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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and, in accordance with U.S. GAAP and accounting for variable interest entities (where the Company is the primary beneficiary) and majority owned subsidiaries, the Company consolidates fifteen joint ventures (Scion, Peanuts Holdings, Hardy Way, Icon Modern Amusement, Alberta ULC, Iconix Europe, Hydraulic IP Holdings, NGX, LLC, Iconix China (100% owned as of March 2015), Iconix Latin America (100% owned as of February 2014), Iconix Canada, Iconix Israel, Iconix Middle East, Iconix Southeast Asia and LC Partners US; see Note 3 for explanation). All significant intercompany transactions and balances have been eliminated in consolidation.

In accordance with Accounting Standards Codification (“ASC”) 810—Consolidation (“ASC 810”), the Company evaluates the following criteria to determine the accounting for its joint ventures: 1) consideration of whether the joint venture is a variable interest entity which includes reviewing the corporate structure of the joint venture, the voting rights, and the contributions of the Company and the joint venture partner to the joint venture, 2) if the joint venture is a VIE, whether or not the Company is the primary beneficiary, a determination based upon a variety of factors, including: i) the presence of installment payments which constitutes a de facto agency relationship between the Company and the joint venture partner, and ii) an evaluation of whether the Company or the joint venture partner is more closely associated with the joint venture. If the Company determines that the entity is a variable interest entity and the Company is the primary beneficiary, then the joint venture is consolidated. For those entities that are not considered variable interest entities, or are considered variable interest entities but the Company is not the primary beneficiary, the Company uses either the equity method or the cost method of accounting, depending on a variety of factors as set forth in ASC 323—Investments (“ASC 323”), to account for those investments and joint ventures which are not required to be consolidated under US GAAP.

Business Combinations, Joint Ventures and Investments

The purchase method of accounting requires that the total purchase price of an acquisition be allocated to the assets acquired and liabilities assumed based on their fair values on the date of the business acquisition. The results of operations from the acquired businesses are included in the accompanying consolidated statements of income from the acquisition date. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Since January 1, 2013 the Company has acquired the following brands:

Date Acquired		Brand
February 2013		Lee Cooper
March 2015		Strawberry Shortcake

Since January 1, 2013 the Company has acquired ownership interest in various brands through its investments in joint ventures. The chart below illustrates the Company’s ownership interest in these joint ventures as of December 31, 2015:

Date Acquired/Invested	Brand	Investment / Joint Venture	Iconix’s Investment
February 2013	Buffalo	Alberta ULC		51	%
November 2014	Nick Graham	NGX		51	%
December 2014	Hydraulic	Hydraulic IP Holdings		51	%
February 2015	PONY	US PONY Holdings, LLC		75	%

Further, since January 1, 2013 the Company established the following joint ventures to develop and market the Company’s brands in specific markets:

Date Created	Investment / Joint Venture	Iconix’s Investment
September 2013	Iconix Australia		50	%
June 2013	Iconix Canada		50	%
October 2013	Iconix Southeast Asia		50	%
December 2013	Iconix Israel		50	%
March 2014	LC Partners US		50	%
December 2014	Iconix Middle East		50	%

For further information on the Company’s accounting for joint ventures and investments, see Note 3.

Use of Estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company reviews all significant estimates affecting the financial statements on a recurring basis and records the effect of any adjustments when necessary.

Cash and Cash Equivalents

Cash and cash equivalents consist of actual cash as well as cash equivalents, defined as short-term, highly liquid financial instruments with insignificant interest rate risk that are readily convertible to cash and have maturities of three months or less from the date of purchase. In addition, as of December 31, 2015, approximately $83.9 million, or 38.2%, of our total cash (including restricted cash) was held in foreign subsidiaries. Our investments in these foreign subsidiaries are considered indefinitely reinvested and unavailable for the payment of any U.S. based expenditures, including debt obligations.

Restricted Cash

Restricted cash consists of actual cash deposits held in accounts primarily for debt service, as well as cash equivalents, defined as short-term, highly liquid financial instruments with insignificant interest rate risk that are readily convertible to cash and have maturities of three months or less from the date of purchase, the restrictions on all of which lapse every three months or less.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentration of credit risk consist principally of short-term cash investments and accounts receivable. The Company places its cash in investment-grade, short-term instruments with high quality financial institutions. The Company performs ongoing credit evaluations of its customers’ financial condition and, generally, requires no collateral from its customers. The allowance for non-collection of accounts receivable is based upon the expected collectability of all accounts receivable.

One customer accounted for 14% of the Company’s total revenue for the year ended December 31, 2015 (“FY 2015”), 14% of the Company’s total revenue for the year ended December 31, 2014 (“FY 2014”), and 14% of the Company’s total revenue for the year ended December 31, 2013 (“FY 2013”).

Accounts Receivable

Accounts receivable are reported at amounts the Company expects to be collected, net of provision for doubtful accounts, based on the Company’s ongoing discussions with its licensees, and its evaluation of each licensee’s payment history and account aging. As of December 31, 2015 and 2014, the Company’s provision for doubtful accounts was $8.4 million and $8.7 million, respectively.

One customer accounted for approximately 10% of the Company’s accounts receivable, (which includes long-term accounts receivables included in other assets on the Company’s consolidated balance sheets) as of December 31, 2015 and two customers accounted for 14% and 11% of the Company’s accounts receivable (which includes long-term accounts receivable included in other assets on the Company’s consolidated balance sheets), respectively, as of December 31, 2014.

Derivatives

The Company’s objective for holding any derivative financial instruments is to manage interest rate risks. The Company does not use financial instruments for trading or other speculative purposes. However, from time to time the Company uses derivative financial instruments to hedge the variability of anticipated cash flows of a forecasted transaction (a “cash flow hedge”). The Company’s strategy related to derivative financial instruments has been to use foreign currency forward contracts to hedge a portion of anticipated future short-term license revenues to offset the effects of changes in foreign currency exchange rates (primarily between the U.S. dollar and the Japanese Yen).

The Company’s foreign currency forward contracts are highly effective hedges because all the critical terms of the derivative instruments match those of the hedged item. On the date the qualifying derivative contract is entered into, the Company designates the derivative as a cash flow hedge. Changes in derivative fair values that are designated as cash flow hedges are deferred and recorded as a component of accumulated other comprehensive income until the associated hedged transactions impact the statement of operations, at which time the deferred gains and losses are reclassified to either interest expense or interest and other income. Any ineffective portion of a hedging derivative’s changes in fair value will be immediately recognized in either interest expense or interest and other income. The fair values of the derivatives, which are based on quoted market prices, are reported as other assets or other liabilities, as appropriate. The Company had no derivative instruments in FY 2015 or FY 2014.

Restricted Stock

Compensation cost for restricted stock is measured using the quoted market price of the Company’s common stock at the date the common stock is granted. For restricted stock where restrictions lapse with the passage of time (“time-based restricted stock”), compensation cost is recognized over the period between the issue date and the date that restrictions lapse. Time-based restricted stock is included in total common shares outstanding upon the lapse of any restrictions. For restricted stock where restrictions are based on performance measures (“performance-based restricted stock”), restrictions lapse when those performance measures have been deemed earned. Performance-based restricted stock is included in total common shares outstanding upon the lapse of any restrictions. Performance-based restricted stock is included in total diluted shares outstanding when the performance measures have been deemed earned but not issued.

Stock Options

Compensation cost for stock options, in accordance with accounting for share-based payment under U.S. GAAP, is calculated using the Black-Scholes valuation model based on awards ultimately expected to vest, reduced for estimated forfeitures, and expensed on a straight-line basis over the requisite service period of the grant. Forfeitures are estimated at the time of grant based on the Company’s historical forfeiture experience and will be revised in subsequent periods if actual forfeitures differ from those estimates. The Company will use alternative models if grants have characteristics that cannot be reasonably estimated using this model.

Treasury Stock

Treasury stock is recorded at acquisition cost. Gains and losses on disposition are recorded as increases or decreases to additional paid-in capital with losses in excess of previously recorded gains charged directly to retained earnings.

Deferred Financing Costs

The Company incurred costs (primarily professional fees and placement agent fees) in connection with borrowings under senior secured notes and convertible bond offerings. These costs have been deferred and are being amortized using the effective interest method over the life of the related debt.

Property, Equipment, Depreciation and Amortization

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are determined by the straight line method over the estimated useful lives of the respective assets ranging from three to seven years. Leasehold improvements are amortized by the straight-line method over the initial term of the related lease or estimated useful life, whichever is less.

Operating Leases

Total rent payments under operating leases that include scheduled payment increases and rent holidays are amortized on a straight-line basis over the term of the lease. Landlord allowances are amortized by the straight-line method over the term of the lease as a reduction of rent expense.

Long-Lived Assets

If circumstances mandate, the Company evaluates the recoverability of its long-lived assets, other than goodwill and other indefinite life intangibles (discussed below), by comparing estimated future undiscounted cash flows with the assets’ carrying value to determine whether a write-down to market value, based on discounted cash flow, is necessary.

Assumptions used in our fair value estimates are as follow: (i) discount rates; (ii) royalty rates; (iii) projected average revenue growth rates; and (iv) projected long-term growth rates. The testing also factors in economic conditions and expectations of management and may change in the future based on period-specific facts and circumstances. During FY 2015, FY 2014 and FY 2013, there were no impairments of long-lived assets other than the non-cash impairment charges for goodwill and trademarks in FY 2015 noted below.

Goodwill and Trademarks

Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method of accounting. On an annual basis and as needed, the Company tests goodwill and indefinite life trademarks for impairment through the use of discounted cash flow models. Other intangibles with determinable lives, including certain trademarks, license agreements and non-compete agreements, are evaluated for the possibility of impairment when certain indicators are present, and are otherwise amortized on a straight-line basis over the estimated useful lives of the assets (currently ranging from 1 to 15 years). Assumptions used in our fair value estimates are as follow: (i) discount rates; (ii) royalty rates; (iii) projected average revenue growth rates; and (iv) projected long-term growth rates. The testing also factors in economic conditions and expectations of management and may change in the future based on period-specific facts and circumstances.

Goodwill by segment and in total, and changes in the carrying amounts, as of the dates indicated are as follows:

	Women's			Men's			Home		Entertainment		Corporate		Consolidated
Net goodwill at December 31, 2013	$	114,919		$	53,270		$	46,171	$	17,654	$	—	$	232,014
Acquisitions		694			320			104		—		—		1,118
Foreign Currency Adjustment		(92	)		(264	)				—		—		(356	)
Net goodwill at December 31, 2014	$	115,521		$	53,326		$	46,275	$	17,654	$	—	$	232,776
Acquisitions		6,332			17,324			685		35,375				59,716
Foreign Currency Adjustment		(70	)		(195	)		—		—		—		(265	)
Impairment		—			(35,132	)		—		—		—		(35,132	)
Net goodwill at December 31, 2015	$	121,783		$	35,323		$	46,960	$	53,029	$	—	$	257,095

In February 2015, the Company completed the acquisition of the PONY brand and related assets. In allocating the purchase price of this acquisition, $14.7 million was allocated to goodwill.

In March 2015, the Company completed the acquisition of the Strawberry Shortcake brand and related assets. In allocating the purchase price of this acquisition, $35.4 million was allocated to goodwill. Additionally, in March 2015, the Company completed the acquisition of the remaining 50% interest in the Iconix China joint venture and related assets. In allocating the purchase price of this acquisition, $9.6 million was allocated to goodwill.

In February 2014, the Company completed the acquisition of the remaining 50% interest in the Iconix Latin America joint venture and related assets. In allocating the purchase price of this acquisition, $1.1 million was allocated to goodwill.

See Note 3 for details of these transactions.

The Company identifies its operating segments according to how business activities are managed and evaluated. Prior to April 1, 2015, the Company had disclosed one reportable segment. Following such quarter, the Company has reviewed its business activities, how they are managed and evaluated, and determined that it would reflect five distinct reportable operating segments: men’s, women’s, home, entertainment and corporate. These operating segments represent individual reporting units for purposes of evaluating goodwill for impairment. The fair value of the reporting unit is determined using discounted cash flow analysis and estimates of sales proceeds with consideration of market participant data. As part of this analysis, the Company considers its market capitalization in comparison to its book value. The annual evaluation of goodwill 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 FY 2015, the Company concluded that the decline in net sales in certain brands within the men’s segment and an inability to secure additional license agreements with guaranteed minimum royalties in future periods for these brands were indicators of impairment. See Note 2 for details of the impairment charges associated with the non-amortizable trademarks. Consequently, in accordance with ASC-802-10-55-3D, utilizing the Income Approach (refer to Note 2 for further details), the Company performed a two-step goodwill impairment test and an intangible asset impairment test using a discounted cash flow analysis to evaluate whether the carrying value of each of its segments exceeded its fair value. Based upon the results of step 1, the Company noted that the carrying value of the men’s segment exceeded its fair value after first reflecting the impairment to trademarks. In accordance with step 2 of the goodwill impairment test and based on the Company’s evaluation of the results of the goodwill impairment test, the Company recorded a non-cash impairment charge of $35.1 million in the fourth quarter of FY 2015 in its men’s segment primarily due to the decline in net sales as noted above and to a lesser extent changes to certain inputs and assumptions in the valuation model.. The fair value of the goodwill in the other segments of the Company exceeded the book value of the goodwill and accordingly, no goodwill impairment was recognized for these segments during the fourth quarter of fiscal 2015.

The Company evaluated its market capitalization as a consideration of goodwill impairment. However, the Company does not believe that the significant decline in the Company’s stock price in FY 2015 (resulting in the Company’s market capitalization being below its enterprise value) was an indicator of impairment as management believes that the decline in the stock price is temporary given various factors as follows: (i) appointment of the new CEO, (ii) refinancing of the Company’s 2.50% Convertible Notes which are due June 2016, (iii) completion of the restatement of its historical financial statements and the related management review of historical accounting transactions (see Note 19 – Subsequent Events and Note 21 – Restatement in Notes to Consolidated Financial Statements for further details). In addition, there has been no change in the Company’s overall business strategy or operations and no major losses of licensees, license agreements or revenues. The Company will continue to monitor its market capitalization in future periods.

In the fourth quarter of FY 2015, the Company recognized non-cash impairment charge for goodwill and trademarks of $35.1 million and $402.4 million, respectively.

Non-controlling Interests / Redeemable Non-controlling Interests

The Company may enter into certain 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. The Company records the amounts due from the joint venture partners as a reduction of Non-controlling Interests, net of installment payments or Redeemable Non-controlling Interests, net of installment payments (ie. mezzanine equity), as applicable, in the Company’s consolidated balance sheet accordance with ASC 505-10-45, Classification of a Receivable from a Shareholder as these installment payments result from the issuance of shares classified as mezzanine equity. The Company accretes the present value discount on these installment payments through interest income on its consolidated statements of operations. In addition, the Company accretes the redeemable non-controlling interest amounts periodically to its estimated redemption amounts.

Revenue Recognition

The Company enters into various license agreements that provide revenues based on minimum royalties and advertising/marketing fees and additional revenues based on a percentage of defined sales. Minimum royalty and advertising/marketing revenue is recognized on a straight-line basis over the term of each contract year, as defined, in each license agreement. Royalties exceeding the defined minimum amounts are recognized as income during the period corresponding to the licensee’s sales. Payments received as consideration of the grant of a license or advanced royalty payments are recognized ratably as revenue over the term of the license agreement and are reflected on the Company’s consolidated balance sheets as deferred license revenue at the time payment is received and recognized ratably as revenue over the term of the license agreement. Revenue is not recognized unless collectability is reasonably assured. If licensing arrangements are terminated prior to the original licensing period, we will recognize revenue for any contractual termination fees, unless such amounts are deemed non-recoverable.

Gains on sale of trademarks

From time to time, we sell a brand’s territories and/or categories through joint venture transactions which is a central and ongoing part of our business. Since our goal is to maximize the value of the IP, we evaluate sale opportunities by comparing whether the offer is more valuable than the current and potential revenue stream in the Company’s traditional licensing model. Further, as part of the Company’s evaluation process, it will also look at whether or not the buyer’s future development of the brand could help expand the brands global recognition and revenue. The Company considers, among others, the following guidance in determining the appropriate accounting for gains recognized from the initial sale of our brands/trademarks to our joint ventures: ASC 323, Investments-Equity Method and Joint Venture , ASC 605, Revenue Recognition , ASC 810, Consolidations, ASC 845, Nonmonetary Transactions—Exchanges Involving Monetary Consideration and Staff Accounting Bulletin No. 104.

Additionally, the Company determines the cost of the trademarks sold by applying the relative fair market value of the proceeds received in the transaction to the book value of the trademarks on the Company’s consolidated balance sheet at the time of the transaction.

Foreign Currency

The Company’s consolidated joint ventures’ functional currency is U.S. dollars. The functional currencies of the Company’s international subsidiaries are the local currencies of the countries in which the subsidiaries are located. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the consolidated balance sheet date. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a component of shareholders’ equity in accumulated other comprehensive income (loss).

Taxes on Income

The Company uses the asset and liability approach of accounting for income taxes and provides deferred income taxes for temporary differences that will result in taxable or deductible amounts in future years based on the reporting of certain costs in different periods for financial statement and income tax purposes. Valuation allowances are recorded when uncertainty regarding their realizability exists.

Earnings (Loss) Per Share

Basic earnings (loss) per share includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options, warrants and restricted stock. The difference between reported basic and diluted weighted-average common shares results from the assumption that all dilutive stock options, warrants, convertible debt and restricted stock outstanding were exercised into common stock.

Advertising Campaign Costs

All costs associated with production for the Company’s national advertising campaigns are expensed during the periods when the activities take place. All other advertising costs such as print and online media are expensed when the advertisement occurs. Advertising expenses for FY 2015, FY 2014 and FY 2013 amounted to $32.3 million, $29.7 million, and $25.9 million, respectively.

Comprehensive Income

Comprehensive income includes certain gains and losses that, under U.S. GAAP, are excluded from net income as such amounts are recorded directly as an adjustment to stockholders’ equity. The Company’s comprehensive income is primarily comprised of net income, foreign currency translation and changes in fair value of available for sale securities.

New Accounting Standards

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, which eliminates the guidance in ASC Topic 740, Income Taxes, that required an entity to separate deferred tax liabilities and assets between current and noncurrent amounts in a classified balance sheet. The amendments require that all deferred tax liabilities and assets of the same tax jurisdiction or a tax filing group, as well as any related valuation allowance, be offset and presented as a single noncurrent amount in a classified balance sheet. This ASU is effective for annual and interim periods beginning after December 31, 2016. Early adoption is permitted as of the beginning of any interim or annual reporting period. Entities may adopt the guidance prospectively or retrospectively. The Company plans to adopt the new standard effective January 1, 2017.

In September 2015, the FASB issued ASU No. 2015-16, which simplifies the accounting under ASC Topic 805 for adjustments made during the measurement period to provisional amounts recognized in a business combination. The amendments in this update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the statement of operations or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This ASU is effective for annual and interim periods beginning after December 15, 2015. Early adoption is allowed for all entities for financial statements that have not been previously issued. The Company early adopted the new standard in FY 2015, which had an immaterial effect on its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, which changes the presentation of debt issuance costs in financial statements. Under this ASU, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The standards’ core principle is debt issuance costs related to a note shall be reported in the balance sheet as a direct deduction from the face amount of that note and that amortization of debt issuance costs also shall be reported as interest expense. This ASU is effective for annual and interim periods beginning after December 15, 2015. Early adoption is allowed for all entities for financial statements that have not been previously issued. Entities would apply the new guidance retrospectively to all prior periods (i.e., the balance sheet for each period is adjusted). The Company will adopt the new standard effective January 1, 2016.

In April 2015, the FASB issued ASU No. 2015-05, Customers' Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU 2015-05"). ASU 2015-05 will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software. ASU 2015-05 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. We are currently evaluating the impact of adopting this guidance, but do not expect this new guidance to have a material impact on our consolidated financial statements.

In May 2014, FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted as of the original effective date of December 15, 2016 in ASU 2014-09. Companies will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. We are currently evaluating the impact of adopting this guidance.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

Presentation of Prior Year Data

Certain reclassifications, which were immaterial, have been made to conform prior year data to the current presentation.