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10-K
ICONIX BRAND GROUP, INC. filed this Form 10-K on 03/28/2019
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The Company has elected to account for the 5.75% Convertible Notes based on the Fair Value Option accounting as outlined in ASC 825.  Refer to Note 8 for further details.  As of December 31, 2018, while the debt balance recorded at fair value on the Company’s consolidated balance sheet is $48.1 million, the actual outstanding principal balance of the 5.75% Convertible Notes is $109.7 million.

The Company recorded interest expense of approximately $5.5 million relating to the 5.75% Convertible Notes during the FY 2018 as compared to none for FY 2017.  The Company paid its first interest payment which was due on August 15, 2018 through the issuance of approximately 0.6 million shares of the Company’s common stock.  

1.50% Convertible Notes

On March 18, 2013, the Company completed the issuance of $400.0 million principal amount of the Company’s 1.50% Convertible Notes issued pursuant to that certain Indenture, dated as of March 15, 2013, by and between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “1.50% Notes Indenture”), in a private offering to certain institutional investors with net proceeds of approximately $390.6 million.

 

During FY 2016, the Company repurchased $104.9 million par value of the 1.50% Convertible Notes with a combination of $36.7 million in cash (including interest and trading fees) and the issuance of approximately 0.7 million shares of the Company’s common stock.  The Company accounted for this transaction in accordance with ASC 470-20 resulting in the recognition of a $9.6 million gain which is included in gain on extinguishment of debt, net in the Company’s consolidated statement of income for FY 2016, and a reacquisition of approximately $1.2 million of the embedded conversion option recorded within additional paid in capital on the Company’s consolidated balance sheet.  

During FY 2017, the Company repurchased $58.9 million par value of the 1.50% Convertible Notes for $59.3 million in cash (including interest and trading fees).  The Company accounted for this transaction in accordance with ASC 470-20 resulting in the recognition of a $1.5 million loss which was included in loss on extinguishment of debt in the Company’s consolidated statement of operations during FY 2017.  

 

On February 22, 2018, the Company completed the Note Exchange.  On March 15, 2018, the Company repaid the remaining outstanding principal balance of $111.2 million of the 1.50% Convertible Notes with the proceeds of the Second Delayed Draw Term Loan of $110 million plus cash on hand, and no further 1.50% Convertible Notes remained outstanding.  The exchange of the 1.50% Convertible Notes for the 5.75% Convertible Notes was accounted for as a debt extinguishment in accordance with ASC 470 and resulted in the Company recording a gain on extinguishment of debt of $4.5 million, which is recorded in the Company’s consolidated statement of operations for the FY 2018.

  

In accordance with ASC 470, as the terms of the 5.75% Convertible Notes and the Second Delayed Draw Term Loan were readably determinable and the 5.75% Convertible Notes and the Second Delayed Draw Term Loan were scheduled to mature on August 15, 2023 and August 2, 2022, respectively, the Company classified the 1.50% Convertible outstanding debt balance (which was net of deferred financing costs and original issue discount) of $233.9 million as long-term debt on its December 31, 2017 consolidated balance sheet.

For FY 2018 and FY 2017, the Company recorded additional non-cash interest expense of approximately $1.7 million and $12.8 million, respectively, representing the difference between the stated interest rate on the 1.50% Convertible Notes and the rate for a similar instrument that does not have a conversion feature.

For FY 2018 and FY 2017, the Company recorded cash interest expense relating to the 1.50% Convertible Notes of approximately $0.6 million, $4.1 million, respectively. 

2016 Senior Secured Term Loan

On March 7, 2016, the Company entered into a credit agreement (the “Credit Agreement”), among IBG Borrower LLC, the Company’s wholly-owned direct subsidiary, as borrower (“IBG Borrower”), the Company and certain wholly-owned subsidiaries of IBG Borrower, as guarantors (the “Guarantors”), Cortland Capital Market Services LLC, as administrative agent and collateral agent (“Cortland”) and the lenders party thereto from time to time (the “Lenders”), including CF ICX LLC and Fortress Credit Co LLC (“Fortress”).  Pursuant to the Credit Agreement, the Lenders provided to IBG Borrower a 2016 Senior Secured Term Loan (the “2016 Senior Secured Term Loan”), scheduled to mature on March 7, 2021, in an aggregate principal amount of $300 million and bearing interest at LIBOR (with a floor of 1.50%) plus an applicable margin of 10% per annum.

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