5. Joint Ventures and Investments

Joint Ventures

As of September 30, 2018, the following joint ventures are consolidated with the Company:

Entity Name	Date of Original Formation / Investment	Iconix's Ownership % as of September 30, 2018	Joint Venture Partner	Put / Call Options, as applicable⁽²⁾
Lee Cooper China Limited⁽⁵⁾	June 2018	100%	POS Lee Cooper HK Co. Ltd.		—
Starter China Limited⁽⁴⁾	March 2018	100%	Photosynthesis Holdings Co. Ltd.		—
Danskin China Limited	October 2016	100%	Li-Ning (China) Sports Goods Co. Ltd.		—
Umbro China Limited	July 2016	95%	Hong Kong MH Umbro International Co. Ltd.	Call Options
US Pony Holdings, LLC	February 2015	75%	Anthony L&S Athletics, LLC		—
Iconix MENA Ltd.⁽¹⁾	December 2014	55%	Global Brands Group Asia Limited	Put / Call Options
Iconix Israel, LLC⁽¹⁾	November 2013	50%	MGS		—
Iconix Europe LLC⁽¹⁾	December 2009	51%	Global Brands Group Asia Limited	Put / Call Options
Iconix Australia⁽⁶⁾	September 2013	55%	Pac Brands USA, Inc.	Put / Call Options
Hydraulic IP Holdings LLC⁽¹⁾	December 2014	100%⁽³⁾	Top On International		—
Diamond Icon⁽¹⁾	March 2013	51%	Albion Agencies Ltd.
Buffalo brand joint venture⁽¹⁾	February 2013	51%	Buffalo International		—
Icon Modern Amusement, LLC⁽¹⁾	December 2012	51%	Dirty Bird Productions		—
Hardy Way, LLC	May 2009	85%	Donald Edward Hardy		—

⁽¹⁾

The Company determined, in accordance with ASC 810, based on the corporate structure, voting rights and contributions of the Company and its respective joint venture partner, the entity is a variable interest entity (VIE) and, as the Company has been determined to be the primary beneficiary, is subject to consolidation. The Company has consolidated this joint venture within its consolidated financial statements since inception. The liabilities of the VIE are not material and none of the VIE assets are encumbered by any obligation of the VIE or other entity.

⁽²⁾	Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 for material terms of the put and call options associated with certain of the Company’s joint ventures.

⁽³⁾

In April 2018, pursuant to a letter agreement entered into simultaneously with the Company’s acquisition of a 51% equity interest in Hydraulic, the Company acquired the remaining 49% ownership interest from its joint venture partner for no cash consideration as a result of an affiliate of the joint venture partner not making its minimum guaranteed royalty payment obligations to the Company in accordance with the respective license agreement. This transaction resulted in the Company effectively increasing its ownership interest in Hydraulic to 100%. The Company will retain 100% ownership interest in Hydraulic unless the affiliate of such joint venture partner satisfies its outstanding payment obligations by making all payments of the minimum guaranteed royalties to the Company under the terminated license agreement.

⁽⁴⁾

In March 2018, the Company entered into an agreement with Photosynthesis Holdings, Co. Ltd. (“PHL”) to sell up to no less than a 50% interest and up to a total of 60% interest in its wholly-owned indirect subsidiary, Starter China Limited, a newly registered Hong Kong subsidiary of Iconix China (“Starter China”), and which will hold the Starter trademarks and related assets in respect of the Greater China territory. PHL’s purchase of the initial 50% equity interest in Starter China is expected to occur over a three-year period commencing on January 15, 2020 for cash consideration of $20.0 million. The additional 10% equity interest (for a total equity interest of 60% interest) purchase right of PHL is expected to occur over a three-year period commencing January 16, 2022 for cash consideration equal to the greater of $2.7 million or 2.5 times the royalty received under the respective license agreement in the previous twelve months based on other terms and conditions specified in the share purchase agreement.

⁽⁵⁾

In June 2018, the Company entered into an agreement with POS Lee Cooper HK Co. Ltd. (“PLC”) to sell up to no less than a 50% interest and up to a total of 60% interest in its wholly-owned indirect subsidiary, Lee Cooper China Limited, a newly registered Hong Kong subsidiary of Iconix China (“Lee Cooper China”), and which will hold the Lee Cooper trademarks and related assets in respect of the Greater China territory. PLC’s purchase of the initial 50% equity interest in Lee Cooper China is expected to occur over a four-year period commencing on October 15, 2020 for cash consideration of approximately $8.2 million. The additional 10% equity interest (for a total equity interest of 60% interest) purchase right of PLC is expected to occur over a two-year period commencing January 15, 2024 for cash consideration equal to the greater of $2.5 million or 2.5 times the royalty received under the respective license agreement in the previous twelve months based on other terms and conditions specified in the share purchase agreement.

⁽⁶⁾

In July 2018, the Company entered into the Third Amended and Restated Shareholders Agreement (“the Amended Agreement”) for Iconix Australia in which the Company purchased an additional 5% ownership interest in Iconix Australia from Brand Collective (USA), Inc. (“BrandCo”) for $0.7 million in cash. As a result of this transaction, the Company’s ownership interest in Iconix Australia effectively increased to 55% and reduced BrandCo’s ownership interest in Iconix Australia to 45%. The Amended Agreement also resulted in a change in rights, duties and obligations of the Company and BrandCo in their capacity as joint venture partners in respects of the Iconix Australia joint venture. Additionally, as a result of this transaction and in accordance with ASC 810, based on the corporate structure, voting rights and contributions of the Company and BrandCo, Iconix Australia has been determined to be a VIE, and thus is subject to consolidation and included in the Company’s condensed consolidated financial statements as of July 2018.

The estimated fair value of the assets acquired, less liabilities assumed, is allocated as follows:

Fair value of 50% interest in Iconix Australia	$	6,507
Book value of Company equity investment prior to purchase of additional 5% interest		(1,904	)
Gain on re-measurement of initial equity investment		8,410
	$	13,013
Trademarks		12,349
Cash		44
Accounts receivable		360
Intercompany receivables, net		368
Accounts payable and accrued expenses		(85	)
Deferred revenue		(52	)
Goodwill		29
	$	13,013

The Iconix Australia trademarks have been determined by management to have an indefinite useful life and accordingly, no amortization is being recorded in the Company’s condensed consolidated statement of operations. The goodwill and trademarks are subject to a test for impairment on an annual basis. Additionally, as a result of the acquisition, the Company recognized a $5.9 million non-controlling interest associated with BrandCo’s 45% ownership interest in the Iconix Australia joint venture on the date of consolidation. Given the put option associated with the joint venture, the Company has recorded the non-controlling interest in Redeemable Non-controlling interest on the Company’s condensed consolidated balance sheet.

For both the Current Quarter and Current Nine Months, post-acquisition, the Company recognized approximately $0.4 million, in revenue from such assets. In addition, the Company’s selling, general and administrative expenses increased by less than $0.1 million for both the Current Quarter and Current Nine Months, and net income attributable to non-controlling interest increased by $0.2 million for both the Current Quarter and Current Nine Months as a result of consolidating Iconix Australia on the Company’s condensed consolidated statement of operations.

Additionally, pursuant to the Amended Agreement, the specified put and call rights held by BrandCo and the Company, respectively, relating to BrandCo’s owernship interest in the joint venture, were amended and restated as follows:

Two-Year Put/Call Option: At any time from December 20, 2020, BrandCo may deliver a put notice to the Company and the Company may deliver a call notice to BrandCo, in each case, for the Company’s purchase of all units in the joint venture held by BrandCo. Upon the exercise of such put/call, the purchase price for BrandCo’s units in the joint venture will be an amount equal to (i) the percentage interest represented by BrandCo’s units, multiplied by (ii) 5, multiplied by (iii) RR, where RR is equal to:

A + (A x (100% + CAGR))

A = trailing 12 months royalty revenue; and

CAGR = 36 month compound annual rate

As part of the formation of certain joint ventures, the Company entered into arrangements whereby the joint venture partner paid for its investment in the joint venture entity through payment of a portion of the purchase price in cash at closing and the remainder due over a pre-determined period of time.

As of September 30, 2018, the following amounts due from such joint venture partners remain recorded on the Company’s consolidated balance sheet:

Entity		Joint Venture Partner		Amount				Recorded in
Iconix India joint venture		Reliance Brands Ltd.		$	1,000			Other Assets - Current

Investments

Equity Method Investments

Entity Name	Date of Original Formation / Investment	Partner	Put / Call Options, as applicable⁽³⁾
Iconix India joint venture⁽¹⁾	June 2012	Reliance Brands Ltd.		—
Iconix SE Asia, Ltd.⁽⁴⁾	October 2013	Global Brands Group Asia Limited	Put / Call Options
MG Icon⁽¹⁾	March 2010	Purim LLC		—
Galore Media, Inc.⁽¹⁾⁽²⁾	April 2016	Various minority interest holders		—

⁽¹⁾

The Company determined, in accordance with ASC 810, based on the corporate structure, voting rights and contributions of the Company and its respective joint venture partner, that the joint venture is not a VIE and not subject to consolidation. The Company has recorded its investment under the equity method of accounting since inception.

⁽²⁾

In September 2017, the Company entered into a stock repurchase agreement with Galore Media, Inc. (“Galore”) whereby the Company sold, and Galore agreed to repurchase, the Company’s 50,050 outstanding shares of Series A Preferred Stock of Galore for $0.5 million. Pursuant to the stock repurchase agreement, the Company received $0.3 million upon execution of the agreement and the remaining $0.2 million was received in December 2017. Additionally, pursuant to the stock repurchase agreement, the Company forfeited and surrendered the 46,067 shares of Series A Preferred Stock of Galore that were received in April 2016 upon the Company’s exercise of the initial warrant. All remaining warrants to purchase additional shares of Series A Preferred Stock of Galore were also forfeited as part of the stock repurchase arrangement. This transaction resulted in the Company’s ownership interest in Galore being reduced to zero.

⁽³⁾	Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 for material terms of the put and call options associated with the Company’s joint venture.

⁽⁴⁾

In the Prior Year Nine Months, the Company received the final purchase price installment payment due from its joint venture partner, in respect of such partner’s interest in the joint venture, which resulted in the Company no longer having a de facto agency relationship with the Iconix SE Asia, Ltd. joint venture partner. In accordance with ASC 810, the receipt of the final purchase price installment payment was considered a reconsideration event and although the joint venture remains a VIE, the Company is no longer the primary beneficiary. As a result, the Company deconsolidated the entity from its condensed consolidated balance sheet as of June 30, 2017 and recognized a pre-tax gain on deconsolidation of $3.8 million in its condensed consolidated statement of operations for the Prior Year Nine Months. Subsequent to the deconsolidation of the joint venture, Iconix SE Asia, Ltd. is being accounted as an equity-method investment with earnings from the investment being recorded in equity earnings from joint ventures in the Company’s condensed consolidated statement of operations.

Additionally, through its ownership of Iconix China Holdings Limited, the Company has equity interests in the following private companies which are accounted for as equity method investments:

		Ownership by	Value of Investment as of
Brands Placed	Partner	Iconix China	September 30, 2018		December 31, 2017
Candie’s	Candies Shanghai Fashion Co. Ltd.	20%	$	10,343	$	10,539
Marc Ecko	Shanghai MuXiang Apparel & Accessory Co. Limited	15%		2,270		2,270
Material Girl	Ningo Material Girl Fashion Co. Ltd.	20%		2,129		2,217
Ecko Unltd	Ai Xi Enterprise (Shanghai) Co. Limited	20%		10,568		10,542
			$	25,310	$	25,568

Other Equity Investments

Entity Name		Date of Original Formation / Investment
China Outfitters Holdings Ltd.⁽³⁾		September 2008
Marcy Media Holdings, LLC⁽¹⁾		July 2013
Complex Media⁽¹⁾⁽²⁾		September 2013
iBrands International, LLC⁽¹⁾		April 2014

⁽¹⁾

Historically, given that the Company does not have significant influence over the entity, its investment has been recorded under the cost method of accounting. During the three months ended March 31, 2018, the Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. As a result of the adoption of the standard, given that these investments do not have readily determinable fair values and the Company does not have significant influence over the entity, the Company assesses these investments for potential impairment on a quarterly basis. As of September 30, 2018, there were no indicators of impairment for these investments.

⁽²⁾

In July 2016, the Company received $35.3 million in connection with the sale of its interest in Complex Media. An additional $3.7 million was held in escrow to satisfy specified indemnification claims, with a portion of such escrow released twelve months following the closing of the transaction and the remainder released eighteen months following the closing of the transaction, subject to any such claims, at which time, the Company recorded the gain within its consolidated statement of operations. The Company recognized a gain of $10.2 million as a result of this transaction which has been recorded in Other Income on the Company’s consolidated statement of operations during the third quarter of the year ended December 31, 2016. In July 2017, the Company received $2.7 million in cash of the total $3.7 million being held in escrow. As a result, the Company has recognized a gain of $2.7 million recorded within Other Income on the Company’s condensed consolidated statement of operations in FY 2017. In January 2018, the Company received the remaining $1.0 million in cash being held in escrow. As a result, the Company has recognized a gain of $1.0 million recorded within Other Income on the Company’s condensed consolidated statement of operations in the Current Nine Months.

⁽³⁾

As part of the2015 purchase of our joint venture partners’ interest in Iconix China, the Company acquired available-for-sale securities in China Outfitters Holdings Ltd. The Company historically recorded the change in fair value through accumulated other comprehensive income on the Company’s condensed consolidated balance sheet. In the three months ended March 31, 2018, the Company adopted ASU 2016-01 and accordingly, adjustments to the fair value of this entity will be recorded through other income on the Company’s condensed consolidated statement of operations prospectively. As of January 1, 2018, the Company reclassified the $3.2 million cumulative loss in fair value of these available-for-sale securities which were historically recorded in accumulated other comprehensive loss to accumulated losses in accordance with ASU 2016-01. As of September 30, 2018, the fair value of this investment was approximately $1.1 million.