  Prior periods have not been restated and were accounted for under the previous method where at each reporting period prior to the lapse of restrictions on warrants, time-based restricted stock and PSUs granted to non-employees, the Company remeasured the aggregate compensation cost of such grants using the Company’s fair value at the end of such reporting period and revised the straight-line recognition of compensation cost in line with such remeasured amount.

Leases

The Company has operating leases for certain properties for its offices and showrooms and for copiers. The Company adopted ASU No. 2016-02 Leases (“ASU 2016-02” or “ASC 842”) as of January 1, 2019 using the modified retrospective method as of the period of adoption.  The Company elected the package of practical expedients upon transition where the Company did not reassess the lease classification and initial direct costs for leases that existed prior to adoption.  Additionally, the Company did not reassess contracts entered into prior to adoption to determine whether the arrangement was or contained a lease.  In accordance with ASU 2016-02, for leases over twelve months the Company records a right-of-use asset and a lease liability representing the present value of future lease payments.  Rent expense is recognized on a straight-line basis over the term of the lease.  See Note 5 for further information.

Income Taxes

Current income taxes are based on the respective periods’ taxable income for federal, foreign and state income tax reporting purposes. Deferred tax liabilities and assets are determined based on the difference between the financial statement and income tax bases of assets and liabilities, using statutory tax rates in effect for the year in which the differences are expected to reverse. In accordance with ASU No. 2015‑17 Balance Sheet Classification of Deferred Taxes, all deferred income taxes are reported and classified as non-current. A valuation allowance is required if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company applies the FASB guidance on accounting for uncertainty in income taxes. The guidance clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with other authoritative GAAP and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also addresses derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. During the years ended December 31, 2018 and 2017, the Company did not have any reserves or interest and penalties to record through current income tax expense in accordance with ASC 740, Income Taxes (“ASC 740”). Interest and penalties related to uncertain

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SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

tax positions, if any, are recorded in income tax expense. Tax years that remain open for assessment for federal and state tax purposes include the years ended December 31, 2015 through December 31, 2018.

Earnings Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) attributable to Sequential Brands Group, Inc. and Subsidiaries by the weighted-average number of common shares outstanding during the reporting period, excluding the effects of any potentially dilutive securities. Diluted EPS gives effect to all potentially dilutive common shares outstanding during the reporting period, including stock options, PSUs and warrants, using the treasury stock method, and convertible debt, using the if-converted method. Diluted EPS excludes all potentially dilutive shares of common stock if their effect is anti-dilutive. Basic weighted-average common shares outstanding is equivalent to diluted weighted-average common shares outstanding for the quarters ended March 31, 2019 and 2018.

The computation of diluted EPS for the three months ended March 31, 2019 and 2018 would exclude the following potentially dilutive securities because their inclusion would be anti-dilutive:

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2019

    

2018

    

Unvested restricted stock

 

492,619

 

502,283

 

 

Concentration of Credit Risk

Financial instruments which potentially expose the Company to credit risk consist primarily of cash, restricted cash and accounts receivable. Cash is held to meet working capital needs and future acquisitions. Restricted cash is pledged as collateral for a comparable amount of irrevocable standby letters of credit for certain of the Company’s leased properties. Substantially all of the Company’s cash and restricted cash are deposited with high quality financial institutions. At times, however, such cash and restricted cash may be in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit. The Company has not experienced any losses in such accounts as of March 31, 2019.

Concentration of credit risk with respect to accounts receivable is minimal due to the collection history. The Company performs periodic credit evaluations of its customers’ financial condition. The allowance for doubtful accounts is based upon the expected collectability of all accounts receivable.

Customer Concentrations

The Company recorded net revenues of $36.9 million and $38.1 million during the three months ended March 31, 2019 and 2018, respectively. During the three months ended March 31, 2019, three licensees represented at least 10% of net revenue, accounting for 12%, 11% and 10% of the Company’s net revenue. During the three months ended March 31, 2018, two licensees represented at least 10% of net revenue, accounting for 11% and 10% of the Company’s net revenue.

Loss Contingencies

The Company recognizes contingent losses that are both probable and estimable. In this context, probable means circumstances under which events are likely to occur. The Company records legal costs pertaining to contingencies as incurred.

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SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

Noncontrolling Interest

Noncontrolling interest recorded for the three months ended March 31, 2019 and 2018 represents income allocations to Elan Polo International, Inc., a member of DVS Footwear International, LLC and With You, Inc., a member of With You LLC (the partnership between the Company and Jessica Simpson). 

Reportable Segment

An operating segment, in part, is a component of an enterprise whose operating results are regularly reviewed by the chief operating decision maker (the “CODM”) to make decisions about resources to be allocated to the segment and assess its performance. Operating segments may be aggregated only to a limited extent. The Company’s CODM, the Chief Executive Officer, reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues for purposes of making operating decisions and assessing financial performance. Accordingly, the Company has determined that it has a single operating and reportable segment. In addition, the Company has no foreign offices or any assets in foreign locations. The majority of the Company’s operations consist of a single revenue stream, which is the licensing of its trademark portfolio, with additional revenues derived from television, book, and certain commissions.

 

New Accounting Pronouncements

ASU No. 2018-18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606”

 

In November 2018, the FASB issued ASU No. 2018-18 “Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”).  ASU 2018-18 amends ASC 808, Collaborative Arrangements (“ASC 808”) and ASC 606, Revenue from Contracts with Customers (“ASC 606”) to clarify that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer.

 

ASU 2018-18 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted.  The Company does not expect the adoption of ASU 2018-18 to have a material impact on the Company’s consolidated financial statements.

 

ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”

In August 2018, the FASB issued ASU No. 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”).  ASU 2018-13 eliminates, amends, and adds certain disclosure requirements for fair value measurements.

ASU 2018-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for the entire standard or for the provisions that eliminate or amend disclosure requirements.  The Company does not expect the adoption of ASU 2018-13 to have a material impact on the Company’s condensed consolidated financial statements.

 

 

 

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SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

3.           Fair Value Measurement of Financial Instruments

ASC 820‑10, Fair Value Measurements and Disclosures (“ASC 820‑10”), defines fair value, establishes a framework for measuring fair value in GAAP and provides for expanded disclosure about fair value measurements. ASC 820‑10 applies to all other accounting pronouncements that require or permit fair value measurements.

The Company determines or calculates the fair value of financial instruments using quoted market prices in active markets when such information is available or using appropriate present value or other valuation techniques, such as discounted cash flow analyses, incorporating available market discount rate information for similar types of instruments while estimating for non-performance and liquidity risk. These techniques are significantly affected by the assumptions used, including the discount rate, credit spreads and estimates of future cash flows.

Assets and liabilities typically recorded at fair value on a non-recurring basis to which ASC 820‑10 applies include:

·

non-financial assets and liabilities initially measured at fair value in an acquisition or business combination, and

·

long-lived assets measured at fair value due to an impairment assessment under ASC 360‑10‑15, Impairment or Disposal of Long-Lived Assets.

 

This topic defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820‑10 requires that assets and liabilities recorded at fair value be classified and disclosed in one of the following three categories:

·

Level 1 - inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

·

Level 2 - inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

·

Level 3 - inputs are unobservable and are typically based on the Company’s own assumptions, including situations where there is little, if any, market activity. Both observable and unobservable inputs may be used to determine the fair value of positions that are classified within the Level 3 classification.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the Company classifies such financial assets or liabilities based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

 

 

 

 

 

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SEQUENTIAL BRANDS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

(UNAUDITED)

During the three months ended March 31, 2019, the Company recorded non-cash impairment charges of $161.2 million for indefinite-lived intangible assets related to the Martha Stewart and Emeril trademarks.  The impairments arose during the sale process for the Martha Stewart and Emeril Lagasse brands (as discussed in Notes 6 and 12) due to the difference in the fair value as indicated by the sales price as compared to the carrying values of the intangible assets included in the transaction.  The sale of the Martha Stewart and Emeril Lagasse brands was approved by the Board of Directors on April 15, 2019, to allow the Company to achieve one of its top priorities in significantly reducing its debt.  Going forward the Company’s strategy is to focus on higher margin brands that are well suited for growing health, wellness and beauty categories.  The following table shows the change in indefinite-lived intangible assets for the three months ended March 31, 2019 (in thousands):

 

 

 

 

 

Balance at January 1, 2019

    

$

954,929

Additions

 

 

28

Impairment charges

 

 

(161,224)

Balance at March 31, 2019

 

$

793,733

 

As of March 31, 2019 and December 31, 2018, there were no assets or liabilities that are required to be measured at fair value on a recurring basis, except for interest rate swaps and Legacy Payments (as defined below) to Ms. Martha Stewart. The following table sets forth the carrying value and the fair value of the Company’s financial assets and liabilities required to be disclosed at March 31, 2019 and December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying Value

 

Fair Value

Financial Instrument

    

Level

    

3/31/2019

    

12/31/2018

    

3/31/2019

    

12/31/2018

 

 

(in thousands)

Equity securities

 

 1

 

$

955

 

$

627

 

$

955

 

$

627

Interest rate swaps - liability

 

 2

 

$

3,941

 

$

2,019

 

$

3,941

 

$

2,019

Term loans

 

 2

 

$

512,775

 

$

519,850

 

$

509,034

 

$

515,742

Revolving loan

 

 2

 

$

115,000

 

$

115,000

 

$

114,855

 

$

114,827

Legacy Payments

 

 3

 

$

2,629