Icon Energy Corp (ICON) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth-quarter and full-year 2006 Iconix Brand Group earnings conference call. My name is Candace and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS).

Before we begin, the Company has asked me to read the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are not historical facts contained in this press release are forward-looking statements that involve a number of known and unknown risks, uncertainties and other factors, all of which are difficult or impossible to predict and many of which are beyond the control of the Company, which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include but are not limited to uncertainties regarding the result of the Company's acquisition of additional licenses, continued market acceptance of current products and the ability to successfully develop and market new products, particularly in light of rapidly changing fashion trends, the impact of supply and manufacturing constraints or difficulties relating to the Company's licensees, dependence on foreign manufacturers and suppliers, uncertainties relating to customer plans and commitments, the ability of licensees to successfully market and sell branded products, competition, uncertainties relating to economic conditions in the market in which the Company operates, the ability to hire and retain key personnel, the ability to obtain capital if required, the risk of litigation and regulatory proceedings, the risk of uncertainties of trademark protection, the uncertainties of marketing and licensing acquired trademarks and others detailed in the Company's SEC filings.

The words believe, anticipate, expect, confident, project, provide guidance and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.

Joining us today on the call are Mr. Warren Clamen, Chief Financial Officer and Mr. David Conn, Executive Vice President and Mr. Neil Cole, Chief Executive Officer. I would now like to turn the presentation over to your host, Mr. Warren Clamen.

Good morning, everyone and welcome to the Iconix Brand Group fourth-quarter and full-year 2006 earnings conference call. Beginning with our results for the fourth quarter ended December 31, 2006, the Company reported revenue of approximately $26.9 million compared to approximately $12.4 million in the prior year quarter.

EBITDA for the quarter was approximately $20.2 million compared to approximately $7.7 million in the prior year quarter. In comparing both net income and earnings per share year-over-year, it is important to note that in 2005, the Company was recognizing non-cash tax benefits through our P&L as compared to the fourth quarter of 2006 when the Company was a full taxpayer at a tax rate of approximately 34.5%.

In looking at both periods on a tax-affected basis, the Company earned approximately $8.9 million in Q4 2006 compared to approximately $3.7 million in Q4 2005. In comparing fully diluted EPS for both periods again on a tax-affected basis, the Company reported $0.18 per share in Q4 2006 compared to what would have been $0.09 per share in Q4 2005.

Free cash flow for the quarter was approximately $15 million versus approximately $6.3 million in the prior year quarter. I would like to note that included in interest expense for the current quarter is approximately $1 million related to financing charges on the Mossimo loan, which was repaid in the quarter and therefore expensed in the quarter.

In looking at our full-year 2006 results, revenue was approximately $80.7 million versus approximately $30.2 million in the prior year. EBITDA was approximately $56.1 million compared to approximately $16.7 million in the prior year. Net income for the year was $32.5 million compared to approximately $15.9 million in the prior year and fully diluted EPS for the year was $0.72 as compared to $0.46 in the prior year.

Free cash flow for the full year for 2006 was approximately $44.3 million as compared to $13 million in 2005. On the December 31 balance sheet, the Company had approximately $78 million in cash, approximately $561 million in goodwill and intangibles and a shareholders' equity of approximately $466 million.

Reconciliation tables for non-GAAP metrics and taxes are attached to our earnings release that went out this morning and will also be available on our website at www.IconixBrand.com.

I will now turn the call over to David Conn, Executive Vice President of Iconix Brand Group.

Thanks, Warren. Good morning, everyone. I'm now going to give a brief update on our portfolio of brands. Candie's continues to grow and become more and more entrenched as Kohl's anchor junior lifestyle brand. In its first full year at Kohl's, Candie's generated more than two times Kohl's contractually guaranteed minimum sales requirement.

Our new advertising campaign featuring multi-platinum recording artist, Fergie, from the Black Eyed Peas was very well-received and as a result, Kohl's has made a major media investment behind it, which we are excited about as we head into the key spring selling season.

Our Bongo brand was somewhat challenging last year requiring us to make a change in the core denim licensee. Our new licensee is doing well and is beginning to increase market share and seeing good product sell-through. We have also renewed the other two large Bongo licensees, footwear and kids apparel and their businesses continue to be strong. We are very excited about our new ad campaign featuring MTV star, Vanessa Minnillo and the promotional appearances she will be making for the brand.

We are gaining a lot of traction in transforming our luxury brand, Badgley Mischka, beyond eveningwear and making it a total lifestyle brand. Today, Badgley Mischka has 12 different licensees selling 15 different categories of product and last month for the first time ever, we showed the full collection, including sportswear and accessories, on the runway during fashion week and the collection was very well-received by the retailers and the media.

We are excited about Joe Boxer's launch at Sears in the fall and we're working with the merchants at Sears to finalize the timing and number of categories and are optimistic about the potential of the brand as it almost doubles the size of its distribution. Our international rollout of Joe Boxer continues as we now have strong licensees for Joe Boxer in Canada, Mexico, Scandinavia, the United Kingdom, Turkey, Russia, Eastern Europe, Mexico and Central America.

Rampage continues to be one of the strongest performance in our portfolio and after having an exceptional year last year, the business is up significantly so far in 2007, especially at the brand's largest customer, Federated Department Stores. We've recently signed a new two-year agreement with our spokesperson, tsunami survivor and supermodel, Petra Nemcova, and we are excited to have her continue to represent the brand and also to continue the work Iconix and Petra have done for the Rampage Relief Fund.

We are completing our first full year owning the brand Mudd in what has been a very tough denim cycle and we are finding the Mudd denim business has been a little bit softer than we anticipated. However, the accessories business for Mudd, especially footwear, has been much stronger than anticipated and we see the brand at or above plan for the first year. We are also very pleased with the cause-related advertising campaign we have introduced since owning the brand and we will continue to invest in and expand that effort.

London Fog will be launching this fall at better department stores across the United States. Our six core licensees have had a very strong reaction from the retailers and especially in the core outerwear category with Federated Department Stores. London Fog will also be launching this fall in Canada at all Hudson Bay stores, as well as our diffusion brand, Tower Collection by London Fog at 300 Zeller stores.

The Mossimo business at Target is also growing nicely and after finishing last year up approximately 35%, the business is already seeing increases again this year. Our international Mossimo licensees in Australia, South America and Mexico are doing well and we are in the process of entering into an expanded deal in Japan and exploring interesting opportunities in China, Korea, the Philippines, Thailand and Singapore.

We are excited about our acquisition of the Ocean Pacific brand and in the process of finalizing the core apparel licensee and evaluating both retail direct opportunities, as well as more traditional wholesale partners. This process should be complete within the next 60 days. The OP international licensing business is strong and growing and we are currently evaluating other international deals in Europe and Asia and finalizing an agreement for OP in Mexico.

So as we begin 2007, we believe each of our brands is moving in a positive direction and as a whole they should generate good organic growth for the Company that will flow through nicely to our bottom line.

I will now turn the call over to Iconix Brand Group Chairman and CEO, Neil Cole.

Thank you, David. Good morning, everyone. I am pleased with our 2006 results and believe that they continued to reinforce the powerful growth profile and profitability of our unique business model and strategy. When we close our latest two acquisitions, we will have 11 brands that in the aggregate will generate approximately $5 billion in annual retail sales. We will have 143 licensees around the world, including Kohl's, Target, Wal-Mart, and Sears creating a very solid and diverse base of high-margin royalty revenue.

Now that we have entered our third year as a brand management business, we can begin to provide some meaningful comparable growth metrics. I am pleased that the three brands we owned for the full years 2005 and 2006 -- Candie's, Bongo, and Badgley Mischka -- grew royalty revenues approximately 50% year-over-year from approximately $16 million in 2005 to approximately $24 million in 2006.

Also driving our 2006 revenue was a significant contribution from the two brands we acquired in 2005 -- Joe Boxer and Rampage -- which accounted for approximately $32 million in 2006 revenue, as well as the four new brands we acquired in 2006 -- Mudd, London Fog, Mossimo and Ocean Pacific -- which contributed approximately $22 million in 2006 in new royalty revenue.

I am pleased with the direction of all our brands and we will continue to be focused on achieving the maximum amount of organic growth out of each of our brands. As I have said in the past, I am confident that we can grow the existing portfolio in the aggregate at a minimum of 10% a year over the long term.

Expanding our brands around the world is going to be a bit slower than I would have liked. However, the opportunity is there and we will be working to establish strategic alliances with both retailers and wholesalers around the world and we will hopefully make some announcements later this year.

I would like to talk about our two latest acquisitions. Danskin is a 125-year-old brand of women's active wear, leg wear and fitness apparel and fitness equipment and these are all categories that are new or extremely underpenetrated in the portfolio today.

Danskin is one of the few blue-chip evergreen brands in these categories and as a result, it enjoys the unique ability to have somewhat ubiquitous distribution that ranges from better department stores to sporting good chains, mid-tier department stores, 15 of its own retail stores and a direct to retail license with Wal-Mart for a diffusion brand, Danskin Now, which is prominently placed today in over 4000 Wal-Mart stores.

Danskin Inc., the company that sold us the brand, is run by the dynamic CEO, Carol Hochman and Carol and her team will be continuing on as our licensee, working with us to expand the core business and work with Wal-Mart on Danskin Now, which we believe has tremendous potential for growth.

We have already had very productive discussions with Wal-Mart around expanding the brand, including in-store fixturing and other types of marketing support, as well as potentially new categories of products.

The purchase price for Danskin was $70 million with a contingent payment for an additional $15 million based on the brand achieving certain performance thresholds. The acquisition will be paid out of cash from the Company's reserves. We are forecasting that Danskin will generate approximately $15 million in royalty revenue to Iconix in its first 12 months, [of] which over two-thirds will be attributable to the Wal-Mart license for Danskin Now. Incremental expenses associated with the Danskin acquisition are estimated to be between $1 million and $2 million annually.

Earlier this morning, Iconix announced the planned acquisition of the brand Rocawear and that Rocawear co-founder and entertainer and business mogul, Jay-Z, also known as Shawn Carter, will be joining Iconix to run the Rocawear business.

In my opinion, there is no other entertainer or celebrity today that has their pulse on young consumers more than Jay-Z. We are thrilled to have him join Iconix and to work with him to implement an aggressive global growth plan for Rocawear.

Our strategy will be complete continuity. Jay has a very talented senior team that will stay in place and Iconix will provide additional resources and talent that I believe will enable Rocawear to become a $1 billion global lifestyle brand. Jay will retain his stake in the operating company that today manufacturers all of the Rocawear men's apparel and his two partners in the business, Alex Bize and Norton Cher, will continue to run that company and will enter into a long-term licensing agreement with Iconix for the Rocawear men's business.

Rocawear is a lifestyle brand that generates more than $700 million in annual retail sales through better department stores and specialty stores. The brand grew significantly between 2005 and 2006 and has a tremendous amount of momentum today and is among a small handful of brands consolidating a dominant position in today's youth fashion market, while many of the weaker brands are fading away.

Rocawear is currently licensed to over 10 different wholesale manufacturers and when we close, the three largest licensees will be the existing core men's apparel company followed by the licensee for junior sportswear, signature apparel and the kids apparel licensee, Kids Headquarters, both of which do close to $100 million in annual sales volume.

There are also a number of smaller, but very strong licensees, including big and tall apparel, footwear and handbags and there are other categories like intimate apparel and jewelry that are new and have a lot of potential for growth. Fragrance is a very attractive category that has yet to be licensed. The brand is currently underpenetrated internationally and we believe that with Jay's global appeal, it has a tremendous opportunity for international growth and expansion.

The purchase price for the transaction will be $204 million in cash with contingent payment of an additional $35 million of Iconix stock based on Rocawear exceeding certain performance thresholds over the next three to five years. We are forecasting that in the first 12 months, Rocawear will generate approximately $43 million in royalty revenue. Iconix is financing the transaction with a secured loan from Lehman Brothers and the incremental overhead for the Rocawear brand is estimated to be between $7 million and $9 million of which the vast majority will be the advertising of the brand.

We recognize that this is more than we traditionally take on expenses. However, we believe this is a transformative deal for the Company and Rocawear is a brand with significant growth potential. Therefore, we are going to make the right long-term decision and invest in continuity by keeping the existing team in place and committing to the advertising necessary for Rocawear to reach its full potential.

Iconix and Jay-Z will also be creating a separate equal joint venture developed and by other brands using the same business model as Iconix. The new company will begin by developing and licensing the name Shawn Carter, Jay-Z's real name, as a new luxury fashion brand. The new company will also look at other brand development opportunities across a broad set of consumer categories. I am very excited about this joint venture. Jay has a unique talent and access that I am hopeful will enable Iconix to expand the reach of our model to many new types of markets and categories that are outside of our sweet spot today. I am very excited about this acquisition and joint venture transaction.

We are adding more than twice the amount of royalty revenue that we have ever acquired in a single transaction. We are diversifying our portfolio with a very different type of brand and are adding a superstar in Jay-Z and his management team that I believe will offer numerous potential synergies for our entire business now and in the future.

We are anticipating Danskin and Rocawear to close later this month and looking forward and looking ahead, our pipeline of potential deals continues to be very strong. We are currently evaluating a number of different opportunities, including brands where the majority of the royalty revenue comes from outside of the United States, as well as brands both within and outside the fashion industry.

With the balance sheet and capital structure we have in place today, the Company has the ability to look at larger size transactions and we believe our cost of borrowing will continue to decrease.

Before we turn it over for questions, I would like to reiterate that we are pleased with our performance, but I would also like to emphasize that we truly believe we are only just beginning to realize the potential of our unique opportunities. I am confident that in a short period of time, Iconix will be the largest market share or we will have the largest market share of any company in the fashion business and that we will continue to demonstrate that we have a highly leverageable platform that can deliver strong and sustained organic growth for our portfolio of brands and that we can continue to add powerful new brands that will further diversify our holdings.

We are giving top-line revenue guidance for 2007 of between $150 million and $160 million and our updated earnings per share guidance will be $0.96 to $1.00 per fully diluted shares. This is up from the previous range of $0.87 to $0.92 per fully diluted share that we gave at the end of last year. This revised guidance does not include any assumption for additional acquisitions for '07. However, the Company continues to evaluate acquisition opportunities and will continue to acquire brands that meet our investment criteria.

Thank you very much and I would like to now open it up for questions for myself, Warren and David.

(OPERATOR INSTRUCTIONS). Todd Slater, Lazard Capital Market.

Thanks very much and congratulations on the new addition to your family.

Thank you, Todd.

I guess I just want to double check on your '07 guidance, if that assumes what -- or what does that assume in organic growth? Is that 10% or something above that or where are we in that --?

Roughly a blended rate of around 10% for all the brands that we have owned more than a year.

Okay. Alright. Great. Maybe we could flesh out a little bit more on the Rocawear acquisition and maybe talk a bit about the deviation from your traditional model in terms of expenses, which is maybe a little more -- around double what you normally would inherit and you mentioned the organic opportunity to $1 billion. I'm wondering if you could talk about what the business is currently running at? It's said to be about $800 million. I am wondering where we are relative to that impression and how leverageable do you think that incremental growth piece is on the $7 million to $9 million in operating expenses. How much more do you think you need to add in order to get to that sort of global $1 billion number?

Wow, that's a lot of questions. Generally, we are committing Jay and his team and mostly the advertising that Rocawear does, very big ad campaign across the country, to spend roughly between $7 million and $9 million in advertising going forward, but all of that is given to us by the licensees and is contributed as part of the $43 million that we project in income.

What is real important to know is that it is still roughly about 80% EBITDA bringing in $43 million and spending between $7 million and $9 million. So it still hits our plan for this year, which is to be hopefully close to 80% EBITDA, actually it's the high 70%s. So we still think it is in formula and the brand has tremendous potential around the world as Jay is a touring artist and he is traveling around the world. So we think we have a unique opportunity to build the brand in both Europe and Asia. So where today we are doing roughly around $700 million of retail in the U.S., we think the opportunity to go well over $1 billion can easily be done over the next couple of years. That was a lot of questions there, Todd. I don't know if I covered them all.

No, and just -- okay. So what sort of growth do you see on the expense line as you get to that $1 billion level? Is that somewhat stable or how variable is that?

I think it is variable because it is advertising that comes in from the licensees. So as the royalty top line goes, we will still be able to achieve our 80% EBITDA on the brand.

Okay. And then sort of just an ancillary on the joint venture that you are entering in with Jay-Z, if you could just give us a little more color on the nature of that venture, sort of what ideas are you going to target, how might this conflict with other opportunities Iconix might otherwise pursue, what level of investment are you planning and what percent of the partnership will Iconix own?

Right. In working with Jay over the last couple of months and getting to know each other, our two teams, we started talking about some really exciting opportunities that we would consider outside the sweet spot of Iconix that Jay had ideas on bringing to the table. So we decided to set up what I would call a development company with a minimal investment. Iconix is putting in $5 million; Jay is putting in his trademark Shawn Carter.

We are going to look at ideas. We are not going to higher overhead. We are going to keep it very tight and we are only going to spend if and when we bring in acquisitions into the joint venture on top of the Shawn Carter mark. So it is going to go very slowly. We don't see it having a P&L impact on Iconix unless we do a big acquisition into the JV, but I see it doing more kind of niche brands that we think Jay can add value to. The investment criteria will be more along what Jay can bring to the table and what we think works in the JV different than Iconix's traditional acquisitions.

Okay. In addition to sort of that apparel idea or Shawn Carter idea, is there any -- have you thought about -- does this perhaps gets you into the media side of the business at all? Have you thought about that?

Possibly. Jay has -- he is really brilliant and has a lot of ideas and he really has his pulse on the youth culture and he has got amazing contacts around the world pretty much at every level. So there are so many great opportunities, which is why we decided to pursue this development business with Jay and hopefully we think good things will happen. So I think it is going to be great for Iconix on many different levels.

Great. Well best of luck in all these ventures.

Thank you, Todd.

Virginia Genereux, Merrill Lynch.

Neil, you said in your remarks that expanding brands globally is happening maybe a little slower, more slowly than you would have liked and then you went on to say that you were still looking at acquisitions with big international components. So I assume that is on the sort of organic side. Can you elaborate a little bit on that and talk about where you are with the global expansion?

Well, in our pipeline, we have seen a lot of great trademarks and brands that have bigger business internationally than in the United States, more in Asia and Europe. So we are pursuing that avenue and we think that could definitely give us a foothold around the world.

On the organic side of our brands today, we have 143 licensees. I believe 32 are international, but we have kind of been going slow because we are looking for big deals. They are not that easy to manage, having people on the ground around the world, which Iconix does not because of our overhead structure. So we are really looking for strong strategic partners. So I think it is going a little slower. We're having a lot of meetings and a lot of second and third meetings, but I would have hoped by now to have been able to announce a couple of big strategic alliances. But I think hopefully by the end of this year, Iconix's international strategy will begin to unfold.

That's great. Can you update us -- where do you have folks internationally or where do you plan to?

Today, it is basically in New York and we do have someone who is off to Europe to live there on behalf of Iconix who has been training here for the last few months. But basically we are kind of thinking that it is going to happen through joint ventures or strategic alliances or having agents around the world. As I mentioned, we are still exploring different opportunities and we do have a big business in Canada with our London Fog with Hudson Bay and I think we have roughly 15 licensees there.

We have a great relationship with Falabella in South America on Mossimo. So those are the types of relationships we are looking for, long-term strong retailers around the world. To get them familiar with our brands and our Company is taking some time and it is going to -- there have been so many opportunities in America that maybe I haven't been, myself and David and our team, hasn't been on as many planes as we should be, but we are committed to making the business grow and strategically making international an important part of Iconix as we grow in the future.

That's great. And then on Rocawear, if I may, the $43 million on a $700 million retail business is a pretty good -- that is a pretty good yield.

Yes.

Right? Exactly. That's a great rate. Can you talk a little bit about what is that a -- what is that a function of?

The licensing fees are high. The whole team is just a powerful brand. They have a great roster of licensees and what Jay has done with his partners, Alex Bize and Norton Cher, has been just an amazing job of choosing powerful licensees and most of the deals are double digits. Based on the distribution, it has been a premium brand in the marketplace and there is wonderful royalties that are attached to each of the deals.

Are any of those deals sort of due to be renegotiated may I ask? Is the $43 million pretty dependable as we look forward a couple years?

What we have done as part of the negotiation over the last two months is we have solidified the revenue flow where every one of the major deals is at least three years and most of them are five years. So we have renewed with Kids Headquarters for an additional three years on top of what we have. We just renewed with Signature and we made a long-term deal with Alex and Norton over five years and Jay and the operating company. So the royalty is really secure, which was an important component in the purchase price.

Great. You guys are always good at that. And then lastly, Warren, if I may, can you go back through the balance sheet numbers that you quoted?

Sure. We are going to end the year with about $78 million in cash. The goodwill and intangibles together will be about $550 million and the shareholders' equity at the end of the year will be about $466 million.

Bob Drbul, Lehman Brothers.

A couple of questions on the acquisitions. Can you talk a little bit about the seasonality of Danskin and Rocawear in terms of how we think about the numbers for the rest of the year?

Yes. Danskin is a little heavier in the spring season being the active wear and the Lycra and the type of business they have where Rocawear is actually the opposite. It is a heavier back-to-school business. So none significantly, but like OP or London Fog where they are really skewed differently, but generally Rocawear is heavy in Q3 and Q4 and Danskin is heavier in Q1 and 2.

Okay. And then can you talk a little bit about the current distribution of Rocawear and if you see any major opportunities for distribution changes in that brand?

Basically, Rocawear enjoys being one of the top three in this we call more of a youth lifestyle category and it is really picking up momentum at Federated where traditionally it is the leading specialty store brand. So it is getting a little more mainstream in distribution, but Jay really wants to keep it where it is and we see it pretty entrenched in the department stores and specialty store business and we do not see any sort of distribution changes over the next few years based on the success.

Market share has grown every year for the last three years and we think there is kind of a shakeout in that segment of the marketplace where the strong brands are surviving and some of the weaker ones are dropping off. So we are pretty -- we think Rocawear is pretty entrenched where it is.

And then just one final question. Can you give us how -- how much as a percentage of the total sales were international revenues for '06 and your expectation for that percentage for '07 in the guidance that you gave us today?

It was roughly 6% in '06 and we believe it goes up somewhere to around 8%, but it should be higher. We believe ideally in the next couple of years that international revenue could represent a third of our portfolio and so that is where we see a big opportunity.

Rocawear is actually very exciting internationally. The business in Europe today, it's just really starting to take off. I believe last year it did about $14 million, but really heading in the direction where that could double or triple and we also think that there is big opportunity with Danskin in all the Wal-Mart businesses around the world. We have been talking to -- trying to figure out how we are going to work with Wal-Mart international, which can be a great opportunity.

Great. Good luck.

John Rouleau, Wachovia Securities.

Back to Rocawear a little bit. I know it is a specialty store and department store. Is it pretty similar in size between those two channels or is it dominated by one or the other?

The specialty store is about two-thirds, maybe even 75%. The Federated business has really been growing. It has more than doubled in the last 12 months. So we think that there is more growth there than necessarily in specialty.

Okay. It sounds like there is a lot of opportunities. I am wondering if some sort of a diffusion or derivative brand is a potential opportunity associated either with Rocawear or Jay-Z or something of that type.

We agree. There is no -- this youth lifestyle for some reason is not in the mass channel and part of our conversation is that we do believe that there is an opportunity and something that we could explore with Jay as we develop the business.

Okay. Going back to the joint venture, you mentioned you are going to be putting in around $5 million into that. How will that -- what will the accounting for that be? Will that be expensed over time or how will that flow through the income statement initially?

Right. The JV is 50-50 and our contribution as well as Jay's is equity that we are putting into the JV and only what actually is operation will flow back to us at 50%. It will flow to each party at 50-50. So we will be very cognizant of any expenses that roll through there in the year and we feel that for the first year that will be minimal impact on our P&L.

Right. And the initial product, the Shawn Carter product, will launch sometime early 2008. So at that point, you will actually have an operating structure and some revenues, some offsetting revenues there and you will start to recognize something, right?

Correct. That is the plan.

And then, Warren, quickly too, I am wondering if you could tell us what the share count you are assuming or how to model share count for this year?

Sure. The fully diluted share count for our current guidance is about 63.5 million shares fully diluted. Basic is about 56.5. Okay?

Terrific. Thanks, guys.

Eric Beder, Brean Murray.

What is the debt outstanding at the end of the year?

The debt outstanding at the end of the year is about $163 million of which about $156 million is the asset-backed securitization. But again remember we have the $78 million in cash on the balance sheet.

Okay. Can you talk a little bit about an update on the non-recurring charge, I guess the lawsuit? Where is the status of that and what are you thinking about that in terms of expense [ratio]?

We think that is going to end. We are in the middle of a trial as we speak. It has been going on for about four weeks. Hopefully it is going to be -- we're told it's going to be over in March. So we see the end of special charges at the end of -- let's say the latest -- there could be a few dollars in the second quarter, but it is encouraging for the rest of the year they will be gone.

Okay. And what are your thoughts with the OP apparel license? Where do you want that -- where do you kind of want that to end up? What do you kind of think with that?

Eric, it's David. We are about probably 30 to 60 days away from finalizing our strategy with OP, but we have a lot of exciting opportunities both retail direct and also wholesale and we are going to be announcing our plans shortly. And there is a great international royalty flow with OP that comes from -- we have a big licensee, Mitsubishi in Japan and Warnaco continuing on in the U.S. as our swimwear licensee and we're going to have our apparel licensee in place for Spring '08.

And for kind of the brands you bought in the last few years before -- let's say the brands you bought -- what brand do you think has the highest internal opportunity for growth going forward beyond the two you just bought right now?

Eric, basically the easy answer to that question would be Badgley Mischka because the base is so small. Badgley Mischka will do about -- our plan this year we believe we have said is going to be about $4 million and we think it get can be at $10 million in a couple of years. So Badgley Mischka from a percentage point is definitely going to be our fastest-growing brand.

But obviously from a revenue point of view, each of the brands are growing and each of the licensees, each of the agreements have built-in minimum escalations that go each year. So we see each brand continuing to grow.

Could you give me a share count -- sorry -- could you give me the share count one more time for '07?

For '07, fully diluted is about 63.5; basic is about 66.5 million shares.

Todd Slater, Lazard Capital Markets.

Just a quick follow-up. What is the rate on the Lehman debt piece? Did you guys give us that?

It is LIBOR plus 200, which today would be about 7.3%. But it is very flexible. It is pre-payable at any time and the facility is expandable so it's easily and efficiently we could draw money from it to execute on our future acquisitions, but it is LIBOR plus 200, which is about 7.3%.

Great. And then given the contingent equity piece, assuming Rocawear hits certain benchmarks, should we just assume one-third, one-third, one-third or something along those lines over the next few years? You said three to five years.

A piece of it is one-third and then a piece of it is over five years, about half and half. Jay's piece is over five years because that is the agreement we have signed and Jay as part of the whole team is over three years.

Jim Chartier.

I was just curious -- you talked a lot about Danskin's performance at Wal-Mart. Any opportunities outside of the Wal-Mart?

Today, it is about -- Carol and her team have about a $60 million business and we think there is a lot of growth opportunities. The brand is prominently placed in all better department stores and also in the moderate tier and we are looking at other licensing opportunities. We think Danskin is a unique brand where we could possibly even do nutritional products and maybe even waters and health bars. There are so many opportunities. It is such an incredible brand that has been around for 125 years. We are just a little also enthralled by being partners with Wal-Mart on this venture and we see having 4000 doors, we think that is a no-brainer where we could double that revenue. But we will -- Carol is really focused on executing on both levels, both Danskin and Danskin Now.

And is there any need for you guys to pause on the acquisition front to kind of digest these acquisitions? Is there any reason we should think that you guys would slow down for a few months just to digest them?

No. We might take next weekend off, but we're going to continue to work. No, seriously, these last two acquisitions, what's been wonderful, although Todd brought up that there is a little higher on the equity, I mean on the overhead, is that we put management teams in place. So neither one really packs the current Iconix Group because we've brought in such good talent on each of the deals.

We are building a pretty solid infrastructure here that can continue to be very acquisitive. We have acquired or we will have acquired at the end of this month six trademarks over the last 12 months and I don't know if we're going to go at that pace, but we will continue to be very active.

[Mark Kaufman], MLK Investment Management.

Congratulations on the acquisition. I have a question about your tax loss carryforward, how that looks now for 2007 if there is anything left.

Yes, there absolutely is. We have in excess of $40 million of NOLs. I think about $45 million actually at the end of '06 on a federal level.

So you probably won't actually be paying cash taxes this year?

That's correct. Depending on -- again, depending on the acquisition strategy.

Hopefully we will pay.

Right. Hopefully, we will end up paying a little bit towards the second half of the year.

Okay. Well, I guess obviously though you will have some cash and you can put that toward repaying the debt at anytime I guess if the acquisitions don't materialize.

Exactly.

Thanks very much and continue on, gentlemen. It has been a great ride the last few years.

Thank you, Mark.

Virginia Genereaux, Merrill Lynch.

Thanks. Just a follow-up. Were there expenses that were material at all associated with the add-on in the fourth quarter, Warren?

Yes. You are talking about the add-on offering?

Yes.

Yes. There were expenses. They were disclosed in the proxy statement, but they don't flow through the P&L.

No. I think -- yes, we prepaid back the Mossimo short-term debt, so there was $1 million of extra interest charges that happened in the fourth quarter, which we did not have in our expectations which would have helped us for another couple of pennies, but yes, we did -- when you do look at the plan, it was an extra $1 million higher.

Great. You mentioned that. But no, Warren, operating expenses associated with things going on the road?

No, that's correct. They are all in net proceeds.

Treated as equity. Okay. Thank you.

Ladies and gentlemen, this concludes the question-and-answer portion of today's conference. I will turn it back to management for any closing remarks.

Well, once again, thanks, everyone, for listening this morning. As I mentioned in my text, we truly believe that we have only scratched the surface and we have such incredible opportunities and we are pretty excited about what is happening here and more excited about the future. Myself, David and Warren will be around today for individual questions and we appreciate everyone's interest. Thank you.

Thank you for your participation, ladies and gentlemen. Have a good day.