Iconix Brand Group Inc. (ICON, Financial) filed Quarterly Report for the period ended 2010-03-31.
Iconix Brand Group Inc. has a market cap of $1.26 billion; its shares were traded at around $17.66 with a P/E ratio of 13.7 and P/S ratio of 5.4. ICON is in the portfolios of Ron Baron of Baron Funds, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC.
Other Expenses - Net – Other expenses - net decreased by approximately $0.9 million in the Current Quarter to $8.9 million, compared to other expenses - net of $9.8 million for the Prior Year Quarter. This decrease was primarily due to an aggregate increase of approximately $1.1 million in our equity earnings on joint ventures due to earnings from our Hardy Way joint venture (created in May 2009) for which there was no comparable revenue in the Prior Year Quarter, and our Iconix Europe joint venture created in December 2009. Further, interest expense related to our variable rate debt decreased from approximately $2.3 million in the Prior Year Quarter to $1.3 million in the Current Quarter as a result of both a lower debt balance and a decrease in our effective interest rate to 2.49% in the Current Quarter from 3.71% in the Prior Year Quarter. Further, this decrease can be partially attributed to an increase from the Prior Year Quarter to the Current Quarter of approximately $0.5 million in interest and other income related to a higher cash balance in the quarter, which was partially offset by lower interest rates. This aggregate decrease in other expenses – net was partially offset by an increase in interest expense of approximately $1.7 million related to our Promissory Note, which was entered into as part of our acquisition of the Ecko assets, for which there was no comparable interest expense in the Prior Year Quarter.
As of December 31, 2009, our marketable securities consist of auction rate securities, herein referred to as ARS. Beginning in the third quarter of 2007, $13.0 million of our ARS had failed auctions due to sell orders exceeding buy orders. In December 2008, the insurer of the ARS exercised its put option to replace the underlying securities of the auction rate securities with its preferred securities. Further, although these ARS had paid dividends according to their stated terms, we had received notice from the insurer that the payment of cash dividends will cease after July 31, 2009 and only temporarily reinstated for the 4-week period from December 23, 2009 through January 15, 2010, to be resumed if the board of directors of the insurer declares such cash dividends to be payable at a later date. In January 2010, we commenced a lawsuit against the broker-dealer of these ARS alleging, among other things, fraud, and seeking full recovery of the $13.0 million face value of the ARS, as well as legal costs and punitive damages. These funds will not be available to us until a successful auction occurs, a buyer is found outside the auction process or we realize recovery through settlement or legal judgment. Prior to June 30, 2009, we estimated the fair value of our ARS with a discounted cash flow model where we used the expected rate of cash dividends to be received. As regular cash dividend payments have ceased, we changed our methodology for estimating the fair value of the ARS. Beginning June 30, 2009, we estimated the fair value of our ARS using the present value of the weighted average of several scenarios of recovery based on our assessment of the probability of each scenario. We considered a variety of factors in our analysis including: credit rating of the issuer and insurer, comparable market data (if available), current macroeconomic market conditions, quality of the underlying securities, and the probabilities of several levels of recovery and reinstatement of cash dividend payments. As the aggregate result of our quarterly evaluations, $13.0 million of our ARS have been written down to $7.3 million as a cumulative unrealized pre-tax loss of $5.7 million to reflect a temporary decrease in fair value. As the write-down of $5.7 million has been identified as a temporary decrease in fair value, the write-down has not impacted our earnings and is reflected as an other comprehensive loss in the stockholders equity section of our consolidated balance sheet. We believe this decrease in fair value is temporary due to general macroeconomic market conditions. Further, we have the ability and intent to hold the ARS until an anticipated full redemption. We believe our cash flow from future operations and our existing cash on hand will be sufficient to satisfy our anticipated working capital requirements for the foreseeable future, regardless of the timeliness of the auction process or other recovery.
Net cash provided by operating activities increased approximately $26.2 million, from $25.7 million in the Prior Year Quarter to $51.9 million in the Current Quarter. This increase in net cash provided by operating activities of $26.2 million is primarily due to an increase in net income of $10.9 million from $15.6 million in the Prior Year Quarter to $26.5 million in the Current Quarter for the reasons discussed above, as well as an aggregate increase in net cash provided by changes in operating assets and liabilities (net of acquisitions) of $14.6 million from approximately $5.3 million of net cash used in operating activities in the Prior Year Quarter to approximately $9.3 million of net cash provided by operating activities in the Current Quarter.
Net cash used in financing activities increased $10.1 million, from $47.3 million in the Prior Year Quarter to $57.4 million in the Current Quarter. The main driver of this increase of $10.1 million was an increase of $11.5 million in principal payments on our long-term debt. Specifically, our payment in March 2010 of 50% of the excess cash flow from the subsidiaries subject to the term loan facility for 2009 was $47.2 million, as compared to our payment in March 2009 of 50% of the excess cash flow from the subsidiaries subject to the term loan facility for the year ended December 31, 2008 was $38.7 million. Further, in the Prior Year Quarter, we made a non-controlling interest contribution of $2.1 million related to an investment through our joint venture Scion. This was offset by a decrease in the change in current restricted cash of approximately $1.9 million, related to a $4.1 million investment through our joint venture Scion in the Prior Year Quarter. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for further information on this investment.
As of March 31, 2010, our unaudited condensed consolidated balance sheet reflects debt of approximately $610.6 million, including secured debt of $347.1 million ($170.6 million under our Term Loan Facility, $89.0 million under Asset-Backed Notes issued by our subsidiary, IP Holdings, and $87.5 million under the Promissory Note issued by IPH Unltd), primarily all of which was incurred in connection with our acquisition activities. In accordance with ASC 820, our Convertible Notes are included in our $610.6 million of consolidated debt at a net debt carrying value of $251.4 million; however, the principal amount owed to the holders of our Convertible Notes is $287.5 million. We may also assume or incur additional debt, including secured debt, in the future in connection with, or to fund, future acquisitions. Our debt obligations:
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Iconix Brand Group Inc. has a market cap of $1.26 billion; its shares were traded at around $17.66 with a P/E ratio of 13.7 and P/S ratio of 5.4. ICON is in the portfolios of Ron Baron of Baron Funds, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC.
Highlight of Business Operations:
Licensing and Other Revenue. Licensing and other revenue for the Current Quarter increased to $71.7 million from $50.5 million for the Prior Year Quarter. In the Current Quarter, we recorded approximately $9.6 million in aggregate revenue related to our acquisition of the Ecko assets, for which there was no comparable revenue in the Prior Year Quarter. The primary drivers of the remaining increase in revenue from the Prior Year Quarter to the Current Quarter are as follows: an aggregate increase of approximately $9.9 million from our three direct-to-retail brands with Wal-Mart Stores, Inc. (“Wal-Mart”), an aggregate increase of approximately $1.3 million from our three direct-to-retail brands with Target Corporation (“Target”), an aggregate increase of approximately $0.5 million from our two direct-to-retail brands at Kohl s Corporation (“Kohl s”), and an increase of approximately $1.6 million from our Charisma brand primarily due to its direct-to-retail with Costco. These increases were partially offset by an aggregate decrease of approximately $1.5 million primarily related to the transition of our women s category for our Rocawear brand to a new licensee, and the transition of our Bongo brand to a direct-to-retail license with Kmart Corporation (“Kmart”), which is expecting a full launch in both Kmart and Sears stores in Fall 2010.Other Expenses - Net – Other expenses - net decreased by approximately $0.9 million in the Current Quarter to $8.9 million, compared to other expenses - net of $9.8 million for the Prior Year Quarter. This decrease was primarily due to an aggregate increase of approximately $1.1 million in our equity earnings on joint ventures due to earnings from our Hardy Way joint venture (created in May 2009) for which there was no comparable revenue in the Prior Year Quarter, and our Iconix Europe joint venture created in December 2009. Further, interest expense related to our variable rate debt decreased from approximately $2.3 million in the Prior Year Quarter to $1.3 million in the Current Quarter as a result of both a lower debt balance and a decrease in our effective interest rate to 2.49% in the Current Quarter from 3.71% in the Prior Year Quarter. Further, this decrease can be partially attributed to an increase from the Prior Year Quarter to the Current Quarter of approximately $0.5 million in interest and other income related to a higher cash balance in the quarter, which was partially offset by lower interest rates. This aggregate decrease in other expenses – net was partially offset by an increase in interest expense of approximately $1.7 million related to our Promissory Note, which was entered into as part of our acquisition of the Ecko assets, for which there was no comparable interest expense in the Prior Year Quarter.
As of December 31, 2009, our marketable securities consist of auction rate securities, herein referred to as ARS. Beginning in the third quarter of 2007, $13.0 million of our ARS had failed auctions due to sell orders exceeding buy orders. In December 2008, the insurer of the ARS exercised its put option to replace the underlying securities of the auction rate securities with its preferred securities. Further, although these ARS had paid dividends according to their stated terms, we had received notice from the insurer that the payment of cash dividends will cease after July 31, 2009 and only temporarily reinstated for the 4-week period from December 23, 2009 through January 15, 2010, to be resumed if the board of directors of the insurer declares such cash dividends to be payable at a later date. In January 2010, we commenced a lawsuit against the broker-dealer of these ARS alleging, among other things, fraud, and seeking full recovery of the $13.0 million face value of the ARS, as well as legal costs and punitive damages. These funds will not be available to us until a successful auction occurs, a buyer is found outside the auction process or we realize recovery through settlement or legal judgment. Prior to June 30, 2009, we estimated the fair value of our ARS with a discounted cash flow model where we used the expected rate of cash dividends to be received. As regular cash dividend payments have ceased, we changed our methodology for estimating the fair value of the ARS. Beginning June 30, 2009, we estimated the fair value of our ARS using the present value of the weighted average of several scenarios of recovery based on our assessment of the probability of each scenario. We considered a variety of factors in our analysis including: credit rating of the issuer and insurer, comparable market data (if available), current macroeconomic market conditions, quality of the underlying securities, and the probabilities of several levels of recovery and reinstatement of cash dividend payments. As the aggregate result of our quarterly evaluations, $13.0 million of our ARS have been written down to $7.3 million as a cumulative unrealized pre-tax loss of $5.7 million to reflect a temporary decrease in fair value. As the write-down of $5.7 million has been identified as a temporary decrease in fair value, the write-down has not impacted our earnings and is reflected as an other comprehensive loss in the stockholders equity section of our consolidated balance sheet. We believe this decrease in fair value is temporary due to general macroeconomic market conditions. Further, we have the ability and intent to hold the ARS until an anticipated full redemption. We believe our cash flow from future operations and our existing cash on hand will be sufficient to satisfy our anticipated working capital requirements for the foreseeable future, regardless of the timeliness of the auction process or other recovery.
Net cash provided by operating activities increased approximately $26.2 million, from $25.7 million in the Prior Year Quarter to $51.9 million in the Current Quarter. This increase in net cash provided by operating activities of $26.2 million is primarily due to an increase in net income of $10.9 million from $15.6 million in the Prior Year Quarter to $26.5 million in the Current Quarter for the reasons discussed above, as well as an aggregate increase in net cash provided by changes in operating assets and liabilities (net of acquisitions) of $14.6 million from approximately $5.3 million of net cash used in operating activities in the Prior Year Quarter to approximately $9.3 million of net cash provided by operating activities in the Current Quarter.
Net cash used in financing activities increased $10.1 million, from $47.3 million in the Prior Year Quarter to $57.4 million in the Current Quarter. The main driver of this increase of $10.1 million was an increase of $11.5 million in principal payments on our long-term debt. Specifically, our payment in March 2010 of 50% of the excess cash flow from the subsidiaries subject to the term loan facility for 2009 was $47.2 million, as compared to our payment in March 2009 of 50% of the excess cash flow from the subsidiaries subject to the term loan facility for the year ended December 31, 2008 was $38.7 million. Further, in the Prior Year Quarter, we made a non-controlling interest contribution of $2.1 million related to an investment through our joint venture Scion. This was offset by a decrease in the change in current restricted cash of approximately $1.9 million, related to a $4.1 million investment through our joint venture Scion in the Prior Year Quarter. See Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements for further information on this investment.
As of March 31, 2010, our unaudited condensed consolidated balance sheet reflects debt of approximately $610.6 million, including secured debt of $347.1 million ($170.6 million under our Term Loan Facility, $89.0 million under Asset-Backed Notes issued by our subsidiary, IP Holdings, and $87.5 million under the Promissory Note issued by IPH Unltd), primarily all of which was incurred in connection with our acquisition activities. In accordance with ASC 820, our Convertible Notes are included in our $610.6 million of consolidated debt at a net debt carrying value of $251.4 million; however, the principal amount owed to the holders of our Convertible Notes is $287.5 million. We may also assume or incur additional debt, including secured debt, in the future in connection with, or to fund, future acquisitions. Our debt obligations:
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