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10-K
ICONIX BRAND GROUP, INC. filed this Form 10-K on 03/28/2019
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Financial instruments expose the Company to counterparty credit risk for nonperformance and to market risk for changes in interest. The Company manages exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties and procedures to monitor the amount of credit exposure. The Company’s financial instrument counterparties are investment or commercial banks with significant experience with such instruments as well as certain of our joint venture partners – see Note 5.

Non-Financial Assets and Liabilities

The Company accounts for non-recurring adjustments to the fair values of its non-financial assets and liabilities under ASC 820 using a market participant approach. The Company uses a discounted cash flow model with Level 3 inputs to measure the fair value of its non-financial assets and liabilities. The Company also adopted the provisions of ASC 820 as it relates to purchase accounting for its acquisitions. The Company has goodwill, which is tested for impairment at least annually, as required by ASC 350- “Intangibles- Goodwill and Other”, (“ASC 350”). Further, in accordance with ASC 350, the Company’s indefinite-lived trademarks are tested for impairment at least annually, on an individual basis as separate single units of accounting. Similarly, consistent with ASC 360- “Property, Plant and Equipment” (“ASC 360”), as it relates to accounting for the impairment or disposal of long-lived assets, the Company assesses whether or not there is impairment of the Company’s definite-lived trademarks. The Company recorded impairment charges on certain indefinite-lived and definite-lived assets during the fourth quarter, third quarter and second quarter of FY 2018 as well as the third quarter and fourth quarter of FY 2017.  Refer to Note 4 for further information.  

 

8. Fair Value Option

During the first quarter of FY 2018, the Company elected to account for its 5.75% Convertible Notes under the fair value option.  The fair value carrying amount and the contractual principal outstanding balance of the 5.75% Convertible Notes accounted for under the fair value option as of December 31, 2018 is $48.1 million and $109.7 million, respectively.  The change of $81.0 million in the fair value of the 5.75% Convertible Notes accounted for under the fair value option are included in the Company’s consolidated statement of operations for FY 2018 within Other Income.  

The primary reason for electing the fair value option is for simplification and cost-benefit considerations of accounting for the 5.75% Convertible Notes (the hybrid financial instrument) at fair value in its entirety versus bifurcation of the embedded derivatives.  The 5.75% Convertible Notes contain bifurcatable embedded derivatives and do not require settlement by physical delivery of non-financial assets.  The significant inputs to the valuation of the 5.75% Convertible Notes at fair value are Level 1 inputs as they are based on the quoted prices of the notes in the active market.

 

9. Debt Arrangements

The Company’s net carrying amount of debt is comprised of the following:

 

 

 

December 31,

2018

 

 

December 31,

2017

 

Senior Secured Notes

 

$

365,481

 

 

$

408,174

 

1.50% Convertible Notes(1)

 

 

 

 

 

233,898

 

Variable Funding Note, net of original issue discount

 

 

95,273

 

 

 

91,363

 

Senior Secured Term Loan, net of original

   issue discount

 

 

171,137

 

 

 

74,813

 

5.75% Convertible Notes(1)

 

 

48,076

 

 

 

 

Unamortized debt issuance costs

 

 

(4,738

)

 

 

(7,406

)

Total debt

 

 

675,229

 

 

 

800,842

 

Less current maturities

 

 

54,263

 

 

 

44,349

 

Total long-term debt

 

$

620,966

 

 

$

756,493

 

 

(1)

On February 22, 2018, the Company exchanged $125 million of aggregate principal amount of 1.50% Convertible Notes for $125 million of aggregate principal amount of 5.75% Convertible Notes.  See below for further details.

96


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