10-Q 1 icon-10q_20180930.htm 10-Q icon-10q_20180930.htm

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the Quarterly Period Ended September 30, 2018

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 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      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  

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- 75,192,597 shares as of November 6, 2018.

 

 

 

 

 


 

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,

2018

 

 

December 31,

2017

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,458

 

 

$

65,927

 

Restricted cash

 

 

21,174

 

 

 

48,766

 

Accounts receivable, net

 

 

40,294

 

 

 

66,625

 

Other assets – current

 

 

39,692

 

 

 

51,850

 

Total Current Assets

 

 

167,618

 

 

 

233,168

 

Property and equipment:

 

 

 

 

 

 

 

 

Furniture, fixtures and equipment

 

 

22,373

 

 

 

21,661

 

Less: Accumulated depreciation

 

 

(17,097

)

 

 

(15,567

)

 

 

 

5,276

 

 

 

6,094

 

Other Assets:

 

 

 

 

 

 

 

 

Other assets

 

 

19,103

 

 

 

6,268

 

Deferred income tax asset

 

 

4,087

 

 

 

4,492

 

Trademarks and other intangibles, net

 

 

397,703

 

 

 

465,722

 

Investments and joint ventures

 

 

91,398

 

 

 

90,887

 

Goodwill

 

 

26,099

 

 

 

63,882

 

 

 

 

538,390

 

 

 

631,251

 

Total Assets

 

$

711,284

 

 

$

870,513

 

Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Deficit

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

29,499

 

 

$

49,191

 

Deferred revenue

 

 

8,172

 

 

 

5,525

 

Current portion of long-term debt

 

 

50,406

 

 

 

44,349

 

Other liabilities – current

 

 

9,422

 

 

 

13,581

 

Total Current Liabilities

 

 

97,499

 

 

 

112,646

 

Deferred income tax liability

 

 

6,444

 

 

 

11,466

 

Other tax liabilities

 

 

 

 

 

531

 

Long-term debt, less current maturities (includes $55,878 and $0, respectively, at fair value)

 

 

641,232

 

 

 

756,493

 

Other liabilities

 

 

6,375

 

 

 

10,066

 

Total Liabilities

 

 

751,550

 

 

 

891,202

 

Redeemable Non-Controlling Interest

 

 

34,643

 

 

 

30,287

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

 

 

Common stock, $.001 par value shares authorized 260,000; shares issued 107,765 and

   90,159, respectively

 

 

108

 

 

 

90

 

Additional paid-in capital

 

 

1,039,007

 

 

 

1,044,518

 

Accumulated losses

 

 

(240,303

)

 

 

(223,718

)

Accumulated other comprehensive loss

 

 

(51,612

)

 

 

(51,280

)

Less: Treasury stock – 32,934 and 32,820 shares at cost, respectively

 

 

(844,177

)

 

 

(844,030

)

Total Iconix Brand Group, Inc. Stockholders’ Deficit

 

 

(96,977

)

 

 

(74,420

)

Non-Controlling Interest, net of installment payments due from non-controlling

   interest holders

 

 

22,068

 

 

 

23,444

 

Total Stockholders’ Deficit

 

 

(74,909

)

 

 

(50,976

)

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

 

$

711,284

 

 

$

870,513

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

2


 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except earnings per share data)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Licensing revenue

 

$

46,224

 

 

$

53,165

 

 

$

144,984

 

 

$

173,535

 

Selling, general and administrative expenses

 

 

30,197

 

 

 

21,509

 

 

 

92,437

 

 

 

73,702

 

Loss on termination of licenses

 

 

 

 

 

2,750

 

 

 

5,650

 

 

 

25,980

 

Depreciation and amortization

 

 

502

 

 

 

592

 

 

 

1,788

 

 

 

1,814

 

Equity earnings on joint ventures

 

 

(967

)

 

 

(483

)

 

 

(2,212

)

 

 

(2,475

)

Gain on deconsolidation of joint venture

 

 

 

 

 

 

 

 

 

 

 

(3,772

)

Gain on sale of trademarks

 

 

 

 

 

(875

)

 

 

(1,268

)

 

 

(875

)

Goodwill impairment

 

 

 

 

 

103,877

 

 

 

37,812

 

 

 

103,877

 

Trademark impairment

 

 

4,386

 

 

 

521,653

 

 

 

77,721

 

 

 

521,653

 

Operating income (loss)

 

 

12,106

 

 

 

(595,858

)

 

 

(66,944

)

 

 

(546,369

)

Other expenses (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

14,944

 

 

 

16,911

 

 

 

44,320

 

 

 

45,787

 

Interest income

 

 

(89

)

 

 

(150

)

 

 

(304

)

 

 

(417

)

Other income

 

 

(25,787

)

 

 

(2,648

)

 

 

(84,001

)

 

 

(2,649

)

Loss (gain) on extinguishment of debt

 

 

 

 

 

1,539

 

 

 

(4,473

)

 

 

20,939

 

Foreign currency translation loss (gain)

 

 

301

 

 

 

(1,091

)

 

 

453

 

 

 

2,755

 

Other (income) expenses – net

 

 

(10,631

)

 

 

14,561

 

 

 

(44,005

)

 

 

66,415

 

Income (Loss) from continuing operations before income taxes

 

 

22,737

 

 

 

(610,419

)

 

 

(22,939

)

 

 

(612,784

)

Provision (Benefit) for income taxes

 

 

1,026

 

 

 

(29,606

)

 

 

(128

)

 

 

(29,220

)

Net income (loss) from continuing operations

 

 

21,711

 

 

 

(580,813

)

 

 

(22,811

)

 

 

(583,564

)

Less: Net income (loss) attributable to non-controlling interest from

   continuing operations

 

 

1,487

 

 

 

(30,242

)

 

 

8,635

 

 

 

(23,857

)

Net income (loss) from continuing operations attributable

   to Iconix Brand Group, Inc.

 

 

20,224

 

 

 

(550,571

)

 

 

(31,446

)

 

 

(559,707

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations before income taxes

 

 

 

 

 

(2,308

)

 

 

 

 

 

(26,232

)

Gain (loss) on sale of Entertainment segment

 

 

 

 

 

(228

)

 

 

 

 

 

104,099

 

Provision (benefit) for income taxes

 

 

 

 

 

(406

)

 

 

 

 

 

28,555

 

Net income (loss) from discontinued operations

 

 

 

 

 

(2,130

)

 

 

 

 

 

49,312

 

Less: Net income attributable to non-controlling interest from discontinued

   operations

 

 

 

 

 

 

 

 

 

 

 

2,943

 

Net income (loss) from discontinued operations attributable

   to Iconix Brand Group, Inc.

 

 

 

 

 

(2,130

)

 

 

 

 

 

46,369

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

20,224

 

 

$

(552,701

)

 

$

(31,446

)

 

$

(513,338

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share - basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.20

 

 

$

(9.64

)

 

$

(0.62

)

 

$

(9.83

)

Discontinued operations

 

$

 

 

$

(0.04

)

 

$

 

 

$

0.81

 

Earnings (loss) per share - basic

 

$

0.20

 

 

$

(9.67

)

 

$

(0.62

)

 

$

(9.02

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

(0.01

)

 

$

(9.64

)

 

$

(0.81

)

 

$

(9.83

)

Discontinued operations

 

$

 

 

$

(0.04

)

 

$

 

 

$

0.81

 

Earnings (loss) per share - diluted

 

$

(0.01

)

 

$

(9.67

)

 

$

(0.81

)

 

$

(9.02

)

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

71,844

 

 

 

57,189

 

 

 

64,577

 

 

 

57,081

 

Diluted

 

 

175,910

 

 

 

57,189

 

 

 

123,096

 

 

 

57,081

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

3


 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net income (loss) from continuing operations

 

$

21,711

 

 

$

(580,813

)

 

$

(22,811

)

 

$

(583,564

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) gain

 

 

(729

)

 

 

6,353

 

 

 

(3,509

)

 

 

20,900

 

Change in fair value of available for sale securities

 

 

 

 

 

46

 

 

 

 

 

 

(625

)

Total other comprehensive (loss) income

 

 

(729

)

 

 

6,399

 

 

 

(3,509

)

 

 

20,275

 

Comprehensive (loss) income

 

$

20,982

 

 

$

(574,414

)

 

$

(26,320

)

 

$

(563,289

)

Less: comprehensive income (loss) attributable to non-controlling

   interest from continuing operations

 

 

1,487

 

 

 

(30,242

)

 

 

8,635

 

 

 

(23,857

)

Comprehensive income (loss) from continuing operations

   attributable to Iconix Brand Group, Inc.

 

$

19,495

 

 

$

(544,172

)

 

$

(34,955

)

 

$

(539,432

)

 

See Notes to Unaudited Condensed Consolidated Financial Statements.

 

4


 

Iconix Brand Group, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statement of Stockholders’ Deficit

Nine Months Ended September 30, 2018

(in thousands)

 

 

 

Common Stock

 

 

Additional

Paid-

 

 

Accumulated

 

 

Accumulated Other

Comprehensive

 

 

Treasury

 

 

Non-

Controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

In Capital

 

 

Losses

 

 

Loss

 

 

Stock

 

 

Interest

 

 

Total

 

Balance at January 1, 2018

 

 

90,159

 

 

$

90

 

 

$

1,044,518

 

 

$

(223,718

)

 

$

(51,280

)

 

$

(844,030

)

 

$

23,444

 

 

$

(50,976

)

Shares issued on vesting of

   restricted stock

 

 

317

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Shares issued on conversion of

   5.75% Convertible Notes

 

 

11,035

 

 

 

11

 

 

 

12,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,694

 

Shares issued on payment of interest

   of 5.75% Convertible Notes

 

 

6,254

 

 

 

6

 

 

 

3,061

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,067

 

Write-off of equity component of

   1.50% Convertible Notes

 

 

 

 

 

 

 

 

(23,250

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,250

)

Cumulative effect of accounting

   change for adoption of ASC 606

 

 

 

 

 

 

 

 

 

 

 

16,540

 

 

 

 

 

 

 

 

 

1,176

 

 

 

17,716

 

Cumulative effect of accounting

   change for adoption of ASU

   2016-01

 

 

 

 

 

 

 

 

 

 

 

(3,177

)

 

 

3,177

 

 

 

 

 

 

 

 

 

 

Elimination of non-controlling

   interest related to the acquisition

   of additional interest in Hydraulic

   joint venture

 

 

 

 

 

 

 

 

2,097

 

 

 

 

 

 

 

 

 

 

 

 

(2,097

)

 

 

 

Shares repurchased on vesting of

   restricted stock and exercise of

   stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(147

)

 

 

 

 

 

(147

)

Compensation expense in

   connection with restricted stock

   and stock options

 

 

 

 

 

 

 

 

(108

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(108

)

Payments from non-controlling

   interest holders, net of imputed

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

195

 

 

 

195

 

Change in redemption value of

   redeemable non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

1,498

 

 

 

 

 

 

 

 

 

 

 

 

1,498

 

Net (loss) income

 

 

 

 

 

 

 

 

 

 

 

(31,446

)

 

 

 

 

 

 

 

 

8,635

 

 

 

(22,811

)

Tax benefit related to amortization

   of convertible notes' discount

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

35

 

Foreign currency translation

 

 

 

 

 

 

 

 

(29

)

 

 

 

 

 

(3,509

)

 

 

 

 

 

 

 

 

(3,538

)

Distributions to joint ventures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,285

)

 

 

(9,285

)

Balance at September 30, 2018

 

 

107,765

 

 

$

108

 

 

$

1,039,007

 

 

$

(240,303

)

 

$

(51,612

)

 

$

(844,177

)

 

$

22,068

 

 

$

(74,909

)

 

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,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(22,811

)

 

$

(583,564

)

Income from discontinued operations

 

 

 

 

 

49,312

 

Adjustments to reconcile net (loss) income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation of property and equipment

 

 

1,583

 

 

 

1,247

 

Amortization of trademarks and other intangibles

 

 

205

 

 

 

567

 

Amortization of deferred financing costs

 

 

2,361

 

 

 

2,299

 

Amortization of debt discount

 

 

7,574

 

 

 

13,225

 

Third party fees associated with the issuance of 5.75% Convertible Notes

 

 

4,958

 

 

 

 

Interest expense on 5.75% Convertible Notes paid in shares

 

 

3,067

 

 

 

 

Stock-based compensation (benefit) expense

 

 

(108

)

 

 

3,825

 

Provision for doubtful accounts

 

 

9,864

 

 

 

5,386

 

Writeoff of contract assets

 

 

575

 

 

 

 

Earnings on equity investments in joint ventures

 

 

(2,212

)

 

 

(2,475

)

Distributions from equity investments

 

 

3,021

 

 

 

2,824

 

Non-cash gain on re-measurement of equity investment

 

 

(8,410

)

 

 

 

Gain on deconsolidation of joint venture

 

 

 

 

 

(3,772

)

Gain on sale of trademarks, net

 

 

(1,268

)

 

 

(875

)

Loss on sale of NGX

 

 

 

 

 

79

 

Trademark impairment

 

 

77,721

 

 

 

521,653

 

Goodwill impairment

 

 

37,812

 

 

 

103,877

 

Settlement of note receivable related to formation of Buffalo joint venture

 

 

1,141

 

 

 

 

Mark to market adjustment on convertible note

 

 

(73,745

)

 

 

 

Gain on debt to equity conversions

 

 

(1,056

)

 

 

 

Gain on sale of Complex Media

 

 

(958

)

 

 

(2,728

)

(Gain) loss on extinguishment of debt

 

 

(4,473

)

 

 

20,939

 

Income on other equity investment

 

 

364

 

 

 

 

Deferred income tax benefit

 

 

(4,905

)

 

 

(31,721

)

Loss on foreign currency translation

 

 

453

 

 

 

2,755

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

16,265

 

 

 

(4,596

)

Other assets – current

 

 

17,033

 

 

 

(9,541

)

Other assets

 

 

(2,785

)

 

 

2,543

 

Deferred revenue

 

 

2,778

 

 

 

(13

)

Accounts payable and accrued expenses

 

 

(14,944

)

 

 

(34,375

)

Other tax liabilities

 

 

(531

)

 

 

(4,165

)

Other liabilities

 

 

1,128

 

 

 

(297

)

Net cash provided by continuing operating activities

 

 

49,697

 

 

 

3,097

 

Net cash used in discontinued operating activities

 

 

 

 

 

(6,966

)

Net cash provided by (used in) operating activities

 

 

49,697

 

 

 

(3,869

)

Cash flows provided by (used in) investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(776

)

 

 

(829

)

Acquisition of additional interest in Iconix MENA

 

 

 

 

 

(1,800

)

Acquisition of trademarks from Iconix Southeast Asia

 

 

(2,120

)

 

 

 

Acquisition of remaining interest in Iconix Canada

 

 

(7,053

)

 

 

(11,177

)

Acquisition of Badgley Mischka and Sharper Image trademarks in certain

   international joint ventures

 

 

(1,289

)

 

 

 

Acquisition of additional interest in Iconix Australia, net of cash acquired

 

 

(649

)

 

 

 

 

Proceeds received from note due from American Greetings

 

 

 

 

 

1,250

 

6


 

Proceeds from sale of interest in Badgley Mischka in certain international joint

   ventures

 

 

2,500

 

 

 

 

Proceeds from sale of Galore Media

 

 

 

 

 

250

 

Proceeds from sale of Complex Media

 

 

958

 

 

 

2,728

 

Proceeds from sale of NGX

 

 

 

 

 

2,561

 

Proceeds from sale of interest in Badgley Mischka Canada

 

 

 

 

 

 

375

 

Proceeds from sale of interest in Sharper Image Canada

 

 

 

 

 

 

500

 

Proceeds from sale of discontinued operation, net of cash sold

 

 

 

 

 

 

336,675

 

Decrease in cash and cash equivalents from deconsolidation of joint venture

 

 

 

 

 

 

(1,853

)

Proceeds from note receivable from formation of Buffalo joint venture

 

 

1,409

 

 

 

 

Additions to trademarks

 

 

(284

)

 

 

(109

)

Net cash (used in) provided by continuing investing activities

 

 

(7,304

)

 

 

328,571

 

Net cash used in discontinued investing activities

 

 

 

 

 

(84

)

Net cash (used in) provided by investing activities

 

 

(7,304

)

 

 

328,487

 

Cash flows provided by (used in) financing activities:

 

 

 

 

 

 

 

 

Prepaid financing costs

 

 

(5,423

)

 

 

(7,145

)

Proceeds from Variable Funding Notes, net of discount and fees

 

 

 

 

 

 

73,437

 

Proceeds from long-term debt, net of discount and fees

 

 

95,700

 

 

 

288,000

 

Payment of long-term debt