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 June 30, 2016
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 |
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x |
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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- 56,126,593 shares as of August 4, 2016.
Item 1. Financial Statements
Iconix Brand Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except par value)
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||
|
|
|
(unaudited) |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
129,998 |
|
|
$ |
169,971 |
|
|
Restricted cash |
|
|
84,807 |
|
|
|
49,544 |
|
|
Accounts receivable, net |
|
|
95,842 |
|
|
|
103,792 |
|
|
Other assets – current |
|
|
41,854 |
|
|
|
44,116 |
|
|
Total Current Assets |
|
|
352,501 |
|
|
|
367,423 |
|
|
Property and equipment: |
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment |
|
|
24,837 |
|
|
|
24,138 |
|
|
Less: Accumulated depreciation |
|
|
(17,434 |
) |
|
|
(16,639 |
) |
|
|
|
|
7,403 |
|
|
|
7,499 |
|
|
Other Assets: |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
23,258 |
|
|
|
28,748 |
|
|
Trademarks and other intangibles, net |
|
|
1,698,190 |
|
|
|
1,696,524 |
|
|
Investments and joint ventures |
|
|
128,034 |
|
|
|
147,312 |
|
|
Goodwill |
|
|
257,095 |
|
|
|
257,095 |
|
|
|
|
|
2,106,577 |
|
|
|
2,129,679 |
|
|
Total Assets |
|
$ |
2,466,481 |
|
|
$ |
2,504,601 |
|
|
Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
50,098 |
|
|
$ |
52,062 |
|
|
Deferred revenue |
|
|
22,106 |
|
|
|
29,161 |
|
|
Current portion of long-term debt |
|
|
76,123 |
|
|
|
61,123 |
|
|
Other liabilities – current |
|
|
1,641 |
|
|
|
3,571 |
|
|
Total Current Liabilities |
|
|
149,968 |
|
|
|
145,917 |
|
|
Deferred income tax liability |
|
|
193,324 |
|
|
|
181,193 |
|
|
Other tax liabilities |
|
|
5,055 |
|
|
|
4,865 |
|
|
Long-term debt, less current maturities |
|
|
1,275,139 |
|
|
|
1,388,269 |
|
|
Other liabilities |
|
|
18,604 |
|
|
|
19,550 |
|
|
Total Liabilities |
|
|
1,642,090 |
|
|
|
1,739,794 |
|
|
Redeemable Non-Controlling Interest, net of installment payments due from non-controlling interest holders, redemption value of $88,692 and $86,191, respectively |
|
|
76,621 |
|
|
|
69,902 |
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value shares authorized 150,000; shares issued 84,323 and 80,609, respectively |
|
|
84 |
|
|
|
80 |
|
|
Additional paid-in capital |
|
|
1,000,552 |
|
|
|
974,264 |
|
|
Retained earnings |
|
|
542,456 |
|
|
|
514,761 |
|
|
Accumulated other comprehensive loss |
|
|
(58,164 |
) |
|
|
(60,893 |
) |
|
Less: Treasury stock – 32,093 and 32,028 shares at cost, respectively |
|
|
(837,719 |
) |
|
|
(837,179 |
) |
|
Total Iconix Brand Group, Inc. Stockholders’ Equity |
|
|
647,209 |
|
|
|
591,033 |
|
|
Non-Controlling Interest, net of installment payments due from non-controlling interest holders |
|
|
100,561 |
|
|
|
103,872 |
|
|
Total Stockholders’ Equity |
|
|
747,770 |
|
|
|
694,905 |
|
|
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity |
|
$ |
2,466,481 |
|
|
$ |
2,504,601 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
2
Iconix Brand Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
(in thousands, except earnings per share data)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
Licensing revenue |
|
$ |
95,743 |
|
|
$ |
97,398 |
|
|
$ |
190,375 |
|
|
$ |
193,212 |
|
|
Selling, general and administrative expenses |
|
|
47,138 |
|
|
|
45,841 |
|
|
|
98,627 |
|
|
|
85,529 |
|
|
Depreciation and amortization |
|
|
1,032 |
|
|
|
1,196 |
|
|
|
2,129 |
|
|
|
2,533 |
|
|
Equity earnings on joint ventures |
|
|
(1,363 |
) |
|
|
(1,463 |
) |
|
|
(2,556 |
) |
|
|
(2,650 |
) |
|
(Gains) / losses on sale of trademarks |
|
|
1,125 |
|
|
|
— |
|
|
|
(9,844 |
) |
|
|
— |
|
|
Operating income |
|
|
47,811 |
|
|
|
51,824 |
|
|
|
102,019 |
|
|
|
107,800 |
|
|
Other expenses (income): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
28,382 |
|
|
|
21,401 |
|
|
|
49,600 |
|
|
|
42,697 |
|
|
Interest income |
|
|
(369 |
) |
|
|
(1,189 |
) |
|
|
(906 |
) |
|
|
(2,155 |
) |
|
Other income |
|
|
(9 |
) |
|
|
(790 |
) |
|
|
(16 |
) |
|
|
(50,780 |
) |
|
Gain on extinguishment of debt, net |
|
|
(4,288 |
) |
|
|
— |
|
|
|
(4,288 |
) |
|
|
— |
|
|
Foreign currency translation loss (gain) |
|
|
(671 |
) |
|
|
1,913 |
|
|
|
(864 |
) |
|
|
(8,769 |
) |
|
Other expenses (income) – net |
|
|
23,045 |
|
|
|
21,335 |
|
|
|
43,526 |
|
|
|
(19,007 |
) |
|
Income before income taxes |
|
|
24,766 |
|
|
|
30,489 |
|
|
|
58,493 |
|
|
|
126,807 |
|
|
Provision for income taxes |
|
|
7,692 |
|
|
|
11,536 |
|
|
|
18,301 |
|
|
|
38,807 |
|
|
Net income |
|
|
17,074 |
|
|
|
18,953 |
|
|
|
40,192 |
|
|
|
88,000 |
|
|
Less: Net income attributable to non-controlling interest |
|
|
5,492 |
|
|
|
5,215 |
|
|
|
9,997 |
|
|
|
8,902 |
|
|
Net income attributable to Iconix Brand Group, Inc. |
|
$ |
11,582 |
|
|
$ |
13,738 |
|
|
$ |
30,195 |
|
|
$ |
79,098 |
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
0.28 |
|
|
$ |
0.62 |
|
|
$ |
1.64 |
|
|
Diluted |
|
$ |
0.23 |
|
|
$ |
0.28 |
|
|
$ |
0.60 |
|
|
$ |
1.56 |
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
49,035 |
|
|
|
48,243 |
|
|
|
48,772 |
|
|
|
48,201 |
|
|
Diluted |
|
|
50,675 |
|
|
|
49,595 |
|
|
|
50,501 |
|
|
|
50,752 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
Iconix Brand Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Income
(in thousands)
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
||||
|
Net income |
|
$ |
17,074 |
|
|
$ |
18,953 |
|
|
$ |
40,192 |
|
|
$ |
88,000 |
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
(7,526 |
) |
|
|
7,116 |
|
|
|
4,956 |
|
|
|
(30,610 |
) |
|
Change in fair value of available for sale securities |
|
|
(249 |
) |
|
|
299 |
|
|
|
(2,227 |
) |
|
|
299 |
|
|
Total other comprehensive income (loss) |
|
|
(7,775 |
) |
|
|
7,415 |
|
|
|
2,729 |
|
|
|
(30,311 |
) |
|
Comprehensive income |
|
$ |
9,299 |
|
|
$ |
26,368 |
|
|
$ |
42,921 |
|
|
$ |
57,689 |
|
|
Less: comprehensive income attributable to non-controlling interest |
|
|
5,492 |
|
|
|
5,215 |
|
|
|
9,997 |
|
|
|
8,902 |
|
|
Comprehensive income attributable to Iconix Brand Group, Inc. |
|
$ |
3,807 |
|
|
$ |
21,153 |
|
|
$ |
32,924 |
|
|
$ |
48,787 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
Iconix Brand Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statement of Stockholders’ Equity
Six Months Ended June 30, 2016
(in thousands)
|
|
|
Common Stock |
|
|
Additional Paid- |
|
|
Retained |
|
|
Accumulated Other Comprehensive |
|
|
Treasury |
|
|
Non-Controlling |
|
|
|
|
|
||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
In Capital |
|
|
Earnings |
|
|
Loss |
|
|
Stock |
|
|
Interest |
|
|
Total |
|
||||||||
|
Balance at January 1, 2016 |
|
|
80,609 |
|
|
$ |
80 |
|
|
$ |
974,264 |
|
|
$ |
514,761 |
|
|
$ |
(60,893 |
) |
|
$ |
(837,179 |
) |
|
$ |
103,872 |
|
|
$ |
694,905 |
|
|
Shares issued on vesting of restricted stock |
|
|
247 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
Shares repurchased on vesting of restricted stock and exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(540 |
) |
|
|
— |
|
|
|
(540 |
) |
|
Tax deficiency of stock option exercises and restricted stock vestings |
|
|
— |
|
|
|
— |
|
|
|
(1,596 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,596 |
) |
|
Compensation expense in connection with restricted stock and stock options |
|
|
— |
|
|
|
— |
|
|
|
3,489 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,489 |
|
|
Payments from non-controlling interest holders, net of imputed interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
336 |
|
|
|
336 |
|
|
Change in redemption value of redeemable non-controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,500 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,500 |
) |
|
Change in fair value of available for sale securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,227 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,227 |
) |
|
Shares issued on repurchase of convertible notes |
|
|
3,467 |
|
|
|
3 |
|
|
|
24,320 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24,323 |
|
|
Repurchase of equity portion of convertible notes |
|
|
— |
|
|
|
— |
|
|
|
(147 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(147 |
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,195 |
|
|
|
— |
|
|
|
— |
|
|
|
9,997 |
|
|
|
40,192 |
|
|
Tax effect of repurchase of convertible notes |
|
|
— |
|
|
|
— |
|
|
|
52 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52 |
|
|
Tax benefit related to amortization of convertible notes' discount |
|
|
— |
|
|
|
— |
|
|
|
170 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
170 |
|
|
Foreign currency translation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,956 |
|
|
|
— |
|
|
|
— |
|
|
|
4,956 |
|
|
Distributions to joint ventures |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13,644 |
) |
|
|
(13,644 |
) |
|
Balance at June 30, 2016 |
|
|
84,323 |
|
|
$ |
84 |
|
|
$ |
1,000,552 |
|
|
$ |
542,456 |
|
|
$ |
(58,164 |
) |
|
$ |
(837,719 |
) |
|
$ |
100,561 |
|
|
$ |
747,770 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
Iconix Brand Group, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
40,192 |
|
|
$ |
88,000 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment |
|
|
834 |
|
|
|
809 |
|
|
Amortization of trademarks and other intangibles |
|
|
1,295 |
|
|
|
1,724 |
|
|
Amortization of deferred financing costs and debt discount |
|
|
2,881 |
|
|
|
2,459 |
|
|
Amortization of convertible note discount |
|
|
15,498 |
|
|
|
15,069 |
|
|
Stock-based compensation expense |
|
|
3,489 |
|
|
|
5,888 |
|
|
Non-cash gain on re-measurement of equity investment |
|
|
— |
|
|
|
(49,990 |
) |
|
Provision for doubtful accounts |
|
|
8,770 |
|
|
|
3,918 |
|
|
Earnings on equity investments in joint ventures |
|
|
(2,556 |
) |
|
|
(2,650 |
) |
|
Distributions from equity investments |
|
|
1,680 |
|
|
|
1,333 |
|
|
Gain on sale of trademarks, net |
|
|
(9,844 |
) |
|
|
— |
|
|
Gain on extinguishment of debt |
|
|
(4,288 |
) |
|
|
— |
|
|
Deferred income tax provision |
|
|
11,122 |
|
|
|
21,403 |
|
|
Gain on foreign currency translation |
|
|
(864 |
) |
|
|
(8,769 |
) |
|
Changes in operating assets and liabilities, net of business acquisitions: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(362 |
) |
|
|
(14,713 |
) |
|
Other assets – current |
|
|
(10,635 |
) |
|
|
16,746 |
|
|
Other assets |
|
|
5,712 |
|
|
|
1,569 |
|
|
Deferred revenue |
|
|
(7,109 |
) |
|
|
4,741 |
|
|
Accounts payable and accrued expenses |
|
|
2,870 |
|
|
|
7,727 |
|
|
Net cash provided by operating activities |
|
|
58,685 |
|
|
|
95,264 |
|
|
Cash flows (used in) provided by investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(750 |
) |
|
|
(802 |
) |
|
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 |
|
|
— |
|
|
|
(95,000 |
) |
|
Acquisition of interest in Galore Media |
|
|
(500 |
) |
|
|
— |
|
|
Issuance of note to American Greetings |
|
|
— |
|
|
|
(10,000 |
) |
|
Proceeds received from note due from American Greetings |
|
|
2,500 |
|
|
|
1,250 |
|
|
Proceeds received from note due from Buffalo International |
|
|
4,100 |
|
|
|
4,986 |
|
|
Proceeds from sale of BBC Ice Cream |
|
|
3,500 |
|
|
|
— |
|
|
Proceeds from sale of Badgley Mischka |
|
|
14,000 |
|
|
|
— |
|
|
Proceeds from sale of interest in TangLi International Holding Ltd. |
|
|
11,352 |
|
|
|
— |
|
|
Proceeds from sale of interest in Mecox Lane Limited |
|
|
363 |
|
|
|
— |
|
|
Proceeds from sale of trademarks and related notes receivable |
|
|
1,172 |
|
|
|
3,030 |
|
|
Proceeds from sale of fixed assets |
|
|
— |
|
|
|
225 |
|
|
Additions to trademarks |
|
|
(199 |
) |
|
|
(108 |
) |
|
Net cash (used in) provided by investing activities |
|
|
35,538 |
|
|
|
(153,819 |
) |
|
Cash flows (used in) provided by financing activities: |
|
|
|
|
|
|
|
|
|
Shares repurchased on the open market |
|
|
— |
|
|
|
(12,391 |
) |
|
Proceeds from Variable Funding Notes |
|
|
— |
|
|
|
100,000 |
|
|
Prepaid financing costs |
|
|
(35,754 |
) |
|
|
— |
|
|
Proceeds from long term debt |
|
|
300,000 |
|
|
|
— |
|
|
Payment of long-term debt |
|
|
(190,397 |
) |
|
|
(30,562 |
) |
|
Repurchase of convertible notes |
|
|
(161,132 |
) |
|
|
— |
|
|
Payment to Purim |
|
|
(2,000 |
) |
|
|
(2,000 |
) |
|
Proceeds from sale of trademarks and related notes receivable from consolidated JVs |
|
|
4,770 |
|
|
|
10,317 |
|
|
Distributions to non-controlling interests |
|
|
(13,644 |
) |
|
|
(9,016 |
) |
|
Tax deficiency from share-based payment arrangements |
|
|
(1,596 |
) |
|
|
— |
|
|
Tax benefit related to amortization of convertible notes' discount |
|
|
170 |
|
|
|
54 |
|
|
Cost of shares repurchased on vesting of restricted stock and exercise of stock options |
|
|
(540 |
) |
|
|
(3,156 |
) |
|
Restricted cash |
|
|
(35,263 |
) |
|
|
(5,363 |
) |
|
Net cash provided by (used in) financing activities |
|
|
(135,386 |
) |
|
|
47,883 |
|
|
Effect of exchange rate changes on cash |
|
|
1,190 |
|
|
|
576 |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(39,973 |
) |
|
|
(10,096 |
) |
|
Cash and cash equivalents, beginning of period |
|
|
169,971 |
|
|
|
128,039 |
|
|
Cash and cash equivalents, end of period |
|
$ |
129,998 |
|
|
$ |
117,943 |
|
6
Supplemental disclosure of cash flow information:
|
|
|
Six Months Ended June 30, |
|
|||||
|
|
|
2016 |
|
|
2015 |
|
||
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
|
Income taxes (net of refunds received) |
|
$ |
5,479 |
|
|
$ |
(6,284 |
) |
|
Interest |
|
$ |
31,911 |
|
|
$ |
23,736 |
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Issuance of shares in connection with repurchase of convertible notes |
|
$ |
24,324 |
|
|
$ |
— |
|
|
Issuance of shares in connection with purchase of Iconix China |
|
$ |
— |
|
|
$ |
15,703 |
|
|
Note receivable in connection with Strawberry Shortcake acquisition |
|
$ |
— |
|
|
$ |
8,370 |
|
|
Shares repurchased on vesting of restricted stock included in accrued expenses |
|
$ |
— |
|
|
$ |
11,436 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
7
Iconix Brand Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2016
(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 six months (“Current Six Months”) ended June 30, 2016 are not necessarily indicative of the results that may be expected for a full fiscal year. The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2015, as amended.
During the Current Six Months, the Company adopted five new accounting pronouncements. Refer to Note 16 for further details.
Certain reclassifications, which were immaterial, have been made to conform prior year data to the current presentation.
Summary of Significant Accounting Policies
Non-controlling Interests / Redeemable Non-controlling Interests
Certain of the Company’s consolidated joint ventures have put options which, if exercised by the Company’s joint venture partner, would require the Company to purchase all or a portion of the joint venture partner’s equity interest in the joint venture. The Company has determined that these put options are not derivatives under the guidelines prescribed in Accounting Standards Codification (“ASC”) 815. As such, and in accordance with ASC 480-10-S99, as the potential exercise of the put options is outside the control of the Company, the Company has recorded the portion of the non-controlling interest’s equity that may be put to the Company in mezzanine equity in the Company’s consolidated balance sheets as “redeemable non-controlling interest”. The initial value of the redeemable non-controlling interest represents the fair value of the put option at inception. This amount recorded at inception is accreted, over a period determined by when the put option becomes exercisable, to what the Company would be obligated to pay to the non-controlling interest holder if the put option was exercised. This accretion is recorded as a credit to redeemable non-controlling interest and a debit to retained earnings resulting in an impact to the consolidated balance sheet only. For each reporting period, the Company revisits the estimates used to determine the redemption value of the put option when it becomes exercisable and may adjust the remaining put option value and associated accretion accordingly through redeemable non-controlling interest and retained earnings, as necessary. The terms of each of the outstanding put options are included in the individual discussions of each joint venture, as applicable. For the Company’s consolidated joint ventures that do not have put options, the non-controlling interest is recorded within equity on the Company’s consolidated balance sheet.
The Company may enter into joint venture agreements with joint venture partners in which the Company allows the joint venture partner to pay a portion of the purchase price in cash at the time of the formation of the joint venture with the remaining cash consideration paid over a specified period of time following the closing of such transaction. The Company records the amounts due from such joint venture partners as (a) a reduction of Non-controlling Interests, net of installment payments, or (b) if installment payments result from the issuance of shares classified as mezzanine equity, as a reduction in Redeemable Non-controlling Interests, net of installment payments (i.e. mezzanine equity), as applicable, in the Company’s consolidated balance sheet accordance with ASC 505-10-45, “Classification of a Receivable from a Shareholder.” The Company accretes the present value discount on these installment payments through interest income on its consolidated statements of operations.
Refer to the Company’s 2015 Annual Report on Form 10-K filed with the SEC on March 30, 2016, as amended, for the Company’s other significant accounting policies.
SEC Comment Letter Process
As disclosed in our Form 10-K for the year ended December 31, 2015, the Company has been engaged in a comment letter process with the Staff of the U.S. Securities and Exchange Commission relating to an ongoing review of the Company’s Form 10-K for the year ended December 31, 2014. The Company has responded to the Staff with a Confirming Letter on the questions the Staff
8
raised, and remains in a dialogue with the SEC Staff relating to those and certain other comments related to the Company’s future disclosures.
2. Goodwill and Trademarks and Other Intangibles, net
Goodwill
There were no changes in goodwill during the Current Quarter. The annual evaluation of the Company’s goodwill, by segment, is performed as of October 1, the beginning of the Company’s fourth fiscal quarter. In connection with the preparation of the Company’s consolidated financial statements for the fourth quarter of fiscal year 2015, the Company recorded a non-cash goodwill impairment charge of $35.1 million in its men’s segment. No goodwill impairment was recognized for the other segments of the Company during the fourth quarter of fiscal 2015. There was no impairment of the Company’s goodwill during the Current Quarter, Current Six Months or for the three months (the “Prior Year Quarter”) or six months (the “Prior Year Six Months”) ended June 30, 2015.
Trademarks and Other Intangibles, net
Trademarks and other intangibles, net, consist of the following:
|
|
|
|
|
June 30, 2016 |
|
|
December 31, 2015 |
|
||||||||||
|
|
|
Estimated Lives in Years |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
||||
|
Indefinite-lived trademarks and copyrights |
|
Indefinite |
|
$ |
1,695,746 |
|
|
$ |
— |
|
|
$ |
1,691,411 |
|
|
$ |
— |
|
|
Definite-lived trademarks |
|
10-15 |
|
|
9,843 |
|
|
|
9,226 |
|
|
|
14,626 |
|
|
|
12,082 |
|
|
Non-compete agreements |
|
2-15 |
|
|
940 |
|
|
|
803 |
|
|
|
940 |
|
|
|
686 |
|
|
Licensing contracts |
|
1-9 |
|
|
4,856 |
|
|
|
3,166 |
|
|
|
4,844 |
|
|
|
2,529 |
|
|
|
|
|
|
$ |
1,711,385 |
|
|
$ |
13,195 |
|
|
$ |
1,711,821 |
|
|
$ |
15,297 |
|
|
Trademarks and other intangibles, net |
|
|
|
|
|
|
|
$ |
1,698,190 |
|
|
|
|
|
|
$ |
1,696,524 |
|
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, Nick Graham, Strawberry Shortcake and Pony have been determined to have an indefinite useful life. 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 operations 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.
In connection with the preparation of the Company’s financial statements for the fourth quarter of fiscal year 2015 and in accordance with ASC 350, the Company recorded non-cash impairment charges for indefinite-lived intangible assets (consisting of trademarks) of $362 million and $40 million in the men’s segment and home segment, respectively. There was no impairment of the indefinite-lived trademarks during the Current Quarter, Prior Year Quarter, Current Six Months or Prior Year Six Months. Further, in accordance with ASC 360, there were no impairment charges to the Company’s definite-lived trademarks during the Current Quarter, Current Six Months, Prior Year Quarter or Prior Year Six Months.
In June 2016, the Company sold the rights to the London Fog intellectual property in the South Korea territory. As a result of this transaction, the Company’s indefinite-lived trademarks decreased by $0.4 million. Refer to Note 4 for further details.
In February 2016, the Company sold its rights to the Badgley Mischka intellectual property and related assets. At the time of this transaction, the definite-lived trademarks for Badgley Mischka were fully amortized in the Company’s consolidated balance sheet. Refer to Note 4 for further details.
Other amortizable intangibles primarily include non-compete agreements and contracts and are amortized on a straight-line basis over their estimated useful lives of 1 to 15 years. Certain trademarks are amortized using estimated useful lives of 10 to 15 years with no residual values.
Amortization expense for intangible assets for the Current Quarter and the Prior Year Quarter was $0.6 million and $0.8 million, respectively. Amortization expense for intangible assets for the Current Six Months and Prior Year Six Months was $1.3 million and $1.7 million, respectively.
9
3. Acquisitions, Joint Ventures and Investments
Acquisitions
The following recent acquisitions are wholly owned subsidiaries of the Company:
|
Entity Name |
|
Date of Original Formation / Investment |
|
|
Iconix China Holdings Limited(1)(2) |
|
September 2008 |
|
|
Shortcake IP Holdings, LLC |
|
March 2015 |
|
|
Scion, LLC(2) |
|
March 2009 |
|
|
(1) |
Through our ownership of Iconix China Holdings Limited, we have equity interests in the following private companies which are accounted for as equity method investments: |
|
Brands Placed |
|
Partner |
|
Ownership by Iconix China |
|
|
Value of Investment As of June 30, 2016 |
|
||
|
Candie’s |
|
Candies Shanghai Fashion Co. Ltd. |
|
|
20% |
|
|
$ |
10,855 |
|
|
Marc Ecko |
|
Shanghai MuXiang Apparel & Accessory Co. Limited |
|
|
15% |
|
|
|
2,284 |
|
|
Royal Velvet |
|
Bai Shi Kou International (Qingdao) Home Products Co. Ltd. |
|
|
20% |
|
|
|
383 |
|
|
Material Girl |
|
Ningo Material Girl Fashion Co. Ltd. |
|
|
20% |
|
|
|
3,398 |
|
|
Ecko Unltd |
|
Ai Xi Enterprise (Shanghai) Co. Limited |
|
|
20% |
|
|
|
11,080 |
|
|
|
|
|
|
|
|
|
|
$ |
28,000 |
|
Additionally, as part of the Iconix China Holdings Limited acquisition, the Company acquired other assets which consist primarily of securities of a company publicly traded on the Hong Kong Stock Exchange. These assets are being accounted for as available-for-sale securities. As such, any increase or decrease in fair value is recorded within accumulated other comprehensive income and is not included on the Company’s consolidated statement of operations. Refer to Note 5 for further details.
|
(2) |
During the year ended December 31, 2015, the Company purchased the remaining 50% interest in the entity, effectively increasing the Company’s ownership interest to 100%. |
Joint Ventures
The following joint ventures are consolidated with the Company:
|
Entity Name |
|
Date of Original Formation / Investment |
|
Iconix's Ownership % |
|
|
Joint Venture Partner |
|
Put / Call Options, as applicable(2) |
|
||
|
US Pony Holdings, LLC |
|
February 2015 |
|
|
75% |
|
|
Anthony L&S Athletics, LLC |
|
|
— |
|
|
Iconix MENA Ltd.(1) |
|
December 2014 |
|
|
50% |
|
|
Global Brands Group |
|
Put / Call Options |
|
|
|
LC Partners US, LLC(1) |
|
March 2014 |
|
|
50% |
|
|
Rise Parnters, LLC |
|
Put Option |
|
|
|
Iconix Israel, LLC(1)(3) |
|
November 2013 |
|
|
50% |
|
|
MGS |
|
|||