XML 18 R8.htm IDEA: XBRL DOCUMENT
v3.22.2.2

Acquisitions and Divestitures | 9 Months Ended
--- | ---
Sep. 30, 2022
Acquisitions and Divestitures [Abstract] |
Acquisitions and Divestitures | 2. Acquisitions and Divestitures Sale of Majority Interest in Isaac Mizrahi Brand On May 27, 2022, Xcel (along with IM Topco, LLC (“IM Topco”) and IM Brands, LLC (“IMB”), both wholly owned subsidiaries of the Company) and IM WHP, LLC (“WHP”), a subsidiary of WHP Global, a private equity-backed brand management and licensing company, entered into a membership purchase agreement. Pursuant to this agreement, on May 31, 2022, (i) the Company contributed assets owned by IMB, including the Isaac Mizrahi Brand trademarks and other intellectual property rights relating thereto into IM Topco, and (ii) the Company sold 70% of the membership interests of IM Topco to WHP. The purchase price paid by WHP to the Company at the closing of the transaction in exchange for the 70% membership interest in IM Topco consisted of $46.2 million in cash. Pursuant to the purchase agreement, the Company will also be entitled to receive an “earn-out” payment in the amount of $2.0 million if, during the period from January 1, 2023 through December 31, 2023, (i) IM Topco receives Net Royalty Revenue (as defined in the purchase agreement) in an amount equal to or greater than $17.5 million and (ii) IM Topco generates EBITDA (as defined in the purchase agreement) in an amount equal to or greater than $11.8 million. Additionally, in the event that IM Topco receives less than $13.347 million in aggregate royalties for any four consecutive calendar quarters over a three-year period ending on the third anniversary of the closing, WHP will be entitled to receive from the Company up to $16 million, less all amounts of net cash flow distributed to WHP for such period, as an adjustment to the purchase price, payable in either cash or equity interests in IM Topco held by the Company. In connection with the aforementioned purchase agreement, on May 31, 2022, the Company and WHP entered into an Amended and Restated Limited Liability Company Agreement of IM Topco (the “Business Venture Agreement”) governing the operation of IM Topco as a partnership between the Company and WHP following the closing. Pursuant to the Business Venture Agreement, IM Topco is managed by a single Manager appointed by the vote of a majority-in-interest of IM Topco’s members, and WHP serves as the sole Manager of IM Topco. The Business Venture Agreement contains customary provisions for the governance of a partnership, including with respect to decision making, access to information, restrictions on transfer of interests, and covenants. Pursuant to the Business Venture Agreement, IM Topco’s Net Cash Flow (as defined in the agreement) shall be distributed to the members during each fiscal year no less than once per fiscal quarter, as follows:
| (i) | first, 100% to WHP, until WHP has received an aggregate amount during such fiscal year equal to $8,852,000;
| (ii) | second, 100% to Xcel, until Xcel has received an aggregate amount during such fiscal year equal to $1,316,200; and
| (iii) | thereafter, in proportion to the members’ respective percentage interests.
The amounts described in (i) and (ii) above are subject to adjustment in certain circumstances as set forth in the Business Venture Agreement. The Company also entered into a number of other related agreements on May 31, 2022 in connection with the transaction, as described below:
| ● | The Company entered into a services agreement with IM Topco, pursuant to which the Company will provide certain design and support services (including assistance with the operations of the interactive television business and related talent support) to IM Topco in exchange for payments of $0.3 million per fiscal year.
| ● | The Company entered into a license agreement with IM Topco, pursuant to which IM Topco granted the Company a license to use certain Isaac Mizrahi trademarks on and in connection with the design, manufacture, distribution, sale, and promotion of women’s sportswear products in the United States and Canada during the term of the agreement, in exchange for the payment of royalties in connection therewith. The initial term of this agreement ends December 31, 2026, and provides guaranteed royalties of $0.4 million per year to IM Topco.
| ● | The Company’s licensing agreement with Qurate Retail Group related to the Isaac Mizrahi Brand (see Note 4) was assigned to IM Topco as of May 31, 2022.
| ● | The Company’s employment agreement with Mr. Mizrahi and the Company’s services agreement with Laugh Club (see Note 10) were transferred to IM Topco. In addition, all 522,500 unvested shares of restricted stock of the Company held by Mr. Mizrahi (for which all stock-based compensation expense had been previously recognized in prior periods) were immediately vested, with 240,000 of such shares being surrendered for cancellation in satisfaction of withholding tax obligations. In addition, the Company issued 33,557 additional shares of common stock of the Company (valued at $50,000) to Mr. Mizrahi, which vested immediately, and made a $100,000 cash payment to Mr. Mizrahi.
Management assessed and evaluated the ownership structure and other terms of the May 27, 2022 membership purchase agreement and Business Venture Agreement, as well as considered the Company’s continuing involvement with the Isaac Mizrahi Brand through the aforementioned services agreement and licensing agreement, and concluded that (i) IM Topco is not a Variable Interest Entity under Accounting Standards Codification (“ASC”) Topic 810, and (ii) the Company has significant influence over, but does not control, IM Topco. As such, on May 31, 2022, the Company de-recognized the carrying amount of the Isaac Mizrahi Brand trademarks of $44.5 million and recognized the fair value of its retained interest in IM Topco of approximately $19.8 million as an equity method investment on the accompanying condensed consolidated balance sheet. The fair value of the Company’s retained interest was determined by applying the Company’s ownership percentage to the implied enterprise value of IM Topco, which was calculated based on the price paid by WHP for the 70% controlling interest, as the May 31, 2022 sale transaction was considered an arms-length transaction between knowledgeable market participants and the most relevant and reasonable indication of value to utilize. The inputs and assumptions for this nonrecurring fair value measurement are classified as Level 3 within the fair value hierarchy defined in ASC Topic 820. The Company incurred approximately $0.9 million of expenses directly related to this transaction, including legal fees and agent fees, of which $0.1 million of the agent fees were paid through the issuance of 65,275 shares of the Company’s common stock, which were recognized as a reduction to the gain from the transaction. The Company recognized a net pre- tax gain from the transaction of $20.6 million, which is classified as other income in the condensed consolidated statements of operations for the nine months ended September 30, 2022. In addition to the amounts described above, the Company’s Board of Directors awarded cash bonuses totaling approximately $1.0 million to certain members of the Company’s senior management, consisting of bonuses of $770,000 to Robert D’Loren, $115,000 to Jim Haran, and $130,000 to Seth Burroughs. These bonuses are included in Salaries, benefits and employment taxes in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2022. The Company accounts for its interest in the ongoing operations of IM Topco as other income under the equity method of accounting. The Company recognized an equity method loss of $0.28 million related to its investment for the three and nine months ended September 30, 2022, based on the aforementioned distribution provisions set forth in the Business Venture Agreement. Summarized financial information for IM Topco is as follows:
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | For the three |  | For the nine
​ | ​ | months ended | ​ | months ended
​ | ​ | September 30, | ​ | September 30,
($ in thousands) | ​ | 2022 | ​ | ​ | 2022 (1)
Revenues | ​ | $ | 4,185 | ​ | $ | 5,479
Gross profit | ​ | ​ | 4,185 | ​ | ​ | 5,479
Income from continuing operations | ​ | ​ | 928 | ​ | ​ | 1,118
Net income | ​ | ​ | 928 | ​ | ​ | 1,118
​ (1) Represents financial information for the period commencing May 31, 2022 (the date of the sale of a majority interest in IM Topco) through September 30, 2022. ​ Acquisition of LOGO by Lori Goldstein Brand On April 1, 2021, the Company acquired certain assets of Lori Goldstein, Ltd. (the "Seller"), including the “LOGO by Lori Goldstein” trademark and other intellectual property rights relating thereto. Pursuant to the asset purchase agreement related to this transaction, the Company delivered $1.6 million in cash consideration to the Seller at closing, and was obligated to subsequently deliver an additional $2.0 million in cash to the Seller, which was paid in July 2021. In addition to the consideration described above, the Seller is eligible to earn additional consideration of up to $12.5 million (the “Lori Goldstein Earn-Out”), which would be payable, in cash, within 45 days after the end of each applicable calendar year during the six calendar year period commencing 2021 in an amount equal to 75% percent of the Royalty Contribution (as defined in the related asset purchase agreement) for such calendar year. The Company recorded a contingent obligation of $6.6 million related to the Lori Goldstein Earn-Out, based on the difference between the fair value of the acquired assets of the LOGO by Lori Goldstein brand and the total consideration paid, in accordance with the guidance in ASC Subtopic 805-50. To date, no consideration under the terms of the Lori Goldstein Earn-Out has been payable or paid to the Seller. The LOGO by Lori Goldstein brand acquisition was accounted for as an asset purchase, and the aggregate purchase price of $10.3 million was allocated entirely to the trademarks of the brand. Such trademarks have been determined by management to have a finite useful life, and accordingly, amortization is recorded in the Company’s condensed consolidated statements of operations. The Lori Goldstein trademarks are being amortized on a straight-line basis over their expected useful life of four years.

X
- References No definition available. + Details
Name: | xelb_AcquisitionsAndDivestituresAbstract
Namespace Prefix: | xelb_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for acquisition and divestitures. + References No definition available. + Details
Name: | xelb_AcquisitionsAndDivestituresTextBlock
Namespace Prefix: | xelb_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration