Attached files

file filename
EX-31.1 - EX-31.1 - ICONIX BRAND GROUP, INC.icon-ex311_11.htm
EX-31.2 - EX-31.2 - ICONIX BRAND GROUP, INC.icon-ex312_7.htm
EX-32.1 - EX-32.1 - ICONIX BRAND GROUP, INC.icon-ex321_8.htm
EX-32.2 - EX-32.2 - ICONIX BRAND GROUP, INC.icon-ex322_10.htm

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

For the Quarterly Period Ended September 30, 2015

OR

o

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)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

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

 

Large accelerated filer

 

x

  

Accelerated filer

 

o

 

 

 

 

 

 

 

Non-accelerated filer

 

o  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

o

 

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

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

Common Stock, $.001 Par Value- 48,393,703 shares as of November 3, 2015.

 

 

 


 

Part I. Financial Information

Item 1. Financial Statements

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except par value)

 

 

 

September 30,

2015

 

 

December 31,

2014

 

 

 

 

 

 

 

(restated)

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

136,367

 

 

$

128,019

 

Restricted cash

 

 

51,911

 

 

 

59,560

 

Accounts receivable, net

 

 

109,090

 

 

 

115,066

 

Deferred income tax assets

 

 

20,383

 

 

 

10,328

 

Other assets – current

 

 

51,270

 

 

 

66,781

 

Total Current Assets

 

 

369,021

 

 

 

379,754

 

Property and equipment:

 

 

 

 

 

 

 

 

Furniture, fixtures and equipment

 

 

23,749

 

 

 

22,704

 

Less: Accumulated depreciation

 

 

(16,248

)

 

 

(14,946

)

 

 

 

7,501

 

 

 

7,758

 

Other Assets:

 

 

 

 

 

 

 

 

Other assets

 

 

48,466

 

 

 

63,334

 

Trademarks and other intangibles, net

 

 

2,184,532

 

 

 

2,024,541

 

Deferred financing costs, net

 

 

16,188

 

 

 

19,842

 

Investments and joint ventures

 

 

179,773

 

 

 

140,910

 

Goodwill

 

 

238,220

 

 

 

231,738

 

 

 

 

2,667,179

 

 

 

2,480,365

 

Total Assets

 

$

3,043,701

 

 

$

2,867,877

 

Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

43,926

 

 

$

38,762

 

Deferred revenue

 

 

26,945

 

 

 

24,978

 

Current portion of long-term debt

 

 

351,544

 

 

 

61,123

 

Other liabilities – current

 

 

13,884

 

 

 

12,741

 

Total current liabilities

 

 

436,299

 

 

 

137,604

 

Deferred income tax liability

 

 

362,100

 

 

 

320,792

 

Long-term debt, less current maturities

 

 

1,120,098

 

 

 

1,332,954

 

Other liabilities

 

 

10,424

 

 

 

11,660

 

Total Liabilities

 

 

1,928,921

 

 

 

1,803,010

 

Redeemable Non-Controlling Interest

 

 

14,761

 

 

 

14,224

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Common stock, $.001 par value shares authorized 150,000; shares issued 80,491 and

   79,263, respectively

 

 

80

 

 

 

79

 

Additional paid-in capital

 

 

974,552

 

 

 

948,714

 

Retained earnings

 

 

877,655

 

 

 

805,526

 

Accumulated other comprehensive loss

 

 

(50,953

)

 

 

(24,186

)

Less: Treasury stock – 31,997 and 31,310 shares at cost, respectively

 

 

(837,179

)

 

 

(812,429

)

Total Iconix Brand Group, Inc. Stockholders’ Equity

 

 

964,155

 

 

 

917,704

 

Non-controlling interest

 

 

135,864

 

 

 

132,939

 

Total Stockholders’ Equity

 

 

1,100,019

 

 

 

1,050,643

 

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

 

$

3,043,701

 

 

$

2,867,877

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

2


 

Unaudited Condensed Consolidated Income Statements

(in thousands, except earnings per share data)

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Income (Loss)

(in thousands, except earnings per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014 (restated)

 

 

2015

 

 

2014 (restated)

 

Licensing revenue

 

$

88,935

 

 

$

91,612

 

 

$

278,955

 

 

$

299,334

 

Other revenue

 

 

 

 

 

18,680

 

 

 

 

 

 

38,690

 

Total Revenue

 

 

88,935

 

 

 

110,292

 

 

 

278,955

 

 

 

338,024

 

Selling, general and administrative expenses

 

 

65,760

 

 

 

46,878

 

 

 

153,626

 

 

 

138,497

 

Operating income

 

 

23,175

 

 

 

63,414

 

 

 

125,329

 

 

 

199,527

 

Other expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

22,253

 

 

 

21,130

 

 

 

64,950

 

 

 

63,533

 

Interest income

 

 

(721

)

 

 

(605

)

 

 

(2,493

)

 

 

(1,688

)

Other income

 

 

 

 

 

 

 

 

(48,155

)

 

 

(37,893

)

Foreign currency translation loss (gain)

 

 

1,243

 

 

 

 

 

 

(7,251

)

 

 

 

Equity earnings on joint ventures

 

 

(2,300

)

 

 

(4,084

)

 

 

(9,120

)

 

 

(12,881

)

Other expenses (income) – net

 

 

20,475

 

 

 

16,441

 

 

 

(2,069

)

 

 

11,071

 

Income before income taxes

 

 

2,700

 

 

 

46,973

 

 

 

127,398

 

 

 

188,456

 

Provision for income taxes

 

 

5,673

 

 

 

9,856

 

 

 

44,232

 

 

 

53,922

 

Net (loss) income

 

$

(2,973

)

 

$

37,117

 

 

$

83,166

 

 

$

134,534

 

Less: Net income attributable to non-controlling interest

 

$

3,367

 

 

$

3,433

 

 

$

11,037

 

 

$

9,970

 

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

 

$

(6,340

)

 

$

33,684

 

 

$

72,129

 

 

$

124,564

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.13

)

 

$

0.70

 

 

$

1.50

 

 

$

2.56

 

Diluted

 

$

(0.13

)

 

$

0.58

 

 

$

1.43

 

 

$

2.14

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

48,310

 

 

 

47,991

 

 

 

48,238

 

 

 

48,682

 

Diluted

 

 

48,310

 

 

 

58,457

 

 

 

50,486

 

 

 

58,306

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

3


 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014 (restated)

 

 

2015

 

 

2014 (restated)

 

Net (loss) income

 

$

(2,973

)

 

$

37,117

 

 

$

83,166

 

 

$

134,534

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

4,050

 

 

 

(26,524

)

 

 

(27,066

)

 

 

(29,144

)

Change in fair value of available for sale securities

 

 

 

 

 

50

 

 

 

299

 

 

 

50

 

Total other comprehensive income (loss)

 

 

4,050

 

 

 

(26,474

)

 

 

(26,767

)

 

 

(29,094

)

Comprehensive income

 

$

1,077

 

 

$

10,643

 

 

$

56,399

 

 

$

105,440

 

Less: comprehensive income attributable to non-controlling

   interest

 

 

3,367

 

 

 

3,433

 

 

 

11,037

 

 

 

9,970

 

Comprehensive (loss) income attributable to Iconix Brand Group,

   Inc.

 

$

(2,290

)

 

$

7,210

 

 

$

45,362

 

 

$

95,470

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

4


 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statement of Stockholders’ Equity

Nine Months Ended September 30, 2015

(in thousands)

 

 

 

Common Stock

 

 

Additional

 

 

Retained

 

 

Accumulated Other Comprehensive

 

 

Treasury

 

 

Non-Controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid-In Capital

 

 

Earnings

 

 

Loss

 

 

Stock

 

 

Interest

 

 

Total

 

Balance at January 1, 2015 -

   Restated

 

 

79,263

 

 

$

79

 

 

$

948,714

 

 

$

805,526

 

 

$

(24,186

)

 

$

(812,429

)

 

$

132,939

 

 

$

1,050,643

 

Issuance of common stock

   related to acquisition of interest

   in joint venture

 

 

465

 

 

 

0

 

 

 

15,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,703

 

Shares issued on vesting of

   restricted stock

 

 

748

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Purchase of minority interest in

   consolidated joint venture

 

 

 

 

 

 

 

 

 

 

750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,750

)

 

 

(6,000

)

Shares issued on exercise of stock

   options and warrants

 

 

15

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0

 

Tax benefit of stock option

   exercises

 

 

 

 

 

 

 

 

98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

98

 

Compensation expense in

   connection with restricted

   stock

 

 

 

 

 

 

 

 

9,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,824

 

Shares repurchased on the

   open market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,391

)

 

 

 

 

 

(12,391

)

Cost of shares repurchased on

   vesting of restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,359

)

 

 

 

 

 

(12,359

)

Change in redemption value of

   redeemable non-controlling

   interest

 

 

 

 

 

 

 

 

(537

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(537

)

Change in fair value of available

   for sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

299

 

 

 

 

 

 

 

 

 

299

 

Net income

 

 

 

 

 

 

 

 

 

 

 

72,129

 

 

 

 

 

 

 

 

 

11,037

 

 

 

83,166

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,066

)

 

 

 

 

 

 

 

 

(27,066

)

Distributions to joint ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,695

)

 

 

(13,695

)

Non-controlling interest of

   acquired companies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,333

 

 

 

12,333

 

Balance at September 30, 2015

 

 

80,491

 

 

$

80

 

 

$

974,552

 

 

$

877,655

 

 

$

(50,953

)

 

$

(837,179

)

 

$

135,864

 

 

$

1,100,019

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

5


 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2014 (restated)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

83,166

 

 

$

134,534

 

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

 

 

 

 

 

 

 

 

Depreciation of property and equipment

 

 

1,223

 

 

 

2,154

 

Amortization of trademarks and other intangibles

 

 

2,416

 

 

 

3,392

 

Amortization of deferred financing costs

 

 

3,654

 

 

 

3,997

 

Amortization of convertible note discount

 

 

23,408

 

 

 

22,041

 

Stock-based compensation expense

 

 

9,824

 

 

 

14,726

 

Non-cash gain on re-measurement of equity investment

 

 

(47,365

)

 

 

(37,893

)

Provision for doubtful accounts

 

 

16,118

 

 

 

5,530

 

Earnings on equity investments in joint ventures

 

 

(9,120

)

 

 

(12,881

)

Distributions from equity investments

 

 

3,273

 

 

 

6,303

 

Gain on sale of fixed assets

 

 

(225

)

 

 

 

Gain on sale of securities

 

 

 

 

 

(125

)

Gain on sale of trademarks

 

 

 

 

 

(44,895

)

Deferred income tax provision

 

 

22,627

 

 

 

29,893

 

Gain on foreign currency translation

 

 

(7,251

)

 

 

 

Changes in operating assets and liabilities, net of business acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,961

)

 

 

(35,530

)

Other assets – current

 

 

17,498

 

 

 

36,921

 

Other assets

 

 

9,104

 

 

 

(30,034

)

Deferred revenue

 

 

2,391

 

 

 

216

 

Accounts payable and accrued expenses

 

 

16,667

 

 

 

26,096

 

Net cash provided by operating activities

 

 

140,447

 

 

 

124,445

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,134

)

 

 

(1,086

)

Acquisition of interest in Iconix China, net of cash acquired

 

 

(20,400

)

 

 

 

Acquisition of interest in Pony

 

 

(37,000

)

 

 

 

Acquisition of interest in Strawberry Shortcake

 

 

(105,000

)

 

 

 

Acquisition of interest in Iconix Latin America

 

 

 

 

 

(42,000

)

Additional investments in joint ventures

 

 

 

 

 

(2,500

)

Proceeds from the sale of securities

 

 

 

 

 

720

 

Proceeds from sale of trademarks and related notes receivable

 

 

18,899

 

 

 

14,730

 

Proceeds from sale of fixed assets

 

 

225

 

 

 

 

Purchase of trademarks

 

 

 

 

 

(5,998

)

Additions to trademarks

 

 

(120

)

 

 

(790

)

Net cash used in investing activities

 

 

(144,530

)

 

 

(36,924

)

Cash flows (used in) provided by financing activities:

 

 

 

 

 

 

 

 

Shares repurchased on the open market

 

 

(12,391

)

 

 

(168,168

)

Proceeds from Variable Funding Notes

 

 

100,000

 

 

 

 

Payment of long-term debt

 

 

(45,843

)

 

 

(47,574

)

Acquisition of interest in Scion

 

 

(6,000

)

 

 

 

Additional payment to Purim

 

 

(2,000

)

 

 

 

Distributions to non-controlling interests

 

 

(13,695

)

 

 

(10,110

)

Excess tax benefit from share-based payment arrangements

 

 

98

 

 

 

1,480

 

Cost of shares repurchased on vesting of restricted stock and exercise of stock

   options

 

 

(15,515

)

 

 

(13,696

)

Proceeds from exercise of stock options and warrants

 

 

 

 

 

3,512

 

Restricted cash

 

 

7,649

 

 

 

1,708

 

Net cash provided by (used in) financing activities

 

 

12,303

 

 

 

(232,848

)

Effect of exchange rate changes on cash

 

 

128

 

 

 

(3,936

)

Net decrease in cash and cash equivalents

 

 

8,348

 

 

 

(149,263

)

Cash and cash equivalents, beginning of period

 

 

128,019

 

 

 

278,789

 

Cash and cash equivalents, end of period

 

$

136,367

 

 

$

129,526

 

 

6


 

Supplemental disclosure of cash flow information:

 

 

 

Nine Months Ended September 30,

 

(in thousands)

 

2015

 

 

2014 (restated)

 

Cash paid during the period:

 

 

 

 

 

 

 

 

Income taxes (net of refunds received)

 

$

(12,186

)

 

$

3,508

 

Interest

 

$

35,623

 

 

$

36,051

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Sale of trademarks for note receivable

 

$

 

 

$

39,339

 

Issuance of shares in connection with purchase of Iconix China

 

$

15,703

 

 

$

 

Note receivable in connection with Strawberry Shortcake acquisition

 

$

9,470

 

 

$

 

Shares repurchased on vesting of restricted stock included in accrued expenses

 

$

 

 

$

3,459

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

7


 

Iconix Brand Group, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2015

(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 (“Current Quarter”) and the nine months (“Current Nine Months”) ended September 30, 2015 are not necessarily indicative of the results that may be expected for a full fiscal year.

Certain prior period amounts have been reclassified to conform to the current period’s presentation.  Additionally, restated amounts are provided for prior periods – see Note 17 for further information.

 

 

2. Trademarks and Other Intangibles, net

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

 

 

 

 

 

September 30, 2015

 

 

December 31, 2014

 

 

 

Estimated

Lives in

Years

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

Indefinite-lived trademarks and copyrights

 

Indefinite

 

$

2,173,714

 

 

$

 

 

$

2,012,333

 

 

$

 

Definite-lived trademarks

 

10-15

 

 

19,634

 

 

 

11,809

 

 

 

19,629

 

 

 

10,985

 

Non-compete agreements

 

2-15

 

 

940

 

 

 

627

 

 

 

940

 

 

 

450

 

Licensing contracts

 

1-9

 

 

25,173

 

 

 

22,493

 

 

 

24,323

 

 

 

21,249

 

 

 

 

 

$

2,219,461

 

 

$

34,929

 

 

$

2,057,225

 

 

$

32,684

 

Trademarks and other intangibles, net

 

 

 

 

 

 

 

$

2,184,532

 

 

 

 

 

 

$

2,024,541

 

 

In March 2015, the Company acquired the 50% interest in Iconix China held by its joint venture partner, thereby increasing its ownership interest in Iconix China to 100%. As a result of this transaction, Iconix China is now consolidated with the Company, which increased the Company’s indefinite-lived trademarks by $40.5 million. See Note 3 for further details on this transaction.

In March 2015, the Company acquired the Strawberry Shortcake brand. As a result of this transaction the Company’s indefinite-lived trademarks and licensing contracts increased by an aggregate $91.8 million. See Note 3 for further details on this transaction.

In February 2015, the Company acquired through its wholly-owned subsidiary, US Pony Holdings, LLC, the rights to the Pony brand in respect of the United States, Canada and Mexico. Immediately following such acquisition, a third party contributed specified assets to US Pony Holdings, LLC in exchange for a 25% non-controlling interest in the entity. As a result of these transactions, US Pony Holdings, LLC is consolidated with the Company, which increased the Company’s indefinite-lived trademarks and licensing contracts by $47.0 million. See Note 3 for further details on this transaction.

Amortization expense for intangible assets for the Current Quarter and for the three months ended September 30, 2014 (the “Prior Year Quarter”) was $0.7 million and $0.9 million, respectively.  Amortization expense for intangible assets for the Current Nine Months and for the nine months ended September 30, 2014 (the “Prior Year Nine Months”) was $2.4 million and $3.4 million, respectively.

The trademarks of Candie’s, Bongo, Joe Boxer, Rampage, Mudd, London Fog, Mossimo, Ocean Pacific, Danskin, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma, Starter, Waverly, Ecko, Zoo York, Peanuts, Ed Hardy, Sharper Image, Umbro, Modern Amusement, Buffalo, Lee Cooper, Hydraulic, Nicholas Graham, Strawberry Shortcake and Pony have been determined to have an indefinite useful life and accordingly no amortization has been recorded in the Company’s unaudited condensed consolidated income statements. Instead, each of these intangible assets are tested for impairment annually and, as needed, on an individual basis as separate single units of accounting, with any related impairment charge recorded to the statement of income at the time of determining such impairment. The annual evaluation of the Company’s indefinite-lived trademarks is performed as of October 1, the beginning of the Company’s fourth fiscal quarter. There was no impairment of the indefinite-lived trademarks during the Current Quarter, Current

8


 

Nine Months, Prior Year Quarter or Prior Year Nine Months. Further, as it relates to the Company’s definite-lived trademarks, there was no impairment of the definite-lived trademarks during the Current Quarter, Current Nine Months, Prior Year Quarter and Prior Year Nine Months.

 

Based on the Company’s budgeting process for the year ending December 31, 2016, which was completed in the fourth quarter of 2015, the Company believes that certain intangible assets related to the men’s segment may be impaired. The Company will complete its annual impairment testing during the fourth quarter of the year ending December 31, 2015.

 

 

3. Acquisitions, Joint Ventures and Investments

Consolidated Entities

The following entities and joint ventures are consolidated with the Company:

Iconix China

In September 2008, the Company and Novel Fashions Brands Limited (“Novel”) formed a joint venture (“Iconix China”) to develop and market the Company’s brands in the People’s Republic of China, Hong Kong, Macau and Taiwan (the “China Territory”). Pursuant to the terms of this transaction, the Company contributed to Iconix China substantially all rights to its brands in the China Territory and committed to contribute $5.0 million, and Novel committed to contribute $20 million, to Iconix China. Upon closing of the transaction, the Company contributed $2.0 million and Novel contributed $8.0 million. In September 2009, the parties amended the terms of the transaction to eliminate the obligation of the Company to make any additional contributions and to reduce Novel’s remaining contribution commitment to $9.0 million, $4.0 million of which was contributed in July 2010, $3.0 million of which was contributed in May 2011, and $2.0 million of which was contributed in June 2012.

In March 2015, the Company purchased from Novel its 50% interest in Iconix China for $57.4 million, of which $40.4 million was paid in cash, $15.7 million was paid in the Company’s common stock, and $1.3 million was an amount due the Company from Iconix China that was offset against the Company’s accounts receivable (the “2015 Buy-out”), thereby taking 100% of the equity interest in Iconix China. The following is a reconciliation of consideration paid to Novel:

 

Cash paid to Novel

 

$

40,400

 

Shares issued to Novel

 

 

15,703

 

Offset of accounts receivable

 

 

1,269

 

Fair value of 50% interest in Iconix China

 

$

57,372

 

 

As a result of the 2015 Buy-out, Iconix China is subject to consolidation and is included in the Company’s unaudited condensed consolidated financial statements as of September 30, 2015.

The estimated fair value of the assets acquired, less liabilities assumed (which is preliminary and subject to change), is allocated as follows:

 

Fair value of 50% interest in Iconix China

 

$

57,372

 

Book value of Company equity investment prior to 2015

   Buy-out

 

 

10,006

 

Gain on re-measurement of initial equity investment

 

 

47,365

 

 

 

$

114,743

 

Trademarks

 

 

40,500

 

Investments in private companies

 

 

42,659

 

Cash

 

 

20,184

 

Other assets

 

 

5,997

 

Accrued expenses

 

 

(447

)

Goodwill

 

 

5,850

 

 

 

$

114,743

 

 

Other assets consist primarily of securities of a company publicly traded on the Hong Kong Stock Exchange.

The Iconix China trademarks have been determined by management to have an indefinite useful life and accordingly no amortization is being recorded in the Company’s unaudited condensed consolidated income statements. The goodwill and trademarks are subject to

9


 

a test for impairment on an annual basis. The $5.9 million of goodwill resulting from the 2015 Buy-out is deductible for income tax purposes.

For the Current Quarter and Current Nine Months, post-acquisition, the Company recognized approximately $0.3 million and $0.3 million, respectively, in revenue from such assets. In addition, the Company’s selling, general and administrative expenses increased by $0.6 million and $1.2 million for the Current Quarter and Current Nine Months, respectively, and other income increased by $0.6 million for the Current Nine Months as a result of consolidating Iconix China on the Company’s unaudited condensed consolidated income statement.

As part of this transaction, the Company also acquired, through its ownership of 100% of Iconix China, equity interests in the following private companies with an aggregate fair value of approximately $42.7 million: Candies Shanghai Fashion Co. Ltd. (which can be put by Iconix China to Shanghai La Chappelle Fashion Co., Ltd. for cash based on a pre-determined formula); Mark Ecko China Ltd.; Ningbo Material Girl Fashion Co., Ltd.; Tangli International Holdings Ltd.; Ecko Industry (Shanghai) Co., Ltd; and Joe Boxer China Ltd. See section entitled “Investments in Iconix China” for further detail on such investments.

Strawberry Shortcake

In March 2015, the Company completed its acquisition from American Greetings Corporation and its wholly-owned subsidiary, Those Characters From Cleveland, Inc. (collectively, “AG” or the “Seller”), of all of AG’s intellectual property rights and licenses and certain other related assets relating to the Strawberry Shortcake brand pursuant to an asset purchase agreement entered into in February 2015.

In accordance with the terms of the asset purchase agreement, the Company paid the Seller $105.0 million in cash at closing.

The cash paid to the Seller and the estimated fair value of the assets acquired (which is preliminary and subject to change), is allocated as follows:

 

Cash paid to AG by the Company

 

$

105,000

 

Trademarks

 

$

91,007

 

License agreements

 

 

800

 

Note receivable

 

 

9,470

 

Accounts receivable

 

 

3,223

 

Goodwill

 

 

500

 

 

 

$

105,000

 

 

The note receivable represents amounts due from AG in respect of non-compete payments pursuant to a license agreement entered into with AG simultaneously with the closing of the transaction. The note is in the principal amount of $10.0 million and is paid in equal quarterly installments over a two year period.

For the Current Quarter and Current Nine Months, post-acquisition, the Company recognized approximately $2.6 million and $6.1 million, respectively, in revenue from such assets. The $0.5 million of goodwill resulting from the 2015 acquisition is deductible for income tax purposes.

PONY

In February 2015, the Company, through its then newly-formed subsidiary, US Pony Holdings, LLC, (“Pony Holdings”) acquired the North American rights to the PONY brand. These rights include the rights in the US obtained from Pony, Inc. and Pony International, LLC (collectively, “US Pony Seller”), and the rights in Mexico and Canada obtained from Super Jumbo Holdings Limited (“Non-US Pony Seller” and, together with US Pony Seller, the “Pony Sellers”). The purchase price paid by the Company was $37.0 million. Pony Holdings is owned 75% by the Company and 25% by its partner Anthony L&S Athletics, LLC (“ALS”). ALS contributed to Pony Holdings its perpetual license agreement in respect of the U.S. and Canadian territories for a 25% interest in Pony Holdings. Additionally, the Company received an option to purchase, until February 28, 2015, from the Pony Sellers and their affiliates certain intellectual property-related assets and trademarks related to the Pony brand in Europe, the Middle East and Africa and was assigned by ALS the right to purchase from Pony Sellers and their affiliates certain intellectual property-related assets and trademarks related to the Pony brand in Latin America, which expired May 1, 2015. The Company did not exercise either of such rights.

10


 

The following table is a reconciliation of cash paid to Pony Sellers and the fair value of ALS’s non-controlling interest (which is preliminary and subject to change):

 

Cash paid to Pony Sellers

 

$

37,000

 

Fair value of 25% non-controlling interest to ALS

 

 

12,333

 

Fair value of PONY

 

$

49,333

 

 

The estimated fair value of the assets acquired is allocated as follows:

 

Trademarks

 

$

46,750