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CRT Research | Distressed & Special

Situations
Kevin Starke, CFA
(203) 569-6421 kstarke@crtllc.com
Managing Director
Patrick Marshall, CFA
(203) 569-4373 pmarshall@crtllc.com
Research Associate

Iconix Brand Group Inc

(ICON , Close: $12.60)

August
August
27,27,
2015
2015

Tarnished Branding Firm Can Be Bought for Peanuts

Iconix Brand Group Inc. (ICON or the Company) is an intellectual property portfolio company that has struggled
in 2015 as financial performance has slowed and questions around the Companys accounting practices
including inquiries from the SEC -- have begun to surface. The common equity is down roughly 60% YTD (~30%
short interest) while the convertible notes have fallen from around 120 to the mid-90s. Recent news of the
departure of Neil Cole, founder and CEO of ICON, renewed investor fears as the stock traded down from around
$20/share and the longer-dated converts cracked, falling from par down to around 80. We think the stock
might be worth a look for event-driven special situations investors as a play not only on turnaround but also on
the upcoming Peanuts movie. The converts have less upside, with the longer-dated 1.5s somewhat exposed to
whatever capital structure change happens at maturity of the shorter-dated 2.5s in mid-2016.

Company Note

Primary Tradable Debt Securities


Issuer/ Borrower
Iconix Brand Group Inc.
Iconix Brand Group Inc.

Issue
2.5% Convertible Sr. Sub. Note due 2016
1.5% Convertible Sr. Sub. Note due 2018

Amount
Out. ($MM)
300.0
400.0

Issue
Common Stock (ICON)

Shrs.
Out. (MM)
48.3

Exercise
Price ($)
30.75
30.86

Parity
41.0
40.8

Moody's/ S&P CRT


Rating
Rating
NA/NA
NR
NA/NA
NR

Price
Bid
94.50
79.50

Maturity
6/1/2016
3/15/2018

YTM (%)
at Mid Px
9.9%
10.8%

52 Week
100 Day Avg.
Low/ High ($)
Vol. (MM)
11.32/42.25
1,450.0

3 Month
Change (%)
(51.7)

Ask
95.00
80.25

Equity
Issuer
Iconix Brand Group Inc.

Market
Cap. ($MM)
608.1

CRT
Rating
NR

Price
($)
12.60

Source: Bloomberg

Company Overview
To fully understand ICONs recent issues, a brief explanation of the Companys rather unique business model is
necessary. Iconix Brand Group is a brand management company that owns a portfolio of consumer-related brands
and intellectual property. In a nutshell, the Company acquires a brand and then attempts to monetize it by licensing
out the rights to the name to retailers and wholesalers. Iconix then supports its brand portfolio through marketing
and advertising campaigns. In this way, the Company attempts to reap the benefits of a strong brand name while
avoiding the fixed costs traditionally associated with a retail consumer company. A number of the brands were
fairly upscale in decades past, but have since faded. Big retailers like Wal-Mart, Target and Kohls see some wisdom
in licensing these as essentially house brands. Good examples are Ocean Pacific (OP) and Danskin.

Please find important disclosures on page 17 of this report.

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

Exhibit 1. ICON Business Model

Source: Company reports

Since the Companys founding, Iconix has managed to build a portfolio of roughly 35 brands with a book value of
approximately $2.2 billion, many of which are known on a national or even global scale. Iconix has stated in investor
presentations that it seeks to pay around 5x licensing revenues for a brand. Iconix attempts to leverage its expertise in
brand management and distribution to enhance brand awareness and cultivate brand loyalty. In monetizing its portfolio
of intellectual property, Iconix can either license their brands or sell the IP (or interests in the IP) outright. Licensing is
preferable as it is an ongoing revenue stream while a sale is a one-time source of income.
Since 2004, ICON has acquired ownership interests in the following brands:
Exhibit 2. ICON Brand Portfolio
Brand
Badgley Mischka
Joe Boxer
Rampage
Mudd
London Fog
Mossimo
Ocean Pacific/ OP
Danskin/ Danskin Now
Rocawear/ Roc Nation
Official- Pillowtex brands
Artful Dodger
Starter
Waverly
Ed Hardy
Zoo York
Ecko Unltd/ Marc Ecko Cut & Sew
Material Girl and Truth or Dare
Peanuts
Sharper Image
Ice Cream, Billionaire Boys Club
Umbro
Modern Amusement
Buffalo
Lee Cooper
Nick Graham
Hydraulic
Strawberry Shortcake

Partner (if JV)


ICON interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Scion
50%
100%
100%
Hardy Way
85%
100%
100%
MG Icon
50%
Peanuts Holdings
80%
100%
Scion
25%
100%
Icon Modern Amusement
51%
Alberta ULC
51%
100%
NGX
51%
Hydraulic IP Holdings
51%
100%

Date Invested
Oct-04
Jul-05
Sep-05
Apr-06
Aug-06
Oct-06
Nov-06
Mar-07
Mar-07
Oct-07
Nov-07
Dec-07
Oct-08
May-09
Oct-09
Oct-09
Mar-10
Jun-10
Oct-11
May-12
Nov-12
Dec-12
Feb-13
Feb-13
Oct-14
Dec-14
Mar-15

Source: Company filings.

Page 2

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

Capital Structure
Iconix has $1.5 billion in debt that is comprised of two tiers, senior secured and senior subordinated. In the secured
tranche, the Companys co-issuer subsidiaries just drew $100 million on its variable funding facility this past February
and has another $730 million outstanding in senior secured notes due 2043. The secured debt is all co-issued by
bankruptcy-remote indirect subsidiaries Icon Brand Holdings LLC, Icon DE Holdings LLC and Icon NY Holdings LLC. The
parent is not an obligor on this debt. The tranches pay cash interest in the 4.2-4.3% range and amortize at 7% per year.
While listed maturity is January of 2043, the Company acknowledges that it will attempt to repay the debt by January of
2020 due a mandatory step up in coupon of at least 5% if they are not repaid at that point in time. The secured debt is
all secured on a pari passu basis by interests in much of the Companys IP portfolio. There are some unencumbered
brands.
There are two convertible senior subordinated notes that mature in 2016 and 2018. The nearer-dated notes have a
$30.75 conversion price and the longer-dated $30.86. The Company also bought hedges on its own stock to lock in the
amount that would be due at maturity. One major concern with these notes is that it appears that neither the converts
nor the secured notes have any incurrence covenants, allowing for the distinct possibility that the converts get primed
by a subsequent capital raise, as we discuss in the appendix.
Exhibit 3. Iconix Capital Structure
LTM Figures as of
LTM EBITDA

6/30/2015
219.8

Settlement Date

8/31/2015

($ in millions)
Restricted cash
Unrestricted cash
Secured
$100MM Variable Funding Facility due 2043
2012-1 Sr. Secured Notes due 2043
2013-1 Sr. Secured Notes due 2043

Balance
64.9
117.9
182.8

Cum.
Cap.
Face

Net Cap.
Face

LTM
EBITDA
219.8
Mult. (x)

Net
Cum.
Cap.
Face

Net Cap.
Market

LTM
EBITDA
219.8
Mult. (x)

608.1

LTM
EBITDA
219.8
Mult. (x)

100.0
495.0
234.7
829.7

3.8x

646.9

2.9x

829.7

646.9

1,529.7

7.0x

1,346.9

2,137.8

9.7x

1,955.0

Price
-100.0

YTM
(%)

Interest Exp.
Analysis

Mat.

Rate/
Coup.
(%)

Est.
Int. Exp.

100.00
100.00
100.00

4.14% 01/25/43
4.23% 01/25/43
4.35% 01/25/43

4.14%
4.23%
4.35%

4.1
20.9
10.2

94.50
80.00

10.30% 06/01/16
10.70% 03/15/18

2.50%
1.50%

7.5
6.0

Int Exp

48.8

2.9x

283.5
320.0
6.1x

603.5

1,346.9

6.1x

8.9x

608.1

1,955.0

8.9x

Equity
Common Stock (ICON)

Net
Cum.
Cap.
Mkt

Price / YTM
Analysis

(182.8)

300.0
400.0
700.0

Cap.
Mkt

(182.8)

100.0
495.0
234.7
829.7

Senior Unsecured
2.5% Convertible Sr. Sub. Note due 2016
1.5% Convertible Sr. Sub. Note due 2018

Cap.
Face

12.60

48.3 MM Shrs

Source: Company reports, Bloomberg, CRT Capital Group estimates

Recent Problems
C-Level Departures. Founder Neil Coles recent retirement sparked some panic among investors recently as ICONs
founder has been on the only CEO the Company has ever known. The departure also continues a somewhat disturbing
trend of C-level departures over the past couple of years, as COO Seth Horowitz and CFO Jeff Lupinacci both departed
within weeks of each other this past spring. This came after the resignation of CFO Warren Clamen a year earlier. Like
Mr. Cole, Mr. Clamen had been with the firm since 2005. While the reasons for these departures are unclear, it is still an
unsettling trend that is likely prominent in the mind of the investing community.
Mr. Coles employment contract was up for renewal in December 2015. He had received a $3 million extension bonus
when he renewed in June 2011. When amortized, this represents a cost of $750,000 per year for the ensuing four years,
Page 3

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

or 50% of his annual base salary. Over and above all this, his annual bonus was determined one-third each by growth in
EBITDA, net income and free cash flow. As we point out elsewhere in this report, the Companys adjusted EBITDA figure
differs from our own take in some quarters though we generally agree with free cash flow (with some qualifications).
However, the net income figure differs even more meaningfully that EBITDA. Thats because of treatment of gains from
dispositions and non-cash gains on remeasurements. So what we worry most about in response to C-level departures is
whether the compensation model going forward no longer entices rainmakers like Mr. Cole to remain on board. This
cuts both ways: Was the compensation model appropriate to begin with, or should it change going forward and attract
someone whose incentives are better in line with other stake holders?
The change at the helm leaves Peter Cuneo in charge as interim CEO. He is a known quantity in the restructuring world,
and in this we take some comfort. He is credited with leading turnarounds at Black & Decker, Clairol, and Remington
Products. But most notable from an IP management standpoint was his role at Marvel Entertainment coming out of
bankruptcy in 1999. Mr. Cuneo has said publicly that he favors active boards, and one wonders if that led to conflict with
Mr. Cole. In any case, it should inspire some confidence that Mr. Cuneo by implication has expressed that he wants the
board to exercise an active oversight role as he takes the reins at ICON, even if only temporarily.
Questions About Accounting Practices. As one can imagine, running a company whose assets are primarily intangible
leaves some room for management discretion in accounting practices. This issue has been highlighted by the Companys
decision to restate its cash flow statement not once, but twice, in the past two years (two periods that saw a CFO
resignation, it should be noted). Due to these revisions, we will focus on the last three years as they are most easily
compared. The impact of the revisions was most obvious in 2013 where $30 million of operating cash flow was
transferred to investing activities. This reclassification was related the sale of trademarks that the Company had
previously deemed operating cash flows when they should have, in fact, been investing cash flows.
The Company also began breaking out Other Revenue from Licensing Revenue at the end of 2014 on its income
statements. It turns out that other revenue and trademark sales are one in the same. Separating Other Revenue we
can now see that overall revenue growth has been bolstered by sales and that licensing sales growth has been slowing.
It seems to us that Other Revenue should be removed from in the income statement altogether and left on the cash
flow statement.
More troubling, however, is the fact that operating cash flows have been trending down while revenues and net income
have been growing. It is here that potential impact of managements latitude in accounting decisions could be most
obvious. We believe the answer to these divergent trends may lie in non-cash gains related to sales of interests in ICONs
portfolio book. For instance, how should ICON value the rights to sell Ed Hardy t-shirts in France? In accounting, the gain
should be the sale price of these rights less the cost basis, but where the cost basis is highly nebulous and subject to
estimates, there is great potential for management to take advantage of the latitude allowed.
To take an example from the most recent 10-Q, Iconix China is a JV that Iconix formed in 2008 with Novel Fashion
Brands Ltd., a unit of Hong Kong fashion mogul Silas Chous empire, to market Iconixs brands in China. Novel was
chosen as a partner to leverage its own experience and connections to launch Iconixs brands. As part of the deal, Iconix
contributed the rights to all of its brands in China and $2 million while Novel contributed $17 million. In March 2015,
management decided to buy Novel out of the JV, ostensibly because Novel had done its part, successfully launching
ICONs brands in China. We have several factual observations that we feel might be useful in assessing the nature of this
transaction.

Page 4

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

The price paid for the 50% stake was $57.4 million ($40.4 million cash), implying a $114.7 million value for the
entire business.
The Company recognized a $47.4 million non-cash gain on the transaction for its own 50% stake in Iconix China.
In other words, the price paid for the 50% it did not own boosted the valuation of the 50% that ICON did own.
Backing out the $47.4 million gain and the $2 million in cash that ICON initially contributed, we arrive at an
implied valuation of $8 million for Iconixs contribution of the rights to its brand portfolio.
ICONs 2014 10-K provides a geographic breakdown of revenues with the United States and Japan being broken
out as contributing $293 and $30 million, respectively, to 2014 revenues. The remaining $138 million is
categorized as Other and no single country contained in the Other category contributed 10% to ICONs 2014
revenues.

The core issue here is whether an investor relying on public information can have confidence that management paid a
fair price for the transaction. On the one hand, assuming China contributed no more than $46 million to ICONs sales
(10% of consolidated) and backing out $20 million in cash from the implied $114.7 million value, we arrive at a price to
sales multiple of at least 2x. At the time, this was lower than the multiple at which ICON itself traded, but is now in
excess of it (1.6x). It is arguably a high multiple for retail, but ICON is not truly retail. It is a relatively low multiple when
compared to other similarly situated brand management companies (see our valuation comparison table toward the
back of this report). One could also argue that China is a growth market that deserves a premium, but recent economic
developments in China suggest some potential weakness going forward in consumer discretionary spending. Of course,
the man behind Novel, Silas Chou is a major figure in the fashion industry worldwide and may have driven a hard bargain
on the asking price. The entire transaction could be arms length, and the valuations at inception and buyout could be
above board. But one can see the room for considerable discretion. The SECs apparent interest in this creates some
discomfort for investors, probably because they create the perception of roundtrip transactions. Well discuss below
another more potentially benign explanation.
If EBITDA is supposed to be a proxy for operating cash flow, some of the usual relationships between line items seem to
break down in ICONs financial statements. Other revenues seem to have at times overstated EBITDA. It is interesting
that in the 2014 10-K the Company restated 2013 cash flows to move gain on sale of trademarks from operating cash
flows to investing cash flows. This is a tacit admission that gains on sales of trademarks were artificially inflating net
income in prior years. Actual cash proceeds from trademark sales remain in the investing cash flows section. But so too
do all opening investments in new brands. It may be better to think of the true cash flows from this business as the sum
of both operating and investing cash flows, especially since investment in PP&E is quite small. One could make the case
that selling and buying brands and trademarks is an operating activity for an IP portfolio company as managing the
portfolio is part of operating the Company. So while operating cash flow as reported for the 2010-2014 period was
$919.7 million, combined operating and investing cash flows were just $167.3 million. While were on the topic of the
cash flow statement, we would further note that net borrowings in the five-year period of $583.7 million seem to have
helped subsidize share buybacks of $774.3 million. The Company likely has around $500 million in remaining authorized
buyback capacity.
We have created our own adjusted P&L and EBITDA reconciliation for the last three years to illustrate the impact of
these accounting practices on the income statement. We have included the Companys own reported net income and
EBITDA figures for comparisons sake. As previously stated, most of the variance between our estimate and ICONs is in
net income while the EBITDA differential is mostly accounted for by the other revenue line item.

Page 5

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

Exhibit 4. CRT Adjusted P&L Statement


$ in 000s

2012

2013

2014

1Q15

2Q15

Total Revenue
Less: Other Revenue

353,818
(12,133)

432,626
(34,579)

461,243
(54,303)

95,387
-

98,459
-

Licensing Revenue

341,685

398,047

406,940

95,387

98,459

SG&A
Operating Income

138,368
203,317

175,215
222,832

205,410
201,530

44,155
51,232

49,087
49,372

Interest Expense
Interest & Other Income
Less: Non-cash gain on remeasurement
Less: Gain on sale of securities
Equity Earnings on JVs
Forex Loss (Gain)

(46,576)
2,711
10,887
-

(76,321)
7,443
(5,395)
12,129
-

(84,523)
40,826
(37,893)
(342)
17,030
-

(21,296)
48,179
(47,365)
3,202
10,500

(20,219)
790
3,618
(2,006)

Pretax Income
Provision for Taxes

170,339
(58,963)

160,688
(58,075)

136,628
(61,737)

44,452
(25,910)

31,555
(12,184)

Net Income
Less: Noncontrolling interest

111,376
(14,101)

102,613
(14,539)

74,891
(14,693)

18,542
(3,067)

19,371
(4,603)

Net income attributable to ICON


Company reported Net Income attributable to ICON

97,275
109,408

88,074
128,048

60,198
152,736

15,475
62,840

14,768
14,768

15,475
25,910
21,296
(814)
(10,500)
371
1,101

14,768
12,184
20,219
(790)
2,006
2,000
966

52,839
52,722

51,353
51,238

EBITDA Reconciliation
Net Income
Provision for taxes
Interest Expense
Interest Income
Forex
Special Charges
DD&A
EBITDA
Company reported EBITDA

97,275
58,963
46,576
(2,711)
6,766
206,869
216,963

88,074
58,075
76,321
(2,048)
8,825
229,247
262,943

60,198
61,737
84,523
(2,591)
6,076
209,943
263,783

Source: Company filings, CRT Capital Group estimates

It should be noted, finally, that the SEC inquiry is just a comment letter process. Section 408 of the Sarbanes-Oxley Act
requires the SEC Division of Corporation Finance to review an issuers periodic filings at least once every three years. So
one should not perceive this as an investigation and it is certainly far from being a Wells notice. Per its website, the
division views the comment process as a dialogue with the company about its disclosure. This can sometimes lead to
disclosure changes. Based on our foregoing comments, that might be a welcome outcome here, and it could spell the
end of this saga. Unlike formal investigations, where there is often no definitive end to the process, a comment letter
process does end with a letter from the SEC to that effect.

Liquidity and Cash Flow


The next question to be addressed is whether the Company can actually generate sufficient cash flow to cover its costs,
and if not, where the coverage ends. The Company currently generates roughly $425 million in revenues from its
licensing business and has about $315 million in fixed-cost requirements, if we include SG&A (though not technically
fixed), as set forth in the table below. Another way to approach it is to consider the priority of cash outflows. If all the
cash payments related to the securitizations, SG&A, and capital expenditures effectively come ahead of servicing the
convertible notes, how much EBITDA remains to accomplish this? Deducting the aforementioned line items, we arrive at
roughly $122 million in cash flows remaining to service $700 million in debt, leaving the converts levered at about
5.75x.
Page 6

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

If cash flows are what they seem to be, with about $122 million in excess cash generation before $13.5 million in annual
convertible note interest, it appears that the Company is in no immediate liquidity danger, especially with nearly $183
million in cash on the balance sheet (though $65 million of this is restricted for servicing the secured debt). The 2016
maturity of $300 million in convertible bonds would not be a concern were it not for the accounting questions. If it
should transpire that the Company becomes delinquent in its SEC filings, refinancing will likely become more
complicated and expensive.
This presents two issues for the convertibles maturing in 2018.
Exhibit 5. Sources and Uses of Cash
Neither convertible issues covenant package has any limitations
on indebtedness, leaving open the possibility that the longerdated issue is primed by senior secured debt put in place to
refinance the nearer-dated issue (see the appendix for further
analysis). Also, there is the risk that the core business
deteriorates by 2018, a very real concern considering the often
transitory nature of brand popularity, especially in fashion, where
most of ICONs portfolio is focused. The business model requires
constant investment in the brand portfolio. As the existing brands
age and become less popular and profitable, new brands must be
acquired. This requires significant investment. For instance, Iconix
acquired Ed Hardy for $62 million in 2011, Umbro for $225 million
in 2012, and Strawberry Shortcake for $105 million earlier this
year. While capital raising can fuel these activities to an extent, the business must continue to generate free cash flow to
ensure that ICON remains strong enough to have the ability to continue to tap capital markets.

One Might Buy ICON for Peanuts


Most of the Companys brand portfolio pertains to consumer goods and retail. One notable exception is the Peanuts
Brand (i.e., Charlie Brown), which the Company acquired from E.W. Scripps in 2010. The Company contributed $141
million for an 80% stake in all IP related to the Peanuts brand and the Schulz family contributed $34 million for the
remaining 20%. Peanuts is different from much of ICONs portfolio in that it is a media brand rather than fashion. It is
also timeless, at least to the extent that that any IP is, and should retain popularity and recognition going forward. While
much of the Peanuts business is typically related to advertising (e.g. MetLife) and licensing out holiday specials,
management has been highlighting the upcoming Peanuts movie (slated for a November 6, 2015 release) as a potential
game-changer for Iconix. With a budget believed to be around $100 million and a full global launch set for 4Q15 and
1Q16 (70 countries), Peanuts could provide a significant boost to ICONs licensing revenues, not only from the movie
release but also from the attendant licensing rights for DVDs, toys and games, and additional advertising. According to a
2014 investor presentation, Iconix signed 180+ new licenses in 2014 alone. While we do not know the terms of the
movie deal or any of the merchandising deals, former CEO Cole stated in a 2014 Forbes article that Peanuts could
potentially double the Companys revenues. Even if it falls short of that goal, Peanuts has the potential help restock
ICONs warchest for further IP purchases.
One might make a counterargument that the likely target audience of young children have grown up in a post-Peanuts
world and may not have enough familiarity with the characters to be motivated to see the new film. But consider the
following:
Page 7

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

Exhibit 6. 20th Century Television Series Reborn as 21st Century Feature Films
Title
The Adventures of Rocky & Bullwinkle
Alvin and the Chipmunks
Alvin and the Chipmunks: The Squeakquel
Alvin and the Chipmunks: Chipwrecked
Garfield: The Movie
Garfield: A Tale of Two Kitties
Mr. Peab ody & Sherman
The Smurfs
The Smurfs 2
Source: BoxOfficeMojo.com and imdb .com.

Year of
Release
2000
2007
2009
2011
2004
2006
2014
2011
2013

Box Office Gross ($MM)


Production
Domestic
Foreign
Total
Budget ($MM)
26.0
35.1
61.1
76.0
217.3
144.0
361.3
60.0
219.6
223.5
443.1
75.0
133.1
209.6
342.7
75.0
75.4
125.4
200.8
50.0
28.4
113.3
141.7
NA
111.5
161.4
272.9
145.0
142.6
421.1
563.7
110.0
71.0
276.5
347.5
105.0

TV Run
1959-1961
1983-1990
1983-1990
1983-1990
1988-1995
1988-1995
1959
1981-89
1981-89

One can see that some arguably less memorable properties from the 1960s to 1980s were quite successful at the box
office. With the exception of Garfield, the table does not include comic strip/book properties that went to the big screen
since 2000. This would obviously include some of the Marvel characters that Mr. Cuneo helped shepherd to recent
renewed popularity. Moreover, the Peanuts brand remains active in recent years both in terms of new content and
merchandising. A 2011 video release entitled Happiness is a Warm Blanket, as well as the continued airing of seasonal
specials on prime time TV, have kept the brand active. When Iconix made the purchase in 2010, it said that retail sales of
Peanuts-related merchandise was running at $2 billion per year.
The November 6 release puts together Fox and animation house Blue Sky Studios. The latter has a very good recent
track record, including film franchises such as Epic, Ice Age, Robots, Rio, and Horton Hears a Who. Media reports say that
Blue Skys work on The Peanuts Movie is both a fresh take on an old classic and yet very faithful to the vision of Charles
Schulz. All in all, we are directionally very optimistic about the impact this could have in terms of rejuvenating Peanuts
merchandise sales and ICONs licensing revenues.

Recent Results and Guidance


The 10-Q shows how hard it is to parse the M&A activity from the underlying results. Overall licensing revenue was up
1% to $98.5 million, but would have been up about 4% more had it not been for adverse forex trends. But a lot of this
growth seems to have been acquired, not organic. This is something that many analysts fault the Company for, but we
are less critical. Organic growth from fairly seasoned, non-promoted brands like Ocean Pacific is to us in the nice to
have category and not a must have. It seems to us that gradual decline in brands from yesteryear should be seen as
the norm, and the resurgence of brands like Old Spice should be seen as the outlier (and as with Old Spice, likely also
requiring considerable ad spending). ICONs business plan is best seen as premised on squeezing the last bit of juice out
of brands that would otherwise retire.
Within the quarterly results, the entertainment segment increased by $5.4 million to $24.5 million, not adjusting for
forex effects. This increase was probably entirely driven by the recent acquisitions of the Peanuts and Strawberry
Shortcake brands. Mens was down 9% and home goods were down 19%. The mens segment decline is M&A-related: In
September 2014, the Company contributed the Lee Cooper brand to Iconix SE Asia for certain geographies. Sales in
those geographies are thus no longer included in licensing revenue, but rather in equity from JVs. Something similar
appears to be going on with the Sharper Image brand, but the disclosure here is less clear.
There were no other revenues in 2Q15, versus $21.4 million in 2Q14. The prior-year period had seen revenues from
selling brands into the Iconix SE Asia JV, and from other sources, while 2Q15 was quiet on this front. Most troubling from
Page 8

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

a disclosure perspective, the performance of brands sold into JVs is not discussed in any detail in the MD&A section of
the quarterly reports. Neither did we detect much discussion of this on the quarterly conference call.
For the full year 2015, the Company expects licensing revenue to achieve low single-digit growth, and to be in a range of
$410-$425 million. The forecast for other revenue is $5 - $15 million. Thus, the high end of the combined revenue
guidance was well below what was provided in the 1Q15 release of $490-$510 million. Adjusted EPS guidance was
lowered a full dollar to $2.00-$2.15. GAAP guidance was lowered to $2.24-$2.39 from $3.65-$3.79. The Company still
expects to achieve significant free cash flow for the full year and revised its 2015 free cash flow guidance to a range of
$170-$190 million from $208-$218 million. Consensus EBITDA for 2015 has since adjusted to about $220 million from
$275 million.

Valuation
First, the fundamental bull and bear cases:

Bull Case. Management puts the recent accounting questions behind it, and ICONs current brand portfolio
maintains its current performance while growing sales in emerging markets like Latin America and China,
justifying the recent prices paid for the 50% JV stakes that the Company acquired. The Peanuts film is a
resounding success that invigorates merchandising and advertising licensing revenues, bolstering Iconixs
balance sheet for its next acquisition and for further (re)financing activity.
Bear Case. Accounting issues persist and deepen into an investigation. Licensing revenues for the current brand
portfolio deteriorate as consumer retail spending declines. Consumer spending in emerging markets, especially
China, is especially hard hit, making the recent prices paid for 50% stakes in EM JVs appear inflated. The Peanuts
release flops, and Iconix does not enjoy the bump in revenues that the market has been expecting. ICONs deal
pipeline begins to dry up, increasing the Companys reliance on its current brand portfolio which begins to lose
relevance with consumers as it ages.

Our take:

The Peanuts Movie has good prospects.


There are no good grounds to predict that the comment letter process turns into something worse.
China may be weakening but it is difficult to see this causing liquidity issues.
The current interim CEO has a good background to manage the Peanuts event and whatever management or
business transition lies ahead.
Even if revenues remain flat, the stock appears heavily undervalued versus its peer group, as set out in the table
below.

Security-specific comments:

The common stock seems like the best vehicle for a long position in this capital structure. Even just a $20 stock
price would put the stock at only 9.7x consensus PE and 1.0x book value, still far lower than any of the comps.
The 2.5% convertible senior subordinated notes due June 1, 2016 are quoted 94-95 for a 10.3% yield to
maturity. Well assume the $30.75 conversion price is not a thing to be grasped at by next June. At a 45% vol and
50 bps borrow cost on the stock, the option-adjusted spread is just under 1000 bps. Should ICONs situation
worsen dramatically by next year, something we think is unlikely, two things could happen: either the 2.5s could
drop in price and converge with the longer-dated 1.5s, or they could negotiate a refinancing in which they swap
Page 9

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

into secured paper. But we still think the most likely outcome is that they are taken out by a new debt issue. If
one can bear the risk of the widowmaker scenario, these might be attractive. Alternatively, if they could be
borrowed at a reasonable rate, they could be used as a hedge on a long stock position.
The 1.5% convertible senior subordinated notes due March 15, 2018 have less to recommend them, in our
view. They traded yesterday in institutional amounts at levels straddling 80, for a yield to maturity of 10.6%.
They run risks of being primed as outlined elsewhere in this report. Convertible at $30.86, the option-adjusted
spread is about 1160 bps. For some perspective, they traded at 142.5 vs $41.87 and parity of 135.7 on
September 2, 2014, nearly a year ago and before the recent troubles emerged. Shorting them thus involves risks
stemming from equity sensitivity over their remaining life of about 2.5 years.

One thing to note on the convertible bonds is that, despite the fact that they sit behind $829.7 million in secured debt,
they are not necessarily a zero in an insolvency situation, most notably for structural reasons if not for valuation. This
could be a reason why some investors might favor a traditional long bond/short stock hedged position rather than the
opposite. The securitization debt is at bankruptcy-remote entities. The indentures do not appear to deem a bankruptcy
filing by the ICON parent as an event of default on the securitizations. These could thus continue to perform and ICON
would continue to own its equity stake in them. As the only other debt in the structure currently, the convertibles would
be in line to get paid out from the value of these equity stakes after a DIP loan if there were one, and whatever opcolevel payables there might be. It would seem to require a default on the securitizations themselves to produce an
outcome where the convertibles and the stock both trade down to zero. It should be noted that this commentary is
merely theoretical, and we in no way envision a bankruptcy scenario for ICON.
Exhibit 7. ICON Three-Year Stock Price Performance

Source: Bloomberg.

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CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

Exhibit 8. Peer Group Comparison


Company
Ticker
Last Report Date

Iconix Brand Group


Inc
ICON

Sequential Brands
Group Inc
SQBG

Cherokee Inc
CHKE

6/30/2015

5/2/2015

6/30/2015

Perry Ellis
International Inc
PERY

Martha Stewart
Living Omnimedi
MSO

05/02/15

Median

6/30/2015

Revenue
LTM
2015E
2016E

420.0
421.0
424.0

35.2
35.0
36.3

62.4
81.4
96.5

899.1
890.0
933.0

106.3
90.9
94.0

Adj. EBITDA
LTM
2015E
2016E

219.6
217.5
228.0

17.5
17.2
18.3

23.7
50.6
59.7

37.7
38.5
55.9

3.2
12.5
15.0

EPS
LTM
2015E
2016E

2.28
2.07
2.19

1.14
1.14
1.16

0.28
0.39
0.52

1.01
0.52
1.85

0.02
0.13
0.19

EBITDA margin
LTM
2015E
2016E

52%
52%
54%

50%
49%
50%

38%
62%
62%

4%
4%
6%

3%
14%
16%

21%
31%
33%

Share Price
Book Value per Share
P/B Ratio

13.75
19.98
0.7x

25.94
4.01
6.5x

15.89
6.59
2.4x

24.00
20.09
1.2x

6.02
1.11
5.4x

3.9x

Shares outstanding (mm)


Market Cap ($mm)

48.3
663.6

8.7
224.9

40.0
636.0

15.6
374.7

Total Debt ($mm)


Preferred Equity
Cash & Cash Equivalents
TEV

1,529.7
0.0
-182.8
2,010.5

28.8
0.0
-4.1
249.6

172.5
0.0
-25.3
783.2

172.5
0.0
-49.2
498.0

0.0
0.0
-49.2
146.3

TEV / EBITDA
LTM
2015E
2016E

9.2x
9.2x
8.8x

14.3x
14.5x
13.7x

33.1x
15.5x
13.1x

13.2x
12.9x
8.9x

45.6x
11.7x
9.8x

23.7x
13.7x
11.4x

P/E Ratio
LTM
2015E
2016E

6.0x
6.7x
6.3x

22.8x
22.9x
22.5x

56.8x
41.3x
30.4x

23.8x
46.2x
12.9x

254.0x
46.3x
31.7x

40.3x
43.7x
26.4x

P/S Ratio
LTM
2015E
2016E

1.6x
1.6x
1.6x

6.4x
6.4x
6.2x

10.2x
7.8x
6.6x

0.4x
0.4x
0.4x

1.8x
2.2x
2.1x

4.1x
4.3x
4.1x

1.6x
1.4x

7.3x
6.2x

4.6x
3.3x

0.0x
-15.3x

3.1x
2.3x

Debt / LTM EBITDA


7.0x
Net Debt / LTM EBITDA
6.1x
Source: Bloomberg, Capital IQ, CRT Capital Group estimates

32.5
195.6

Page 11

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

Appendix Convertibles Subordination Language and Priming Risk


The two convertible indentures have some complicated subordination language that could create some debate in an
insolvency situation. Well use the 1.5% notes indenture for our analysis. The notes are titled subordinated, but the
exact measure of their subordination is not that clear. Sec. 6.02, entitled Payments to Holders includes the following
provision (and other similar provisions):
Upon any payment by the Company, or distribution of assets of the Company of any kind or character, whether
in cash, property or securities, to creditors upon any dissolution or winding- up or liquidation or reorganization
of the Company (whether voluntary or involuntary) or in bankruptcy, insolvency, receivership or similar
proceedings, all amounts due or to become due upon all Secured Senior Indebtedness shall first be paid in full
in cash, or other payment satisfactory to the holders of Secured Senior Indebtedness (emphasis added).
This section says that the notes are subordinated in right of payment to Secured Senior Indebtedness. Thats clear
enough. This type of debt is defined as follows:
"Secured Senior Indebtedness" means the principal, premium, if any, interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding, whether or not a claim for postpetition interest is allowable as a claim in any such proceeding) and rent payable on or in connection with, and
all fees, costs, expenses and other amounts accrued or due on or in connection with, the Company's secured
Indebtedness, whether absolute or contingent, due or to become due, outstanding on the date of this Indenture
or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the Company, including all
deferrals, renewals, extensions or refundings of, or amendments, modifications or supplements to, the
foregoing. Secured Senior Indebtedness does not include:
(1) secured Indebtedness that expressly provides that such Indebtedness shall not be senior in right of
payment to the Securities or expressly provides that such Indebtedness is ranked equally or junior to the
Securities;
(2) any of the Company's secured Indebtedness owed to any of the Company's Subsidiaries;
(3) any Indebtedness that is not secured; and
(4) any obligation for federal, state, local or other taxes.
The core of the definition is its exclusions, namely for any debt that is not secured or that is explicitly not ranked senior
to the notes or is explicitly ranked junior to the notes. So there could be debt that is pari passu with the notes despite the
fact that it may have specific collateral. That is not unusual.
Things get a little more confusing from here. "Unsecured Senior Indebtedness" is any debt :that ranks equally in right
of payment to all of the Company's unsecured and unsubordinated Indebtedness, including the Securities, and the
Company's 2.50% Convertible Senior Subordinated Notes due 2016. So, though the notes are termed subordinated,
they are clearly included in a basket of debt that includes the other convertible issue, and which further includes
unsecured and unsubordinated indebtedness.
Then theres Section 6.08, captioned as Limitation on Subordinated Indebtedness. Per this section:
The Company shall not incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any
respect to any Secured Senior Indebtedness unless such Indebtedness is Unsecured Senior Indebtedness or is
contractually subordinated in right of payment to Unsecured Senior Indebtedness. For purposes of the
foregoing, no Indebtedness will be deemed to be subordinated or junior in right of payment to any other
Indebtedness solely by virtue of being unsecured.
This says by implication that the Company can issue further Secured Senior Indebtedness without limitation. But if the
Company chooses to issue any debt that is subordinated to Secured Senior Indebtedness, that new debt must be
Unsecured Senior Indebtedness (i.e., pari with the bonds) or junior in right of payment to the bonds. Any new unsecured
debt that is issued without specific contractual subordination to the notes cannot be deemed to be subordinated notes
Page 12

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

simply by virtue of being unsecured. Whats interesting about this is that per the definition of Secured Senior
Indebtedness, to qualify for that definition, debt does have to be secured, and that makes the notes subordinated to it.
The Companys senior secured debt is currently held at SPEs. But we see no limitation on the incurrence of new secured
debt at the parent company and certain other subsidiaries. This means that at the time of refinancing the near-dated
convertibles, they could be replaced by senior secured debt that would prime the longer-dated convertibles. However it
does seem that any new unsecured debt would not rank senior to the longer-dated notes. The health of the business
and its SEC reporting status will likely play a role in deciding whether the unsecured debt markets remain open for ICON.

Page 13

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

Exhibit 9. Iconix Income Statement


Licensing Revenue
Other Revenue
Total Revenue

2010
332,559
3,326
335,885

2011
369,845
5,803
375,648

2012
341,685
12,133
353,818

2013
398,047
34,579
432,626

2014
406,940
54,303
461,243

1Q15
95,387
95,387

2Q15
98,459
98,459

Expenses (benefit) related to litigation


SG&A

(15,688)
138,532

94
140,985

138,368

175,215

205,410

44,155

49,087

Reported EBITDA
Operating Income

209,567
213,041

229,558
234,569

216,963
215,450

262,943
257,411

263,783
255,833

52,722
51,232

51,238
49,372

43,155
(3,837)
(5,492)
13,000
46,826

50,754
(24,162)
(10,353)
16,239

46,576
(2,711)
(10,887)
32,978

76,321
(7,443)
(12,129)
56,749

84,523
(40,826)
(17,030)
26,667

21,296
(48,179)
(3,202)
(10,500)
(40,585)

20,219
(790)
(3,618)
2,006
17,817

166,215
52,409
32%

218,330
71,286
33%

182,472
58,963
32%

200,662
58,075
29%

229,166
61,737
27%

91,817
25,910
28%

31,555
12,184
39%

113,806
11,633
102,173

147,044
15,136
131,908

123,509
14,101
109,408

142,587
14,539
128,048

167,429
14,693
152,736

65,907
3,067
62,840

19,371
4,603
14,768

Interest Expense
Interest and Other Income
Equity Earnings on JVs
Forex loss (gain)
Loss on Marketable Securities
Other expenses - net
Income before taxes
Provision for taxes
Tax rate
Net income
Less: noncontrolling interest
Net income attributable to Iconix
EPS
Basic
Diluted

1.42
1.37

1.80
1.75

1.57
1.52

2.28
2.11

3.15
2.66

1.30
1.21

0.31
0.30

Basic
Diluted

72,151
74,713

73,111
75,495

69,689
71,957

56,281
60,734

48,431
57,366

48,158
51,909

48,243
49,595

62%
41%

61%
38%

61%
39%

61%
41%

57%
45%

55%
46%

52%
50%

EBITDA Margin
SG&A

Source: Company reports

Page 14

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

Exhibit 10. Iconix Balance Sheet

Cash
Restricted cash
Accounts receivable
Deferred income tax assets
Other assets - current
Total Current Assets
PP&E
Less: Accumulated depreciation
Net PP&E
Restricted Cash
Other assets
Trademarks and other intangibles,
Deferred financing costs, net
Investments and JVs
Goodwill
Total Assets
Accounts payable and accrued expenses
Deferred revenue
Current portion of long- term debt
Other liabilities - current
Total current liabilities
Deferred income tax liability
Long- term debt, less current
Deferred revenue
Other liabilities
Total Liabilities
Redeemable non-controlling interest
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Less: Treasury stock
Stockholders' Equity
Non- controlling interest
Total Liabilities & Equity
Total debt
Net debt
Cash/share
Book value/share

2010

2011

2012

2013

2014

1Q15

2Q15

118,635
3,300
65,707
1,743
36,681
226,066

167,717
14,071
79,669
2,114
20,934
284,505

238,672
16,362
85,249
3,497
22,571
366,351

278,789
58,858
90,777
4,160
38,424
471,008

128,019
59,560
118,774
10,328
68,587
385,268

86,751
43,550
124,591
10,326
62,227
327,445

117,874
64,923
129,024
21,436
50,032
383,289

21,197
(12,360)
8,837

22,704
(14,946)
7,758

23,658
(15,439)
8,219

23,435
(15,839)
7,596

14,894
(4,410)
10,484

18,136
(6,860)
11,276

19,734
(9,644)
10,090

15,866
43,128
1,400,550
3,119
59,677
192,780
1,951,670

7,220
34,186
1,550,996
3,573
46,278
223,269
2,161,303

24,082
1,769,508
21,250
64,770
225,687
2,481,738

33,214
1,955,644
25,103
139,376
230,976
2,864,158

63,334
2,024,541
19,842
140,910
231,738
2,873,391

63,814
2,182,708
18,601
181,917
239,198
3,021,902

52,516
2,186,263
17,383
182,760
238,187
3,067,994

43,275
16,305
36,380
4,000
99,960

22,940
11,801
322,423
5,619
362,783

33,405
9,055
52,000
6,150
100,610

30,482
29,126
61,250
10,964
131,822

38,286
24,978
61,123
12,741
137,128

45,223
22,470
61,123
15,895
144,711

46,518
29,439
347,918
15,447
439,322

138,577
548,007
11,561
14,451
812,556

174,238
310,966
5,897
13,843
867,727

206,912
859,718
4,898
9,760
1,181,898

260,605
1,366,069
724
2,996
1,762,216

322,888
1,332,954
11,660
1,804,630

334,176
1,425,189

361,353
1,130,667

10,715
1,914,791

10,570
1,941,912

14,224

14,403

14,582

74
752,803
294,316
(10,831)
1,036,362

76
802,193
420,421
(483)
(33,154)
1,189,053

77
815,935
529,829
(159,690)
1,186,151

77
910,145
657,877
16,486
(599,816)
984,769

79
948,714
809,420
(24,186)
(812,429)
921,598

80
966,865
872,260
(62,425)
(829,409)
947,371

80
970,002
887,028
(55,003)
(836,256)
965,851

102,552

104,523

113,689

117,173

132,939

145,337

145,649

1,951,470

2,161,303

2,481,738

2,864,158

2,873,391

3,021,902

3,067,994

584,387
446,586

633,389
444,381

911,718
656,684

1,427,319
1,089,672

1,394,077
1,206,498

1,486,312
1,356,011

1,478,585
1,295,788

1.84
13.87

2.50
15.75

3.54
16.48

5.56
16.21

3.27
16.07

2.51
18.25

3.69
19.47

Source: Company reports

Page 15

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

Exhibit 11. Iconix Cash Flow Statement


Net income
Depreciation
Amortization of trademarks and intangibles
Amortization of deferred financing costs
Amortization of convertible note discount
Stock Comp
Loss on marketable securities
Non- cash gain on remeasurement of equity investment
Realization of CF hedge
Provision for doubtful accounts
Earnings on equity investments in JVs
Distributions from equity investments
Gain on sale of securities
Gain on sale of fixed assets
Gain on sale of trademarks
Deferred income tax provision
Gain on foreign currency translation
Changes in working cap
Accounts receivable
Other assets - current
Other assets
Deferred revenue
Accounts payable and accrued expenses
Net cash provided by ops
PP&E
Acquisition of interest in Iconix China
Acquisition of interest in Pony
Acquisition of interest in Strawberry Shortcake
Acquisition of interest in Buffalo
Acquisition of Lee Cooper
Acquisition of interest in Complex Media
Acquisition of interest in Marcy Media
Acquisition of interest in Peanuts Worldwide
Acquisition of interest in MG Icon
Acquisition of Umbro
Acquisition of interest in Modern Amusement
Acquisition of interest in Latin America
Acquisition of interest in NGX
Acquisition of interest in Hydraulic
Acquisition of interest in iBrands
Acquisition of Sharper Image
Acquisition of interest in Hardy Way
Proceeds from sale of securities
Purchase of securities
Payment of accrued expenses related to acquisitions
Net distributions to equity partners
Additional investments in JVs
Earn-out payment on acquisitions
Proceeds from sale of fixed assets
Proceeds from sale of trademarks
Additions to trademarks
Cash used in investing activities
Shares repurchased on open market
Proceeds from LT debt
Proceeds from sale of warrants
Payment for purchase of conv note hedge
Payment of LT debt
Deferred financing costs
Distributions to noncontrolling interests
Payment of note payable to Purim / acquisition of MG Icon
Acquisition of Zoo York
Non-controlling interest contribution
Acquisition of interest in IPH Unltd
Excess tax benefit from stock comp
Cost of shares repurchased on vesting of restricted stock
Proceeds from exercise of stock options and warrants
Proceeds from securitization
Restricted cash
Cash used in financing activities
Forex

2010
110,480

2011
141,241

2012
123,509

2013
142,587

2014
167,429

1Q15
65,907

2Q15
19,371

1,800
8,307
2,276
15,021
11,444
13,000
87
2,253
(5,492)
13,448
-

2,450
6,988
4,309
23,057
11,742
(21,465)
1,948
(10,353)
3,779
27,737
-

2,784
5,528
3,263
20,098
11,492
5,362
(10,887)
2,265
(12,133)
24,385
-

2,702
7,428
4,816
24,838
20,018
9,718
(12,129)
13,116
(5,395)
(34,579)
31,416
-

2,605
4,530
5,263
29,616
18,492
(37,893)
11,127
(17,030)
7,145
(342)
(54,303)
45,573
-

435
902
1,241
7,516
2,573
(47,365)
1,263
(3,202)
545
8,411
(10,500)

374
822
1,218
7,553
3,326

3,463
(3,618)
788
(225)
13,987
2,006

3,638
(16,002)
(14,872)
(13,515)
33,850
165,723

(17,252)
16,868
12,298
(10,168)
(11,791)
181,388

(10,942)
20,513
11,889
(3,745)
13,543
206,924

3,730
(2,491)
(9,132)
6,102
407
203,152

(28,031)
(10,892)
(5,719)
(7,414)
32,365
162,521

(9,192)
10,930
3,783
(1,954)
1,773
33,066

(6,364)
8,863
(5,623)
6,890
14,260
67,091

(3,190)
(172,054)
(4,000)
(1,177)
2,154
(799)
(88)
(179,154)

(3,242)
(65,600)
(62,000)
(568)
(131,410)

(1,595)
(4,000)
(225,000)
(5,000)
(6,870)
(3,771)
2,000
(633)
(244,869)

(1,209)
(76,500)
(66,667)
(25,120)
(32,000)
5,395
(744)
41,866
(8,372)
(163,351)

(1,505)
(42,000)
(6,000)
(6,000)
(2,500)
6,341
(5,998)
24,915
(915)
(33,662)

(976)
(20,400)
(37,000)
(105,000)
995
(96)
(162,477)

174
223
12,377
(12)
12,762

(81,418)
14,826
1,301
(2,970)
2,083
2,863
(63,315)

(19,138)
292,500
28,800
(58,740)
(211,784)
(3,381)
(11,895)
(4,000)
(18,000)
1,800
4,940
(3,185)
3,312
(2,125)
(896)

(125,341)
750,000
(491,765)
(20,941)
(9,039)
1,495
(1,195)
757
4,929
108,900

(436,419)
392,000
57,707
(84,106)
(95,113)
(3,838)
(8,290)
(3,000)
(45,000)
1,193
(3,707)
353
270,188
(42,496)
(528)

(193,434)
(62,856)
(11,648)
10,706
(16,024)
10,088
(9,163)
(272,331)

(6,290)
100,000
(15,281)
(3,002)
54
(3,156)
16,010
88,335

(6,101)
(15,281)
(4,291)
(2,000)
(10)
(21,372)
(49,055)

844

(7,298)

(192)

325

Increase (decrease) in cash


Cash, BOP
Cash, EOP

(76,746)
195,381
118,635

49,082
118,635
167,717

70,955
167,717
238,672

40,117
238,672
278,789

(150,770)
278,789
128,019

(41,268)
128,019
86,751

31,123
86,751
117,874

Free cash flow (CFFO - Capex)

162,533

178,146

205,329

201,943

161,016

32,090

67,265

Source: Company filings

Page 16

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)


REQUIRED DISCLOSURES
The recommendations and guidance expressed in this research report accurately reflect the personal recommendations and guidance of the research
analyst principally responsible for the preparation of this report
No part of the compensation received by the analyst principally responsible for the preparation of this report was, is or will be directly or indirectly
related to the specific recommendations and guidance expressed in this report. Direct or indirect analyst compensation may be based on performancerelated considerations associated with the recommendations and guidance expressed by the analyst in this report
The research analyst primarily responsible for the preparation of this report received compensation that is based upon CRT Capital Group LLCs total
business revenues, including revenues derived from CRTs investment banking business

Rating
Buy

Fair Value

Sell

Meaning
Expected rate of return on investment at current prices levels is above that rate required,
in CRT's view, to undertake the attendant risks perceived- positive risk/reward investment
balance.
Expected rate of return on investment at current prices levels is in line with that rate
required, in CRT's view, to undertake the attendant risks perceived- equitable/reward
investment balance.
Expected rate of return on investment at current prices levels is below that rate required,
in CRT's view, to undertake the attendant risks perceived- negative risk/reward investment
balance.
Ratings Percentages
As of August 27, 2015

Percentage of Banking Clients Within Each Rating Category


As of August 27, 2015

Buy 58.97%
6.96%
Fair Value* 39.74%
3.87%
Sell 1.28%
0.00%
*FINRA Rule 2711 (H)(5)(A)- Regardless of the rating system that a member employs, a member must disclose in each research report the
percentage of all securities rated by the member to which the member would assign a "buy,""hold/neutral," or "sell" rating. For purposes of
this Rule, Fair Value would be assigned as "hold/neutral".
Valuations are based on estimates using traditional industry methods including, inter alia, analysis of earnings multiples, discounted cash flow calculations
and net asset value assessments. Price targets should be considered in the context of all prior CRT research published in connection with the subject
issuer, which may or may not have included price targets, as well as developments relating to the company, its industry and financial markets. Risks that
may impede achievement of the stated price target, if any, include, but are not limited to, broad market and macroeconomic fluctuations and unforeseen
changes in the subject companys fundamentals or business trends.
OTHER DISCLOSURES
This communication is directed at, and for use by, institutional investors only and is not intended for use by retail investors.
This report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. This report is published
solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The
securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. This report is based on information obtained
from sources believed to be reliable but is neither guaranteed to be accurate nor intended to be a complete statement or summary of the securities,
markets or developments referred to in the report. Recipients should not use this report as a substitute for the prudent exercise of their own judgment.
Any opinions expressed in this report are subject to change without notice and CRT is under no obligation to update or keep current the information

Page 17

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)


contained herein. CRT and/or its directors, officers and employees may have or may have had interests or long or short positions in, and may at any time
make purchases and/or sales as principal or agent, or may have acted or may act in the future as market maker in the relevant securities or related financial
instruments discussed in this report. CRT may rely on informational barriers such as Chinese Walls to control the flow of information situated in one or
more areas within CRT into other units, divisions or groups within CRT.
Past performance is not necessarily indicative of future results. Options, derivative products and futures are not suitable for all investors due to the high
degree of risk associated with trading these instruments. Foreign currency rates of exchange may adversely effect the value, price or income of any security
or related instrument described in this report.
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respect. Additional information is available upon request. Clients who wish to effect transactions should contact their sales representative.
For UK Professional Clients:
This research report is disseminated in the UK by CRT Capital (UK) Limited which is authorized and regulated by the Financial Conduct Authority. This
research report is intended for distribution in the UK only to, and should be relied upon only by, persons who or may be classified as eligible counterparties
or professional clients pursuant to the FCA's rules or who are investment professionals as defined in Article 19 of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005.
2015 CRT Capital Group LLC. All rights Reserved. The Copyright Act of 1976 prohibits the reproduction by photocopy machine or any other means of all
or any portion of this issue except with permission of the publisher. 262 Harbor Drive, Stamford, CT 06902

Page 18

CRT Research | Distressed & Special Situations


Iconix Brand Group Inc
August 27, 2015

Iconix Brand Group Inc (ICON)

William Jump
Jon Schenk

Dir of Equity Sales, Trading & Research


Director of Institutional Equity Sales

Robert Hoehn
Kirk Ludtke

404.814.3960
212.763.8221

Director of Equity Research


Director of Credit Research

212.338.4731
203.569.4361

CONSUMER
Auto Parts Retailers
Ali Faghri

| afaghri@sterneageecrt.com

Broadlines / Health & Wellness Retailing


Charles Grom, CFA
| cgrom@sterneageecrt.com
Renato Basanta, CFA
| rbasanta@sterneageecrt.com
John Parke
| jparke@sterneageecrt.com

HEALTHCARE
646.376.5304

646.376.5373
646.376.5317
646.376.5315

Consumer Packaged Goods


April Scee
| ascee@sterneageecrt.com

Health Insurance
Brian Wright

| bwright@sterneageecrt.com

Medical Technology
Gregory P. Chodaczek
Caitlin Howard

| gchodaczek@sterneageecrt.com 610.260.9560
| choward@sterneageecrt.com
610.260.9552

Medical Technology
Shagun Singh Chadha

| ssingh@crtllc.com

646.376.5350

203.569.4345

646.293.6760
INDUSTRIALS

Discretionary/Retail
Lee J. Giordano, CFA
Michael Gunther

| lgiordano@sterneageecrt.com
| mgunther@sterneageecrt.com

Footwear & Apparel


Sam Poser
Ben Shamsian
Elizabeth Bean

| sposer@sterneageecrt.com
212.763.8226
| bshamsian@sterneageecrt.com 212.338.4721
| ebean@sterneageecrt.com
646.376.5346

Leisure & Entertainment


David Bain
| dbain@sterneageecrt.com
Media
Lance Vitanza, CFA
Brad Tesoriero, CFA

203.569.4350
203.569.4322

949.721.6651

| parment@sterneageecrt.com
| jsullivan@sterneageecrt.com
| acarey@sterneageecrt.com

646.376.5336
646.376.5337
646.218.4825

Auto, Auto Parts and Auto Retailers


Michael P. Ward, CFA
| mward@sterneageecrt.com
Ali Faghri
| afaghri@sterneageecrt.com

646.376.5375
646.376.5304

Automotive
Kirk Ludtke

203.569.4361

| kludtke@crtllc.com

| lvitanza@crtllc.com
| btesoriero@crtllc.com

203.569.4337
203.569.4376

| lcollier@sterneageecrt.com

214.702.4045

Restaurants
Lynne Collier

Aerospace & Defense


Peter Arment
Josh W. Sullivan
Asher Carey

CREDIT/DISTRESSED & SPECIAL SITUATIONS


David Epstein, CFA
| depstein@crtllc.com
203.569.4328
Jack Chan
| jchan@crtllc.com
203.569.4351
Kirk Ludtke
| kludtke@crtllc.com
203.569.4361
Bretty M. Levy
| blevy@crtllc.com
203.569.4336
Kevin Starke, CFA
| kstarke@crtllc.com
203.569.6421
Patrick Marshall, CFA
| pmarshall@crtllc.com
203.569.4373
Amer Tiwana
| atiwana@crtllc.com
203.569.4318
Lance Vitanza, CFA
| lvitanza@crtllc.com
203.569.4337
Brad Tesoriero, CFA
| btesoriero@crtllc.com
203.569.4376

Coal, Metals & Mining, Engineering & Construction


Michael S. Dudas, CFA | mdudas@sterneageecrt.com
Satyadeep Jain, CFA
| sjain@sterneageecrt.com
Patrick Uotila, CPA
| puotila@sterneageecrt.com

646.376.5329
646.376.5357
646.376.5358

Construction Materials & Diversified Industrials


Todd Vencil, CFA
| tvencil@sterneageecrt.com
Teresa Nguyen, CFA
| tnguyen@sterneageecrt.com

804.282.7385
804.916.1568

Homebuilding
Jay McCanless
Metals & Mining, Coal
Brett M. Levy

| blevy@crtllc.com

Water and Flow Control


Kevin Bennett, CFA
| kbennett@sterneageecrt.com
Ed Riley
| eriley@sterneageecrt.com

203.569.4336

804.282.4506
804.344.3811

TECHNOLOGY

ENERGY
Exploration & Production
Tim Rezvan, CFA
| trezvan@sterneageecrt.com

212.338.4736

Oilfield Services & Equipment


Stephen D. Gengaro
| sgengaro@sterneageecrt.com
Ivan Suleiman
| isuleiman@sterneageecrt.com

646.376.5331
212.338.4723

FINANCIAL SERVICES
Specialty/Real Estate Finance
Henry J. Coffey, Jr., CFA | hcoffey@sterneageecrt.com
Jason P. Weaver, CFA
| jweaver@sterneageecrt.com

| jmccanless@sterneageecrt.com 615.760.1475

Data Networking and Storage


Alex Kurtz
| akurtz@sterneageecrt.com
Amelia Harris
| aharris@sterneageecrt.com

415.762.4881
415.762.4880

Interactive Entertainment / Internet


Arvind Bhatia, CFA
| abhatia@sterneageecrt.com
Brett Strauser
| bstrauser@sterneageecrt.com

214.702.4001
214.702.4009

615.760.1472
615.760.1479

Internet
Robert Coolbrith

| rcoolbrith@crtllc.com

415.762.4890

TRANSPORTATION, SERVICES & EQUIPMENT


Airlines
Michael Derchin
Adam Hackel

| mderchin@crtllc.com
| ahackel@crtllc.com

203.569.4354
203.569.4378

Page 19