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Article by DailyStocks_admin    (02-26-09 06:20 AM)

The Daily Magic Formula Stock for 02/26/2009 is Iconix Brand Group Inc. According to the Magic Formula Investing Web Site, the ebit yield is 12% and the EBIT ROIC is >100%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

General

The Company is a brand management company engaged in licensing, marketing and providing trend direction for a portfolio of owned consumer brands. The Company currently owns 16 brands, Candie's®, Bongo®, Badgley Mischka®, Joe Boxer®, Rampage®, Mudd®, London Fog®, Mossimo®, Ocean Pacific®/OP®, Danskin®, Rocawear®, Cannon®, Royal Velvet®, Fieldcrest®, Charisma® and Starter®, which it licenses directly to leading retailers, wholesalers and suppliers for use across a wide range of product categories, including apparel, fashion accessories, footwear, beauty and fragrance, and home products and decor. The Company’s brands are sold across a variety of distribution channels, from the mass tier to the luxury market. The Company supports its brands with innovative advertising and promotional campaigns designed to increase brand awareness, and provides its licensees with coordinated trend direction to enhance product appeal and help maintain and build brand integrity.

The Company has a business strategy designed to maximize the value of its existing brands by entering into strategic licenses with partners that have the responsibility for manufacturing and selling the licensed products. These licensees have been selected based upon the Company's belief that they will be able to produce and sell top quality products in the categories of their specific expertise and that they are capable of exceeding the minimum sales targets and guaranteed royalties that the Company generally requires from its licensees. In addition, the Company plans to continue to build its portfolio by acquiring additional brands. In assessing potential acquisitions, the Company primarily evaluates the strength of the target brand and the viability of future royalty streams. This focused approach allows the Company to screen a wide pool of consumer brand candidates, quickly evaluate acquisition targets and efficiently complete due diligence for potential acquisitions.

In connection with its licensing model, the Company has eliminated its inventory risk, substantially reduced its operating exposure, improved its cash flows and net income margins and benefited from the model's scalability, which enables the Company to leverage new licenses with its existing infrastructure. The Company's objective is to capitalize on its brand management expertise and relationships and continue to build a diversified portfolio of consumer brands that generate increasing revenues. To achieve this, the Company intends to continue pursuing organic growth through its existing brands, pursue additional international licensing arrangements and purchase new brands to build its trademark portfolio.

Additional information

The Company was incorporated under the laws of the state of Delaware in 1978. Its principal executive offices are located at 1450 Broadway, New York, New York 10018 and its telephone number is (212) 730-0300. The Company’s website address is www.iconixbrand.com. The information on the Company’s website does not constitute part of this Form 10-K. The Company has included its website address in this document as an inactive textual reference only. Candie’s®, Bongo®, Joe Boxer®, Rampage®, Mudd® and London Fog® are the registered trademarks of the Company’s wholly-owned subsidiary, IP Holdings; Badgley Mischka® is the registered trademark of the Company’s wholly-owned subsidiary, Badgley Mischka Licensing; Mossimo® is the registered trademark of the Company’s wholly-owned subsidiary, Mossimo Holdings; Ocean Pacific® and OP® are the registered trademarks of the Company’s wholly-owned subsidiary, OP Holdings; Danskin®, Danskin Now®, Rocawear® and Starter® are the registered trademarks of the Company’s wholly-owned subsidiary, Studio IP Holdings; and Fieldcrest®, Royal Velvet®, Cannon® and Charisma® are the registered trademarks of the Company’s wholly-owned subsidiary, Official-Pillowtex. Each of the other trademarks, trade names or service marks of other companies appearing in this Form 10-K is the property of its respective owner.

The Company's brands

The Company’s objective is to continue to develop and build a diversified portfolio of iconic consumer brands by organically growing its existing portfolio and by acquiring new brands that leverage the Company’s brand management expertise and existing infrastructure. To achieve this objective, the Company intends to:


extend its existing brands by adding additional product categories, expanding the brands’ retail presence and optimizing its licensees’ sales through innovative marketing that increases consumer awareness and loyalty;


continue its international expansion through additional partnerships with leading retailers and wholesalers worldwide; and


continue acquiring consumer brands with high consumer awareness, broad appeal, applicability to a range of product categories and an ability to diversify the Company’s portfolio.

In managing its brands, the Company seeks to capitalize on the brands’ histories, while simultaneously working to keep them relevant to today’s consumer.

As of December 31, 2007, the Company’s brand portfolio consisted of the following 16 iconic consumer brands:

Candie’s. Candie’s is known primarily as a junior lifestyle brand, with products in the footwear, apparel and accessories categories, and has achieved brand recognition for its flirty and fun image, value prices and affiliations with celebrity spokespeople. The Company purchased the brand from a predecessor company in 1993, making it the Company’s longest held trademark. The primary licensee of Candie’s is Kohl’s Department Stores, Inc. (“Kohl’s”) , which commenced the roll out of the brand in July 2005 in all of its stores with a multi-category line of Candie’s lifestyle products, including sportswear, denim, footwear, handbags, intimate apparel, children’s apparel, fragrance and home accessories. Celebrity spokespeople for the Candie’s brand over the past two decades have included Jenny McCarthy, Destiny’s Child, Alyssa Milano, Kelly Clarkson, Ashlee Simpson, Hilary Duff, Pat Benatar, Fergie and, currently, Hayden Panettiere.

Bongo. The Bongo brand is positioned as a California lifestyle brand, with a broad range of women’s and children’s casual apparel and accessories, including denim, sportswear, eyewear, fragrance and watches. The brand was established in 1982 and was purchased by the Company in 1998. Bongo products are sold primarily through mid-tier department stores, such as JC Penney, Kohl’s, Sears, Goody’s and Mervyn’s. The Company has 16 Bongo licenses, including those licensed internationally to wholesalers in South America and Central America. Celebrity spokespeople for the Bongo brand have included Liv Tyler, Rachel Bilson, Nicole Richie, the stars of the top rated MTV television reality show Laguna Beach , and Vanessa Minnillo. Currently, Kim Kardashian is the spokesperson for the Bongo brand.

Badgley Mischka. The Badgley Mischka brand is known as one of the premiere couture eveningwear brands. The brand was established in 1988 and was acquired by the Company in October 2004. Badgley Mischka products are sold in luxury department and specialty stores, including Bergdorf Goodman, Neiman Marcus and Saks Fifth Avenue, with its largest retail categories being women’s apparel and accessories. The Company has 18 Badgley Mischka licenses. Badgley Mischka designs have been worn by such celebrities as Angelina Jolie, Catherine Zeta Jones, Halle Berry, Kate Winslet, and Ashley and Mary Kate Olsen. Currently, the spokesperson for the brand is actress Teri Hatcher.

Joe Boxer. Joe Boxer is a highly recognized underwear, sleepwear and loungewear brand known for its irreverent and humorous image and provocative promotional events. The brand was established in 1985 and was acquired by the Company in July 2005. Kmart Corporation (“Kmart”), a wholly-owned subsidiary of Sears Holding Corporation, has held the exclusive license in the United States covering Joe Boxer apparel, fashion accessories and home products for men, women, teens and children since 2001. In September 2006, the Company expanded the license with Kmart to extend the brand into Sears’ stores. The brand is also being developed internationally, with 14 international licenses, including licenses in Canada, Mexico, the United Kingdom, and Scandinavia.

Rampage. Rampage was established in 1982 and is known as a contemporary/junior women’s sportswear brand. The brand was acquired by the Company in September 2005. Rampage products are sold through better department stores such as Macy’s, with the largest retail categories being sportswear, footwear, intimate apparel and swimwear. The Company licenses the brand to 17 wholesalers in the United States and to partners in parts of South and Central America and the Middle East. Supermodel Petra Nemcova is the spokesperson for the Rampage brand and has modeled for its campaigns for the past few seasons.

Mudd. Mudd is a highly recognizable junior apparel brand, particularly in the denim and footwear categories. It was established in 1995 and acquired by the Company in April 2006. There are 15 licenses for Mudd products, including jeanswear, footwear, eyewear and a variety of other accessories, which are distributed through mid-level department stores such as JC Penney.

London Fog. London Fog is a classic brand known worldwide for its outerwear, cold weather accessories, umbrellas, luggage and travel products. The brand was established over 80 years ago and was acquired by the Company in August 2006. The brand is sold through the better department store channel. The Company has 13 London Fog licenses, including a direct-to-retail license agreement with Hudson’s Bay Corporation in Canada, covering apparel, accessories and lifestyle products. Spokespeople for the London Fog brand have included Kevin Bacon and Nicolette Sheridan.

Mossimo. Mossimo is known as a contemporary, active and youthful lifestyle brand and is one of the largest apparel brands in the United States. The brand was established in 1986 and acquired by the Company in October 2006. In the United States, Target Corporation (“Target”) holds the exclusive Mossimo brand license covering apparel products for men, women and children, including casual sportswear, denim, swimwear, body wear, watches, handbags and other fashion accessories. The brand is also licensed to eight wholesale partners in Australia, New Zealand, South America, Mexico, the Philippines, and Japan.

Ocean Pacific/OP. Ocean Pacific and OP are global action-sports lifestyle apparel brands which trace their heritage to Ocean Pacific’s roots as a 1960’s surfboard label. The Company acquired the Ocean Pacific brands in November 2006 at which time it assumed 15 domestic licenses covering such product categories as footwear, sunglasses, kids’ apparel and fragrance. For the Ocean Pacific brands, the Company has 21 wholesale licenses and two direct-to-retail licenses, including one with Wal-Mart Stores, Inc. (“Wal-Mart”) for the United States, Brazil, India and China, and one with The Style Company for the Middle East.

Danskin . Danskin, our oldest brand, is a 125 year-old iconic brand of women's activewear, legwear, dancewear, yoga apparel and fitness equipment, which the Company acquired in March 2007. The Danskin brand is sold through better department, specialty and sporting goods stores and through freestanding Danskin boutiques and Danskin.com. In addition, the Company has a direct-to-retail license with Wal-Mart for its Danskin Now® brand for apparel and fitness equipment.

Rocawear. Rocawear is a leading international, urban lifestyle apparel brand established by Shawn “Jay-Z” Carter, Damon Dash and Kareem Burke in 1999. The Company acquired the Rocawear brand in March 2007. There are 23 licenses for Rocawear products, including men’s, women’s and kids’ apparel, outerwear, footwear, jewelry, handbags and fragrance. Rocawear products are sold through better department and specialty stores. The founder, Jay-Z, remains actively involved in the brand as the core licensee, and has been contracted to aid with the creative direction of the brand.

In October 2007, the Company expanded its portfolio by acquiring the following four brands through its acquisition of Official-Pillowtex :

Cannon. Cannon is one of the most recognizable brands in home textiles with a strong heritage and history and is known as the first textile brand to sew logos onto products. Cannon is distributed in over 1,000 doors in regional department stores, including Meijer, ShopKo, Mervyn’s and Steinmart, as well as in Wal-Mart and Costco. Cannon was established in 1887, making it the Company’s third oldest brand. In February 2008, the Company signed a direct-to-retail license with Kmart for Cannon.

Royal Velvet. Royal Velvet is a distinctive luxury home textile brand that strives to deliver the highest quality to consumers. The Royal Velvet towel has been an industry standard since 1954 and is known as the authority for color and quality. Royal Velvet products, including towels, sheets, rugs and shams, are sold pursuant to seven licenses in over 3,000 locations through the high-end and better department store channels. The core licensee for Royal Velvet is Li & Fung Limited, which in February 2008 established an exclusive distribution arrangement with Bed Bath & Beyond Inc.

Fieldcrest. Fieldcrest is a brand of contemporary relevance to the mass channel consumer. The brand is known for quality bed and bath textiles that are easy care, soft, easy to coordinate and classic in style. Fieldcrest home products are sold through the mass channel, with Target having the exclusive license in the United States since Spring 2005. The Fieldcrest brand was created in 1883, making it the Company’s second oldest brand.

Charisma. Charisma home textiles were introduced in the 1970s and are known for their quality materials and classic designs. Charisma products are currently distributed through better department stores such as Bloomingdales. The Company has two licenses for the brand, including Westpoint Stevens, Inc..

In December 2007, the Company acquired the Starter brand .

Starter. Starter, founded in 1971 and one of the original brands in licensed team merchandise, is a highly recognized and authentic brand of athletic apparel and footwear. Today, products bearing the Starter brand are distributed in the United States, primarily at Wal-Mart, through a number of different wholesale licensees. Starter is also licensed internationally and sold through retailers including Carrefour and Metro. Starter was acquired by the Company in December 2007. The Company currently has 27 Starter licenses.

Scion LLC

Scion LLC is a brand management and licensing company formed by the Company with Shawn “Jay-Z” Carter in March 2007 to buy, create and develop brands across a spectrum of consumer product categories. On November 7, 2007, Scion completed its first brand acquisition when its wholly-owned subsidiary purchased Artful Dodger™, an exclusive, high end urban apparel brand for a purchase price of $15.0 million. Concurrent with the acquisition of Artful Dodger, Scion entered into a license agreement covering all major apparel categories for the United States.

Bright Star

Concurrent with the acquisition of Artful Dodger, Scion entered into a license agreement covering all major apparel categories for the United States.

Bright Star provides design direction and arranges for the manufacturing and distribution of men’s private label footwear products primarily for Wal-Mart under its private labels. Bright Star acts solely as an agent and never assumes ownership of the goods. For the years ended December 31, 2007, and December 31, 2006, Bright Star’s agency commissions represented 1.5% and 3.0%, respectively, of the Company’s revenues.

Transition to a brand management company

Prior to 2004, the Company designed, procured the manufacture of, and sold footwear and jeanswear under the two trademarks it owned at the time: Candie’s and Bongo. Commencing in May 2003, however, it began to implement a shift in its business model designed to transform it from a wholesaler and retailer of jeanswear and footwear products to a brand management company focused on licensing and marketing its portfolio of consumer brands. In May 2003, the Company licensed out both its Bongo footwear business and its Candie’s footwear business to third party licensees, and, by the end of 2003, it had eliminated all of its Candie’s retail concept stores. Effective in August 2004, the Company also licensed out its Bongo jeans wear operations, which were previously conducted through its wholly-owned subsidiary, Unzipped Apparel, LLC (“Unzipped”). Beginning January 2005, the Company also changed its business practices with respect to its Bright Star subsidiary, as a result of which Bright Star began acting solely as an agent for, as opposed to an indirect wholesaler to, its private label footwear clients. As a result of these changes to its operations, since the end of 2004, the Company has had no wholesale or retail operations or product inventory and has operated solely as a brand management company.

Since October 2004, the Company has acquired 14 new brands, bringing its total number of iconic brands to 16 as of December 31, 2007, and, since July 2005, when the Company entered into its first multi-category retail license with Kohl’s, the Company has entered into multi-category retail licenses with a number of other retailers, such as Target, Sears Holding Corporation and Wal-Mart. As of December 31, 2007, the Company had 220 wholesale and retail licenses.

Licensing relationships

The Company's business strategy is to maximize the value of its brands by entering into strategic licenses with partners who have the responsibility for manufacturing and selling the licensed products. The Company licenses its brands with respect to a broad range of products, including apparel, footwear, fashion accessories, sportswear, home products and décor, and beauty and fragrance. The Company seeks licensees with the ability to produce and sell quality products in their licensed categories and the demonstrated ability to meet and exceed minimum sales thresholds and royalty payments to the Company.

The Company maintains retail and wholesale licenses. The retail licenses typically restrict the sale of products under the brand to a single retailer but cover a broad range of product categories. For example, the Candie’s brand is licensed to Kohl’s in the United States across approximately 25 product categories. The wholesale licenses typically are limited to a single or small group of related product categories, but permit broader distribution in the designated territory to stores within an approved channel. For example, the Company licenses Rampage to 17 partners across product categories ranging from footwear and apparel to handbags and fragrances. Each of the Company’s licenses also has a stipulated territory or territories, as well as distribution channels, in which the licensed products may be sold. Currently, most of the licenses are U.S. based licenses, but the Company anticipates the number of foreign based licenses to grow and revenue generated by international businesses to increase as the Company’s brands grow internationally.

Typically, the Company's licenses require the licensee to pay the Company royalties based upon net sales and guaranteed minimum royalties in the event that net sales do not reach certain specified targets. The Company's licenses also typically require the licensees to pay to the Company certain minimum amounts for the advertising and marketing of the respective licensed brands. As of December 31, 2007, the Company had 220 royalty-producing licenses with respect to its 16 brands.

The Company believes that coordination of brand presentation across product categories is critical to maintaining the strength and integrity of its brands. Accordingly, the Company maintains the right in its licenses to preview and approve all product, packaging and presentation of the licensed brand. Moreover, in most licenses, prior to each season, representatives of the Company supply licensees with trend guidance as to the “look and feel” of the current trends for the season, including colors, fabrics, silhouettes and an overall style sensibility, and then work with licensees to coordinate the licensed products across the categories to maintain the cohesiveness of the brand's overall presentation in the market place. Thereafter, the Company obtains and approves (or objects and requires modification to) product and packaging provided by each licensee on an on-going basis. In addition, the Company communicates with its licensees throughout the year to obtain and review reporting of sales and the calculation and payment of royalties.

In the fiscal year ended December 31, 2007, the Company’s largest direct-to-retail licenses were with Target, Kohl’s, and Kmart, which collectively represented 27% of total revenue for the period.

Key licenses in fiscal 2007

Target license

As part of the Company's acquisition of Mossimo, Inc. in October 2006, the Company acquired the license with Target, which originally commenced in 2000 and was subsequently amended in March 2006. Pursuant to this license, Target has the exclusive right to produce and distribute substantially all Mossimo-branded products sold in the United States, its territories and possessions through Target retail stores, until January 31, 2010. If Target is current with payments of its obligations under the license, Target has the right to renew the Target license on the same terms and conditions for successive additional terms of two years each.

Under the Target license, Target pays royalty fees based on certain percentages of its net sales of Mossimo-branded products, subject to its obligation to pay certain guaranteed minimum fees per each contract year. Under the Target license, the Company provides the creative director services of Mr. Mossimo Giannulli with respect to Mossimo-branded products sold through Target stores. The revenues generated from this contract for the years ended December 31, 2007 and 2006 represented 13% and 5%, respectively, of the Company’s overall revenue for such periods.

Kohl’s license

In December 2004, the Company entered into a license agreement with Kohl’s, which was subsequently amended in February 2005. Pursuant to this license, the Company granted Kohl’s the exclusive right to design, manufacture, sell and distribute a broad range of products under the Candie’s trademark, including women’s, juniors’ and children’s apparel, accessories (except prescription eyewear), beauty and personal care products, home accessories and electronics. Kohl’s was also granted the non-exclusive right to sell footwear and handbags bearing the Candie’s brand through December 31, 2006, which rights became exclusive to Kohl’s on January 1, 2007. The initial term of the Kohl’s license expires on January 29, 2011, subject to Kohl’s option to renew it for up to three additional terms of five years, each contingent on Kohl's meeting specified performance and minimum sale standards. The agreement also provides for minimum royalties that Kohl’s is obligated to pay the Company for each contract year (the first contract year ended December 31, 2006).

The revenue generated from this contract totaled 8%, 14%, and 15% of the Company’s overall revenue for the years ended December 31, 2007, 2006 and 2005 respectively. Kohl’s is also obligated to pay an advertising royalty equal to 1% of net sales each contract year. Kohl’s does not have the right to sell Candie’s ophthalmic eyewear (currently sold predominantly in doctors’ offices), which has been licensed to Viva International Group, Inc. since 1998.

Kmart license

As part of the Joe Boxer brand acquisition in July 2005, the Company assumed a license with Kmart, which commenced in August 2001, pursuant to which Kmart (now a wholly-owned subsidiary of Sears Holdings Corporation) was granted the exclusive right to manufacture, market and sell through Kmart stores located in the United States and its territories a broad range of products under the Joe Boxer trademark, including men’s, women’s and children’s underwear, apparel, apparel-related accessories, footwear and home products, for an initial term expiring in December 2007. The license provided for guaranteed minimum royalty payments to the Company for each of the years ending December 31, 2006 and 2007.

In September 2006, the Company entered into a new license with Kmart that extended the initial term through December 31, 2010, subject to Kmart’s option to renew the license for up to four additional terms of five years, each contingent on its meeting specified performance and minimum sale standards. The new license also provides for guaranteed annual minimums and provides for Kmart’s expansion of Joe Boxer’s distribution into Sears stores. The revenue generated from Kmart totaled 6%, 24%, and 28% of the Company’s overall revenue in the years ended December 31, 2007, 2006 and 2005, respectively.

Marketing

Marketing is a critical element of maximizing brand value to the licensees and to the Company. The Company’s in-house marketing team tailors advertising for each of the Company’s brands and each spring and fall the Company develops new advertising campaigns that incorporate the design aesthetic of each brand.

The Company believes that its innovative national advertising campaigns, including those featuring celebrities and performers, result in increased sales and consumer awareness of its brands. Because of the Company’s established relationships with celebrities, performers, agents, magazine publishers and the media in general, the Company has been able to leverage advertising dollars into successful public relations campaigns that reach tens of millions of consumers.

The Company’s advertising expenditures for each of its brands are dedicated largely to creating and developing creative advertising concepts, reaching appropriate arrangements with key celebrities, or other models and participants, advertisements in magazines and trade publications, securing product placements, developing sweepstakes and media contests, running Internet advertisements and promoting public relations events, often featuring personal appearances and concerts. The advertisements for the Company’s various brands have appeared in fashion magazines such as InStyle , Seventeen and Vogue in popular lifestyle and entertainment magazines such as Us , and In Touch , in newspapers and on outdoor billboards. The Company also uses television commercials to promote certain of its brands, partnering with licensees to create and air commercials that will generate excitement for its brands with consumers. The Company maintains a website ( www.iconixbrand.com ) to further market its brands by providing brand materials and examples of current advertising campaigns. In addition, the Company has established an intranet with approved vendors and service providers who can access additional materials and download them through a secure network. The Company also maintains, in some cases through its licensees, separate, dedicated sites for its brands.

A majority of the Company’s license agreements require the payment of an advertising royalty by the licensee. In certain cases, the Company’s licensees supplement the marketing of the Company’s brands by performing additional advertising through trade, cooperative or other sources.

The Company has organized the brand management and marketing functions to best foster the ability to develop innovative and creative marketing and brand support for each existing brand. This structure can be leveraged to support future acquisitions with minimal growth in expense. Typically, each brand is staffed with a brand manager who is supported by a fashion and product development team and who works closely with the creative and graphic groups in the advertising department. Although each brand’s creative direction and image is developed independently, the creative team meets together on a regular basis to share ideas that might work across multiple or all brands. Licensees are provided information both through group meetings and individual sessions, as well as through intranet sites, where creative ideas, brand marketing campaigns and graphics are accessible and easy to download and use in an authorized manner.

Trend direction

The Company’s in-house trend direction teams support the brands by providing licensees with unified trend direction and guidance and by coordinating the brand image across licensees and product categories. The Company’s trend direction personnel are focused on identifying and interpreting the most current trends, both domestically and internationally, and helping forecast the future design and product demands of the respective brands’ customers. Typically, the Company develops a trend guide, including colors, fabrics, silhouettes and an overall style sensibility for each brand and for each product season, and then works with licensees to maintain consistency with the overall brand presentation across product categories. In addition, the Company has product approval rights in most licenses and further controls the look and mix of products its licensees produce through that process. With respect to Badgley Mischka, Mossimo and Rocawear, the Company has contracted the exclusive services of the designers who founded the respective brands to control creative direction.

The Company Website

The Company maintains a website at www.iconixbrand.com , which provides a wide variety of information on each of its brands, including brand books and examples of current advertising campaigns. The Company also makes available free of charge on its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed with or furnished to the Securities and Exchange Commission (the “SEC ” ) under applicable law as soon as reasonably practicable after it files such material. In addition, the Company has established an intranet with approved vendors and service providers who can access additional materials and download them through a secure network. In addition, there are websites for most of the Company’s brands, for example, at www.candies.com , www.badgleymischka.com , www.joeboxer.com and www.rocawear.com . The information regarding the Company’s website address and/or those established for its brands is provided for convenience, and the Company is not including the information contained on the Company’s and brands’ websites as part of, or incorporating it by reference into, this Annual Report on Form 10-K.

The Company’s website also contains information about its history, investor relations, governance and links to access copies of its publicly filed documents.

Competition

The Company’s brands are all subject to extensive competition by numerous domestic and foreign brands. Each of its brands has numerous competitors within each of its specific distribution channels that span numerous products categories including such categories as the apparel and home products and decor industries. For example, while Rampage may compete with XOXO in the mid-tier jeanswear business, Joe Boxer competes with Hanes, Calvin Klein and Jockey with respect to underwear in the mass tier, and Badgley Mischka competes with other couture apparel and bridal brands. Other of our brands (such as Danskin), which are distributed both at the mass level (for instance with Danskin through the diffusion brand Danskin Now) and at the department and specialty store level under the core Danskin label (for instance with Danskin), may have many competitors in different or numerous distribution channels. These competitors have the ability to compete with the Company’s licensees in terms of fashion, quality, price and/or advertising. The Company also faces competition from other brand owners in similar categories for the best licensees.

MANAGEMENT DISCUSSION FROM LATEST 10K

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. This Annual Report on Form 10-K, including this Item 7, includes “forward-looking statements” based on the Company's current expectations, assumptions, estimates and projections about its business and its industry. These statements include those relating to future events, performance and/or achievements, and include those relating to, among other things, the Company's future revenues, expenses and profitability, the future development and expected growth of the Company's business, its projected capital expenditures, future outcomes of litigation and/or regulatory proceedings, competition, expectations regarding the retail sales environment, continued market acceptance of the Company's current brands and its ability to market and license brands it acquires, the Company's ability to continue identifying, pursuing and making acquisitions, the ability of the Company's current licensees to continue executing their business plans with respect to their product lines, and the Company's ability to continue sourcing licensees that can design, distribute, manufacture and sell their own product lines.

These statements are only predictions and are not guarantees of future performance. They are subject to known and unknown risks, uncertainties and other factors, some of which are beyond the Company's control and difficult to predict and could cause its actual results to differ materially from those expressed or forecasted in, or implied by, the forward-looking statements. In evaluating these forward-looking statements, the risks and uncertainties described in “Item 1A. Risk Factors” above and elsewhere in this report and in the Company's other SEC filings should be carefully considered.

Words such as “may,” “should,” “will,” “could,” “estimate,” “predict,” “potential,” “continue,” “anticipate,” “believe,” “plan,” “expect,” “future” and “intend” or the negative of these terms or other comparable expressions are intended to 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.

Overview

The Company is a brand management company engaged in licensing, marketing and providing trend direction for a diversified and growing consumer brand portfolio. The Company’s brands are sold across every major segment of retail distribution, from luxury to mass. As of December 31, 2007, the Company owned 16 iconic consumer brands: Candie’s, Bongo, Badgley Mischka, Joe Boxer, Rampage, Mudd, London Fog, Mossimo, Ocean Pacific/OP, Danskin, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma, and Starter. The Company licenses its brands worldwide through 220 retail and wholesale licenses for use in connection with a broad variety of product categories, including footwear, fashion accessories, sportswear, home products and décor, and beauty and fragrance. The Company’s business model allows it to focus on its core competencies of marketing and managing brands without many of the risks and investment requirements associated with a more traditional operating company. Its licensing agreements with leading retail and wholesale partners throughout the world provide the Company with a predictable stream of guaranteed minimum royalties.

The Company’s growth strategy is focused on increasing licensing revenue from its existing portfolio of brands through adding new product categories, expanding its brands’ retail penetration and optimizing the sales of its licensees. The Company will also seek to continue the international expansion of its brands by partnering with leading licensees throughout the world. Finally, the Company believes it will continue to acquire iconic consumer brands with applicability to a wide range of merchandise categories and an ability to further diversify its brand portfolio.

Summary of operating results:

The Company had net income of $63.8 million for fiscal 2007 as compared to net income of $32.5 million for fiscal 2006.

The Company's operating income was $121.8 million in fiscal 2007, compared to an operating income of $53.7 million in fiscal 2006.

Fiscal 2007 compared to fiscal 2006

Revenue. Revenue for fiscal 2007 increased to $160.0 million from $80.7 million during fiscal 2006. The two largest drivers of the growth of $79.3 million was a full year of revenue generated from the acquisitions of Mudd, London Fog, Mossimo and Ocean Pacific made during fiscal 2006 which contributed approximately $37.1 million, as well as approximately $49.3 million contributed by the fiscal 2007 acquisitions of Danskin, Rocawear, the Official-Pillowtex brands (i.e. Cannon, Royal Velvet, Fieldcrest, Charisma) and Starter, which had no comparable revenue in fiscal 2006. For brands owned for the full year in fiscal 2007 and fiscal 2006, revenue increased approximately 5%, excluding the Joe Boxer brand, where the license was renewed at lower guaranteed minimum royalties while extended for an additional term of four years and providing for expansion into Sears stores. (see Item 1. Business - Key Licenses in fiscal 2007).

Operating Expenses. Consolidated selling, general and administrative (“SG&A”) expenses totaled $44.3 million in fiscal 2007 compared to $24.5 million in fiscal 2006. The increase of $19.8 million was primarily related to (i) an increase of approximately $6.7 million in advertising mainly driven by increased advertising related to brands acquired in fiscal 2007, with no comparable advertising expense in fiscal 2006; (ii) an increase of approximately $5.6 million in payroll costs due to an increase in employee headcount of 48 people (comparing year-over-year ending headcount) relating primarily to our 2007 acquisitions, including Rocawear and Starter. Further, for fiscal 2007, non-cash items consisting of the amortization of restricted stock awards, and the amortization of intangible assets (mainly contracts and non-competes) as a direct result of the Mossimo, Ocean Pacific, Danskin, Rocawear and the Pillowtex brands acquisitions accounted for $1.7 million and $3.4 million, respectively.

For fiscal 2007 the Company’s special charges included $6.0 million net benefit, as compared to special charges expense of $2.5 million in fiscal 2006, both years relating to litigation involving Unzipped. The $6.0 million net benefit includes approximately $3.4 million in legal expenses and a $9.4 million benefit relating to the judgment received in November 2007 relating to the Unzipped litigation. See Note 10 of Notes to Consolidated Financial Statements. The fiscal 2006 special charges expense is comprised of legal expenses involving the Unzipped litigation.

Operating Income. Operating income for fiscal 2007 increased to $121.8 million, or approximately 76% of total revenue, compared to $53.7 million or approximately 67% of total revenue in fiscal 2006. The increase in our operating margin percentage is primarily the result of increased revenues relating to the 2007 acquisitions and a full year of revenue for 2006 acquisitions while leveraging off of the existing infrastructure and making modest additions to SG&A compared to the increase in revenue.

Interest Income - Interest income increased by $6.3 million in fiscal 2007 from $1.2 million to $7.5 million. This increase was primarily driven by higher levels of cash balances throughout the year as compared to fiscal 2006 due to (i) cash generated from operations and (ii) cash raised through debt and equity financing which was on hand for during the first and third quarter of 2007 before used for acquisitions.

Interest Expense - Interest expense increased by $17.9 million in fiscal 2007 to $33.0 million, compared to interest expense of $15.1 million in fiscal 2006. This increase was due primarily to an increase in the Company’s debt financing arrangements in connection with the acquisitions of Rocawear, Official-Pillowtex and Starter, as well as interest related to the Sweet Note. See Note 8 of the Notes to Consolidated Financial Statements. Specifically interest expense relating to the new term loan facility, the convertible bond and the note issued to Sweet ( “ Sweet Note ” ) totaling approximately $12.4 million, $2.9 million and $2.8 million respectively with no comparable interest expense in fiscal 2006. Deferred financing costs increased by $1.3 million in fiscal 2007 to $2.0 million from $0.7 million in fiscal 2006 due to additional financing obtained in fiscal 2007.

Provision for Income Taxes. The effective income tax rate for fiscal 2007 is approximately 33.8% resulting in the $32.5 million income tax expense. This difference between the effective tax rate and the statutory rate of 35%, is mainly driven by the benefit in state income taxes and relates to fluctuations in state rates expected to be realized by the Company due to new or revised tax legislation as well as changes we have recently experienced in the level of business performed within specific tax jurisdictions. Fiscal 2006 had a $7.3 million income tax expense due primarily to a reduction in the Company’s valuation allowance. See Note 17 of Notes to Consolidated Financial Statements.

Net income . The Company’s net income was $63.8 million in fiscal 2007, compared to net income of $32.5 million in fiscal 2006, as a result of the factors discussed above.

Fiscal 2006 compared to fiscal 2005

Revenues. Revenue for fiscal 2006 increased to $80.7 million, from $30.2 million in fiscal 2005. This revenue growth was driven by three factors: growth from brands owned by the Company prior to 2005, additional revenue from brands acquired during fiscal 2005 and brands acquired in fiscal 2006. The growth in revenue from brands that were acquired prior to 2005, notably the Company’s Candie’s brand which is licensed to Kohl’s, amounted to $5.9 million. Additional revenue from brands that were acquired during fiscal 2005, notably the Joe Boxer brand, that is licensed to Kmart, and the Rampage brand, amounted to approximately $20.2 million. In addition, new revenues associated with the four brands acquired in 2006, Mudd, London Fog, Mossimo, and Ocean Pacific, amounted to $22.3 million.

Operating Expenses. Consolidated SG&A expenses totaled $24.5 million in fiscal 2006 compared to $13.3 million in fiscal 2005, an increase of $11.2 million. The increase in SG&A expenses was primarily related to an aggregate increase of $6.9 million in advertising expense and payroll costs associated with additions to employee headcount, both relating primarily related to the Company’s recent acquisitions. Further, in fiscal 2006, the Company recorded an additional $1.4 million reserve against its accounts receivables primarily relating to one licensee’s non-payment that is currently in dispute with the Company, compared to $180,000 in fiscal 2005. Additionally, for fiscal 2006, non-cash items consisting of the amortization of intangible assets as a direct result of the Joe Boxer, Rampage, Mudd, Mossimo and Ocean Pacific acquisitions accounted for $1.9 million of the increase in SG&A expenses from such expenses in Fiscal 2005.

For fiscal 2006 and Fiscal 2005, the Company’s special charges included $2.5 million and $1.5 million respectively, incurred by the Company relating to litigation involving Unzipped. See Note 10 of Notes to Consolidated Financial Statements.

Operating Income . As a result of the foregoing, the Company's net operating income was $53.7 million in fiscal 2006, or 67% of net revenue, as compared to $15.4 million in fiscal 2005, or 51% of net revenue.

Net Interest Expense . Net Interest expense increased by approximately $9.3 million in fiscal 2006 to $13.8 million, compared to $4.5 million in fiscal 2005. This increase in interest expense was due primarily to an increase in the Company's debt through financing arrangements in connection with the acquisitions of Joe Boxer, Rampage, Mudd, London Fog, Mossimo, and Ocean Pacific. Included in the interest expense for fiscal 2006 was approximately $0.7 million amortization expense of deferred financing cost, compared to approximately $0.5 million in fiscal 2005. Partially offsetting the increase in interest expense was an increase in interest income. The interest income for fiscal 2006 totaled $1.2 million, compared to $0.3 million in fiscal 2005, primarily driven by increased cash balances in the fourth quarter from the Company’s equity offering of shares of common stock in December 2006.

Gain on Sales of Securities . In fiscal 2006 and Fiscal 2005, the gross realized gain on sales of securities available for sale totaled $0 and $0.1 million, respectively.

Provision (Benefit) for Income Taxes. The effective income tax rate for fiscal 2006 is approximately 18.4% resulting in the $7.3 million income tax expense. This effective tax rate was mainly driven by the Company’s reduction in the valuation allowance of approximately $6.2 million. Fiscal 2005 had a $5.0 million income tax benefit due primarily from a reduction in the Company’s valuation allowance. See Note 17 of Notes to Consolidated Financial Statements.

Net income . The Company recorded net income of $32.5 million in fiscal 2006, compared to net income of $15.9 million in fiscal 2005, an increase of 104%, as a result of the factors discussed above.

Liquidity and Capital Resources

Liquidity

The Company’s principal capital requirements have been to fund acquisitions, working capital needs, and to a lesser extent capital expenditures. The Company has historically relied on internally generated funds to finance its operations and its primary source of capital needs for acquisition have been the issuance of debt and equity securities. At December 31, 2007, December 31, 2006, and December 31, 2005, the Company’s cash totaled $53.3 million, $77.8 million, and $11.7, respectively, including restricted cash of $5.2 million, $4.3 million, and $4.1 million, respectively.

The Company believes that cash from future operations as well as currently available cash will be sufficient to satisfy its anticipated working capital requirements for the foreseeable future. The Company intends to continue financing its brand acquisitions through a combination of cash from operations, bank financing and the issuance of additional equity and/or debt securities. During 2007, the Company funded it’s acquisitions through a combination of cash reserves and new debt obligations. The Danskin acquisition was funded from the Company’s cash reserves, while the Rocawear, Pillowtex and Starter acquisitions were funded from the proceeds of the term loan facility and convertible senior subordinated notes (see obligations and commitments section). See Note 8 of Notes to Consolidated Financial Statements.

As of December 31, 2007, the marketable securities consist of investment grade auction rate securities. During the year, the Company invested $196.4 million in auction rate securities and the majority of these securities ($183.4 million) had successful auctions. However, beginning in the third quarter of fiscal 2007, $13 million of the auction rate securities had failed auctions due to sell orders exceeding buy orders. These funds will not be available to the Company until a successful auction occurs or a buyer is found outside the auction process. As a result, $13.0 million of auction rate securities were written down to $10.9 million as an unrealized pre-tax loss of $2.1 million to reflect a temporary decrease in fair value. As the write-down of $2.1 million has been identified as a temporary decrease in fair value, the write-down will not impact the Company’s earnings and is reflected as an other comprehensive loss in the consolidated statement of stockholders’ equity . The Company believes this decrease in fair value is temporary due to general macroeconomic market conditions, as the underlying securities have maintained their investment grade rating. Furthermore, the Company believes its cash flow from future operations and its cash will be sufficient to satisfy its anticipated working capital requirements for the foreseeable future, regardless of the timeliness of the auction process.

Changes in Working Capital

At December 31, 2007 and December 31, 2006 the working capital ratio (current assets to current liabilities) was 1.25 to 1 and 2.8 to 1, respectively. This decrease was driven by the decrease in cash and cash equivalents from $77.8 million at December 31, 2006 to $53.3 million at December 31, 2007, as well as the following factors:

Operating Activities

Net cash provided by operating activities totaled $83.7 million in fiscal 2007, as compared to $29.3 million and $16.0 million of net cash provided by operating activities in fiscal 2006 and fiscal 2005, respectively. Cash provided by operating activities in fiscal 2007 increased primarily due to net income of $63.8 million, amortization of intangibles of $5.6 million, $2.3 million for the provision for doubtful accounts, an increase of $5.0 million in deferred revenues, net of acquisitions, driven by prepayments of certain royalties related to the Mudd brand, and an increase of $26.8 million in deferred income tax assets primarily related to the provision for income taxes for fiscal 2007, offset primarily by increases of $22.1 million in accounts receivable, net of acquisitions, primarily related to the Rocawear, Danskin and Pillowtex acquisitions. The Company continues to rely upon cash generated from licensing and commission operations to finance its operations.

Net cash provided from these operating activities totaled $29.3 million in fiscal 2006, compared to $16.0 million in fiscal 2005. For fiscal 2006, cash generated from licensing revenues are from licensees in connection with the Company's nine brands as of December 31, 2006.

Investing Activities

Net cash used in investing activities in fiscal 2007 totaled $598.2 million, as compared to $176.8 million in fiscal 2006 and $68.5 million in fiscal 2005. In fiscal 2007, the Company purchased marketable securities totaling $196.4 million, from which marketable securities totaling $183.4 million were sold at par value during fiscal 2007. In addition, the Company paid $71.3 million in cash for certain assets relating to the Danskin brand, $206.1 million in cash for certain assets relating to the Rocawear brand, and $233.8 million in cash for certain assets relating to the acquisition of the Official-Pillowtex brands (Cannon, Royal Velvet, Fieldcrest, and Charisma), $60.3 million in cash for certain assets relating to the Starter brand, and $13.4 million in cash relating to Scion LLC’s acquisition of the Artful Dodger brand. See Notes 2, 3, 4, 5, and 6 of Notes to Consolidated Financial Statements. Capital expenditures in fiscal 2007 were $0.1, compared to $0.7 million in capital expenditures in fiscal 2006.

The Company's cash used in investing activities in fiscal 2006 totaled $176.8 million compared to $68.5 million used for fiscal 2005. Cash paid for the acquisitions of Mudd, London Fog, Mossimo, and Ocean Pacific, totaled approximately $173.7 million in fiscal 2006. Capital expenditures were $0.7 million for the fiscal 2006 compared to $0.7 million in fiscal 2005. Capital expenditures for fiscal 2006 were primarily in connection with the acquisition of office equipment and leasehold improvements, and other trademarks of $2.3 million.

Financing Activities

Net cash provided by financing activities was $489.0 million in fiscal 2007, compared with $213.4 million in fiscal 2006 and $59.9 million in fiscal 2005. Of the $489.0 million in net cash provided by financing activities, $272.5 million was provided from the net proceeds of the issuance of the term loan facility, $281.1 million from the net proceeds of our sale of the convertible notes, $37.5 million from the proceeds of our sale of the sold warrants to the convertible note hedge counterparties, $3.6 million from proceeds in connection with the exercise of stock options. This was offset by an aggregate of $76.3 million used to purchase the purchased call options from the convertible note hedge counterparties, $20.1 million used for principal payments related to the asset-backed notes and the term loan facility, $3.5 million in cash placed in a non-current reserve account, and $6.2 million in financing costs which have been deferred to be amortized over the remaining life of the term loan facility.

In fiscal 2006, $189.5 million was provided from the net proceeds of the equity offering; $168.0 million was provided from the net proceeds of the issuance of long-term asset-backed notes, the loan related to the Mossimo acquisition and the loan related to the Ocean Pacific acquisition; the Company received proceeds of $9.1 million from the exercise of stock options and warrants; approximately $148.5 million was used for principal payments related to the asset- backed notes ; $6.7 million in cash placed in a non-current reserve account.

Obligations and commitments

The Company funded three of the four 2007 acquisitions through new debt obligations. The Rocawear acquisition was funded from the proceeds of the Company’s $212.5 million term loan facility. The Pillowtex acquisition was funded primarily from the proceeds of the offering of Convertible Senior Subordinated Notes. The Starter acquisition was funded from the net proceeds of an additional $60.0 million in financing secured under the term loan facility. The Company has limited ability, however, to secure additional indebtedness with its existing assets due to certain provisions of the Term Loan Facility and IP Holdings’ existing Asset-Backed Notes.

Term loan facility . In connection with the Company’s acquisition of the Rocawear brand in March 2007, it entered into a credit agreement with respect to a term loan facility pursuant to which it borrowed, and received net proceeds of, $212.5 million. Subsequently, in December 2007, in connection with the Company’s acquisition of the Starter brand, the Company borrowed an additional $63.2 million under this term loan facility, in connection with which it received net proceeds of $60.0 million.

The Company’s obligations under the credit agreement are secured by the Company’s pledge of its ownership interests in several of its subsidiaries. In addition, these and other of the Company’s subsidiaries have guaranteed such obligations and their guarantees are secured by a pledge of, among other things, the Ocean Pacific/OP, Danskin, Rocawear, Mossimo, Cannon, Royal Velvet, Fieldcrest, Charisma and Starter trademarks and related intellectual property assets. Amounts outstanding under the term loan facility bear interest, at the Company’s option, at the Eurodollar rate or the prime rate, plus an applicable margin of 2.25% or 1.25%, as the case may be, per annum, with minimum principal payable in equal quarterly installments in annual aggregate amounts equal to 1.00% of the aggregate principal amount of the loans outstanding, in addition to an annual payment equal to 50% of the excess cash flow from the term loan facility group, with any remaining unpaid principal balance to be due on April 30, 2013. At December 31, 2007, the interest rate under the term loan facility was 7.08% and the balance outstanding under the term loan facility was $270.8 million. As of December 31, 2007, we are in compliance with all covenants relating to this debt obligation (see Note 8 to Consolidated Financial Statements).

Convertible senior subordinated notes. In June 2007, the Company completed the sale of $287.5 million principal amount of its 1.875% convertible senior subordinated notes due 2012 in a private offering to certain institutional investors from which it received net proceeds of approximately $281.1 million. The convertible notes bear interest at an annual rate of 1.875%, payable semi-annually in arrears on June 30 and December 31 of each year, commencing as of December 31, 2007. At December 31, 2007, the balance of the convertible notes was $281.7 million.

Concurrently with the sale of the convertible notes, the Company purchased note hedges for approximately $76.3 million and issued warrants to the hedge counterparties for proceeds of approximately $37.5 million. These transactions will generally have the effect of increasing the conversion price of the convertible notes (by 100% percent based on the price of the Company’s common stock at the time of the offering). As a result of these transactions, the Company recorded a reduction to additional paid-in-capital of $12.1 million. These note hedges and warrants are separate and legally distinct instruments that bind only the Company and the counterparties thereto and have no binding effect on the holders of the convertible notes.

The Company utilized the proceeds of the convertible notes as follows: approximately $233.8 million was used for the Pillowtex acquisition and approximately $38.8 million was the net payment for the related convertible note hedge (see Note 8 of Notes to Consolidated Financial Statements). There are no covenants for this debt obligation.

Asset-backed note s . The financing for certain of the Company’s acquisitions in fiscal 2005 and fiscal 2006 was accomplished though private placements of IP Holding’s asset-backed notes, which notes are currently secured by the Candies, Bongo, Joe Boxer, Rampage, Mudd and London Fog trademarks and related intellectual property assets. At December 31, 2007, the principal balance outstanding under the asset-backed notes was $137.5 million, of which $48.2 million principal amount bears interest at a fixed interest rate of 8.45% and $21.3 million principal amount bears interest at a fixed rate of 8.12%, each with a term ending in 2012, and $68.0 million principal amount bears interest at a fixed rate of 8.99% with a term ending in 2013.

Cash on hand in IP Holdings’ bank account is restricted at any point in time up to the amount of the next payment of principal and interest due by it under the asset-backed notes. Accordingly, as of December 31, 2007 and 2006, $5.2 million and $4.3 million, respectively, have been disclosed as restricted cash within the Company’s current assets. Further, a liquidity reserve account has been established and the funds on deposit in such account are to be applied to the last principal payment due with respect to the asset-backed notes. Accordingly, the $15.2 million and $11.7 million in such reserve account as of December 31, 2007 and 2006, respectively, have been included on the Company’s balance sheets as restricted cash within its other assets. As of December 31, 2007, we are in compliance with all covenants relating to this debt obligation. (see Note 8 of Notes to Consolidated Financial Statements)

Sweet Note . On April 23, 2002, the Company acquired the remaining 50% interest in Unzipped from Sweet for a purchase price comprised of 3,000,000 shares of its common stock and $ 11.0 million in debt, which was evidenced by the Company’s issuance of the Sweet Note. Prior to August 5, 2004, Unzipped was managed by Sweet pursuant to a management agreement, which obligated Sweet to manage the operations of Unzipped in return for, commencing in fiscal 2003, an annual management fee based upon certain specified percentages of net income achieved by Unzipped during the three- year term of the agreement. In addition, Sweet guaranteed that the net income, as defined in the agreement, of Unzipped would be no less than $ 1.7 million for each year during the term, commencing with fiscal 2003. In the event that the guarantee was not met for a particular year, Sweet was obligated under the management agreement to pay the Company the difference between the actual net income of Unzipped, as defined, for such year and the guaranteed $ 1.7 million. That payment, referred to as the shortfall payment, could be offset against the amounts due under the Sweet Note at the option of either the Company or Sweet. As a result of such offsets, the balance of the Sweet Note was reduced by the Company to $ 3.1 million as of December 31, 2006 and $ 3.0 million as of December 31, 2005 and is reflected in "long- term debt." This note bears interest at the rate of 8% per year and matures in April 2012.

In November 2007, in connection with the litigation in the California state court, the state court judge issued a signed judgment. This judgment stated that the Sweet Note originally $11 million when issued by the Company upon the acquisition of Unzipped from Sweet in 2002 should total approximately $12.2 million as of December 31, 2007. The balance of this Sweet Note, prior to any adjustments related to the judgment was approximately $3.2 million. The Company increased the Sweet Note by approximately $6.2 and recorded the expense as a special charge. The Company further increased the Sweet Note by approximately $2.8 million to record the related interest and included the charge in interest expense. The balance of the Sweet Note as of December 31, 2007 is approximately $12.2 million and included in Current portion of Long Term Liabilities.

Kmart note . In connection with the acquisition of Joe Boxer in July 2005, the Company assumed a promissory note, dated August 13, 2001, in the principal amount of $10.8 million that originated with the execution of the Kmart license by the former owners of Joe Boxer. The note provided for interest at 5.12% and was payable in three equal annual installments, on a self-liquidating basis, on the last day of each year commencing on December 31, 2005 and continuing through December 31, 2007. Payments due under the note could be off-set against any royalties owed under the Kmart license. As of December 31, 2007 the remaining principal due to Kmart under the note was entirely off-set against royalties collectible under the Kmart license.

Other. The Company believes that it will be able to satisfy its ongoing cash requirements for operations and debt servicing for the foreseeable future, primarily with cash flow from operations. In addition, as part of its business growth strategy, the Company intends, in addition to growing through the organic development of its brands and expanding internationally, to grow through acquisitions of additional brands. The Company anticipates that it may fund any such acquisitions through the issuance of equity or debt securities.



MANAGEMENT DISCUSSION FOR LATEST QUARTER

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 . The statements that are not historical facts contained in this report 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. These risks are detailed in the Company’s Form 10-K for the fiscal year ended December 31, 2007 and other 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.

Executive Summary. We are a brand management company engaged in licensing, marketing and providing trend direction for a diversified and growing portfolio of consumer brands. Our brands are sold across every major segment of retail distribution, from luxury to mass. As of September 30, 2008, we owned 16 iconic consumer brands: Candie’s, Bongo, Badgley Mischka, Joe Boxer, Rampage, Mudd, London Fog, Mossimo, Ocean Pacific/OP, Danskin, Rocawear, Cannon, Royal Velvet, Fieldcrest, Charisma, and Starter. We license our brands worldwide through approximately 210 direct-to-retail and traditional wholesale licenses for use in connection with a broad variety of product categories, including footwear, fashion accessories, sportswear, home products and décor, and beauty and fragrance. Our business model allows it to focus on its core competencies of marketing and managing brands without many of the risks and investment requirements associated with a more traditional operating company. Its licensing agreements with leading retail and wholesale partners throughout the world provide us with a predictable stream of guaranteed minimum royalties.

Our growth strategy is focused on increasing licensing revenue from its existing portfolio of brands through the addition of new product categories, expanding its brands’ retail penetration and optimizing the sales of its licensees. We will also seek to continue the international expansion of its brands by partnering with leading licensees throughout the world. Finally, we believe we will continue to acquire iconic consumer brands that can be merchandised over a wide range of categories to further diversify our brand portfolio. On October 3, 2008 we acquired Waverly, a premier home fashion and lifestyle brand and one of the most recognized names in home furnishings.

Results of Operations

For the three months ended September 30, 2008

Revenue. Revenue for the Current Quarter increased to $55.1 million from $42.7 million during the Prior Year Quarter, an increase of $12.4 million. During the Current Quarter, we recorded a non-cash gain of approximately $2.6 million related to the sale of a trademark to our 50% owned joint venture in China (see Note 11 in the Notes to unaudited condensed consolidated financial statements). The principal driver of the remaining growth of $9.8 million was a full quarter of revenue generated from the acquisitions of the Official-Pillowtex brands (i.e. Cannon, Royal Velvet, Fieldcrest, Charisma) and Starter made during the fourth quarter of Fiscal 2007, which had no comparable revenue in the Prior Year Quarter.

Operating Expenses. Selling, general and administrative (“SG&A”) expenses totaled $18.6 million in the Current Quarter compared to $13.4 million in the Prior Year Quarter. The increase of $5.2 million was primarily related to: (i) an increase of approximately $2.3 million in payroll costs, primarily due to an increase of $1.4 million in non-cash stock compensation expense, from $0.5 million in the Prior Year Quarter to $1.9 million in the Current Quarter, of which $1.3 million of the increase related to the new employment contract with our chairman, chief executive officer and president, with the balance of the aggregate increase in payroll costs attributable to the increase in employee headcount mainly related to our 2007 acquisitions; (ii) an increase of approximately $0.9 million in advertising mainly driven by increased advertising related to brands acquired in the fourth quarter of Fiscal 2007, with no comparable advertising expense in the Prior Year Quarter; and (iii) amortization of intangible assets (mainly contracts and non-competes) as a direct result of the Official-Pillowtex, Starter, and Artful Dodger brands acquisitions which accounted for $0.6 million in the Current Quarter and for which there was no comparable expense in the Prior Year Quarter. The remaining increase in SG&A of $1.4 million is primarily attributed to an increase in other general and administrative expenses associated with the Danskin, Rocawear, Official-Pillowtex, and Starter brand acquisitions.

For the Current Quarter and Prior Year Quarter our expenses related to specific litigation (formerly called special charges), included an expense for professional fees of $0.3 million and a reimbursement of certain fees totaling $39,000, respectively, relating to litigation involving Unzipped. See Notes 7 and 8 of Notes to Unaudited Condensed Consolidated Financial Statements.

Operating Income. Operating income for the Current Quarter increased to $36.3 million, representing approximately 66% of total revenue, compared to $29.3 million or approximately 69% of total revenue in the Prior Year Quarter. The decrease in our operating margin percentage is primarily the result of the increase in operating expenses for the reasons detailed above.

Other Expenses - Net - Interest expense increased by $2.9 million in the Current Quarter to $7.6 million, compared to interest expense of $4.7 million in the Prior Year Quarter. This increase was due to several factors: (i) an increase in our debt financing arrangements in connection with the acquisition of Starter; (ii) interest expense related to the Sweet Note; and, (iii) a decrease in interest income related to our higher cash balance during the Prior Year Quarter related to the proceeds from the Convertible Notes. This increase was offset by a decrease in the interest rate for our variable rate debt (i.e. our Term Loan Facility) and interest income related to our judgment against Herbert Guez and ADS. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. Deferred financing costs increased by $0.5 million in the Current Quarter to $0.8 million from $0.3 million in the Prior Year Quarter due to additional financing obtained in Fiscal 2007.

Provision for Income Taxes. The effective income tax rate for the Current Quarter is approximately 35.3% resulting in the $10.0 million income tax expense, as compared to an effective income tax rate of 30.9% in the Prior Year Quarter which resulted in the $7.6 million income tax expense.

Net Income . The Company’s net income was $18.3 million in the Current Quarter, compared to net income of $17.0 million in the Prior Year Quarter, as a result of the factors discussed above.

For the nine months ended September 30, 2008

Revenue. Revenue for the Current Nine Months increased to $162.5 million from $112.6 million during the Prior Year Nine Months. During the Current Nine Months, we recorded a non-cash gain of approximately $2.6 million related to the sale of a trademark to our joint venture in China. The principal driver of this growth of $47.3 million was three full quarters of revenue generated from the acquisitions of Rocawear and Danskin, as compared to only two quarters of revenue from these brands in the Prior Year Nine Months, and three full quarters of revenue generated from the acquisitions of the Official-Pillowtex brands, Starter and Artful Dodger made during the fourth quarter of 2007, which had no comparable revenue in the Prior Year Nine Months.

Operating Expenses. SG&A expenses totaled $55.6 million in the Current Nine Months compared to $30.1 million in the Prior Year Nine Months. The increase of $25.5 million was primarily related to: (i) an increase of approximately $9.4 million in payroll costs, primarily due to an increase of $4.9 million in non-cash stock compensation expense, from $1.3 million in the Prior Year Nine Months to $6.2 million in the Current Nine Months, of which $4.0 million of the increase related to the new employment contract with our chairman, chief executive officer and president, with the balance of the aggregate increase in payroll costs attributable to the increase in employee headcount mainly related to our 2007 acquisitions; (ii) an increase of approximately $7.6 million in advertising mainly driven by three full quarters of advertising related to brands acquired in Fiscal 2007; (iii) amortization of intangible assets (mainly contracts and non-competes) as a direct result of the Danskin, Rocawear, Official-Pillowtex, Starter, and Artful Dodger brands acquisitions, which accounted for $3.5 million in the Current Nine Months and $1.2 million in the Prior Year Nine Months; and (iv) an increase of $3.5 million in professional fees primarily related to increased maintenance costs on new trademarks. The remaining increase in SG&A of $2.7 million relates to an increase in other general and administrative expenses associated with the Danskin, Rocawear, Official-Pillowtex, and Starter brand acquisitions.

For the Current Nine Months and Prior Year Nine Months, our expenses related to specific litigation, formerly known as special charges, included an expense for professional fees of $0.7 million and $1.1 million, respectively, relating to litigation involving Unzipped. See Notes 7 and 8 of Notes to Unaudited Condensed Consolidated Financial Statements.

Operating Income. Operating income for the Current Nine Months increased to $106.2 million, or approximately 65% of total revenue, compared to $81.4 million or approximately 72% of total revenue in the Prior Year Nine Months. The decrease in our operating margin percentage is primarily the result of the increase in operating expenses for the reasons detailed above.

Other Expenses - Net - Interest expense increased by $9.5 million in the Current Nine Months to $23.8 million, compared to interest expense of $14.3 million in the Prior Year Nine Months. This increase was due to several factors: (i) an increase in our debt financing arrangements in connection with the acquisitions of Rocawear, Official-Pillowtex and Starter; (ii) interest expense related to the Sweet Note; and, (iii) a decrease in interest income related to our higher cash balance during the Prior Year Nine Months related to the proceeds from the Convertible Notes. This increase was offset by a decrease in interest rates for our variable rate debt (i.e. our Term Loan Facility) and interest income related to our judgment against Herbert Guez and ADS. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements. Specifically, for the Current Nine Months, there was a total interest expense relating to the Term Loan Facility, Convertible Notes and the Sweet Note of approximately $11.5 million, $4.0 million and $0.7 million respectively with no comparable interest expense in the Prior Year Nine Months. Deferred financing costs increased by $1.7 million in the Current Nine Months to $2.5 million from $0.8 million in the Prior Year Nine Months due to additional financing obtained in Fiscal 2007.

Provision for Income Taxes. The effective income tax rate for the Current Nine Months is approximately 35.4% resulting in the $29.1 million income tax expense, as compared to an effective income tax rate of 33.7% in the Prior Year Nine Months which resulted in the $22.6 million income tax expense.

Net Income . The Company’s net income was $53.0 million in the Current Nine Months, compared to net income of $44.5 million in the Prior Year Nine Months, as a result of the factors discussed above.

Liquidity

Our principal capital requirements have been to fund acquisitions, working capital needs, and to a lesser extent capital expenditures. We have historically relied on internally generated funds to finance our operations and our primary source of capital needs for acquisition has been the issuance of debt and equity securities. At September 30, 2008 and December 31, 2007, our cash totaled $83.9 million and $53.3 million, respectively, including short-term restricted cash of $1.3 million and $5.2 million, respectively.

Subsequent to the Current Quarter, on October 3, 2008, we completed our acquisition of Waverly for $26.0 million in cash. We funded the acquisition from cash on hand at September 30, 2008. See Note 13 for further details on this acquisition.

The Term Loan Facility requires us to repay the principal amount of the term loan outstanding in an amount equal to 50% of the excess cash flow of the subsidiaries subject to the Term Loan Facility for the most recently completed fiscal year. If the Term Loan Facility had required us to repay the principal amount of the term loan outstanding based on the excess cash flow of such subsidiaries for the nine months ended September 30, 2008 rather than based upon the fiscal year end results, we would have been required to pay approximately $28.8 million, representing 50% of the excess cash flow of such subsidiaries for that nine-month period. However, in accordance with the terms of the Term Loan Facility as noted above, the next calculation for determining the actual excess cash flow payment we will be required to make under the Term Loan Facility will be based on the results of the subsidiaries subject to the Term Loan Facility for the 12 months ending December 31, 2008, and therefore the $28.8 million shown in Current portion of long-term debt will more than likely change

We believe that cash from future operations as well as currently available cash will be sufficient to satisfy our anticipated working capital requirements for the foreseeable future. We intend to continue financing its brand acquisitions through a combination of cash from operations, bank financing and the issuance of additional equity and/or debt securities. See Note 4 of Notes to Unaudited Condensed Consolidated Financial Statements for a description of certain prior financings consummated by us..

As of September 30, 2008, our marketable securities consist of investment grade auction rate securities. During Fiscal 2007, we invested $196.4 million in auction rate securities and the majority of these securities ($183.4 million) had successful auctions. However, beginning in the third quarter of Fiscal 2007, $13.0 million of the auction rate securities failed auctions due to sell orders exceeding buy orders. These funds will not be available to us until a successful auction occurs or a buyer is found outside the auction process. As a result, $13.0 million of auction rate securities were written down to $10.7 million, using Level 3 inputs with present value techniques as described by the fair value hierarchy and the income approach outlined in SFAS 157, as an unrealized pre-tax loss of $2.3 million to reflect a temporary decrease in fair value. As the write-down of $2.3 million has been identified as a temporary decrease in fair value, the write-down has not impacted our earnings and is reflected as an other comprehensive loss in the consolidated statement of stockholders’ equity. We believe this decrease in fair value is temporary due to general macroeconomic market conditions, as interest is being paid in full as scheduled, we have the ability to hold the securities until an anticipated full redemption, and the underlying securities have maintained their investment grade rating. We believe our cash flow from future operations and its cash will be sufficient to satisfy its anticipated working capital requirements for the foreseeable future, regardless of the timeliness of the auction process.

Changes in Working Capital

At September 30, 2008 and December 31, 2007 the working capital ratio (current assets to current liabilities) was 1.79 to 1 and 1.25 to 1, respectively. This increase was driven by an increase in cash as well as the factors set forth below:

Operating Activities

Net cash provided by operating activities totaled $63.1 million in the Current Nine Months, as compared to $58.4 million of net cash provided by operating activities in the Prior Year Nine Months. Cash provided by operating activities in the Current Nine Months increased $4.7 million primarily due to net income of $53.0 million, stock-based compensation expense of $6.2 million of which $4.0 million can be directly attributed to our new contract with the chief executive officer, amortization of intangibles of $5.5 million of which $2.3 million relates to one additional quarter of amortization for those brands acquired at the end of the first quarter of 2007 (ie. Danskin and Rocawear) as well as three quarters of amortization for the Official-Pillowtex and Starter brands, and a net increase of $20.2 million in deferred income taxes primarily related to the provision for income taxes for the Current Nine Months, offset primarily by increases of $14.3 million in accounts receivable and $10.9 million in prepaid advertising and other, and a decrease of $3.5 million in deferred revenue. We continue to rely upon cash generated from licensing operations to finance our operations.

Investing Activities

Net cash used in investing activities in the Current Nine Months totaled $11.5 million, as compared to $313.7 million used in the Prior Year Nine Months. In the Current Nine Months, we paid cash earn-outs of $3.3 million related to our acquisition of Official-Pillowtex and $1.1 million related to our acquisition of Rocawear, which were recorded as increases to goodwill; in addition, and we made an initial cash contribution of $2.0 million to our 50% owned joint venture in China. This aggregate of cash used in investing activities was offset by collection of $1.0 million related to an outstanding promissory note. In the Prior Year Nine Months, we paid $70.8 million in cash for certain assets related to the Danskin brand, $204.2 million in cash for certain assets related to the Rocawear brand, and $196.4 million for the purchase of certain marketable securities, offset by the sale of $183.4 million of those marketable securities. Capital expenditures for the Current Nine Months were $4.2 million, compared to less than $0.1 million in capital expenditures in the Prior Year Nine Months, primarily relating to the purchase of fixtures for certain brands.

CONF CALL

Warren Clamen

Thank you. Good morning, everyone and welcome to the Iconix Brand Group’s third quarter 2008 earnings conference call. Reviewing our results for the third quarter ended September 30, 2008, revenue increased 29% to approximately $55.1 million, as compared to approximately $42.7 million in the prior year quarter. EBITDA increased 23% to approximately $37.9 million, as compared to approximately $30.8 million in the prior year quarter and EBITDA margins were approximately 69% for the quarter.

Free cash flow increased 13% to $31.5 million this quarter, as compared to $27.9 million in the prior year quarter. Net income increased 8% to approximately $18.3 million, compared to $17 million in the prior year quarter.

Diluted EPS were $0.30 per share, as compared to $0.28 per share in the prior year quarter which included $0.02 and $0.01 of non-cash compensation expense, respectively. Free cash flow per diluted share was $0.52 for the quarter.

For the nine months ended September 30, 2008, revenue increased 44% to approximately $162.5 million, as compared to approximately $112.6 million in the prior nine-month period. EBITDA for the nine-month period increased 31% to $111.8 million, as compared to $85.4 million in the prior-year period and free cash flow increased 22% to approximately $91 million, as compared to approximately $74.8 million in the prior year period.

Net income for the nine-month period increased 19% to approximately $53 million, compared to $44.5 million in the prior year period and diluted earnings per share increased to $0.87 from $0.73 in the prior year period, which included $0.06 and $0.01 of non-cash compensation expense respectively. Free cash flow per diluted share for the nine-month period was $1.49.

EBITDA and free cash flow are both non-GAAP metrics and reconciliation tables for each can be found in the press release sent earlier this morning and on our website, www.iconixbrand.com. Free cash flow is an important metric to look at for our business, as our GAAP earnings include several reoccurring non-cash items; specifically non-cash taxes, depreciation and amortization and non-cash stock-based compensation expense.

Going forward, we estimate our annual free cash flow will be approximately $50 million higher than our reported GAAP net income. In the third quarter, our free cash flow was $13.2 million or $0.22 higher than GAAP earnings and for the nine-month period, this difference was $38 million or $0.62 higher.

Total debt at the end of the quarter was $673 million and the earliest maturity of any debt is 2012. Our pro forma net debt-to-EBITDA is currently below four times and we are comfortable at these levels given the high visibility of our guaranteed minimum cash flows. As of January 1, 2009, we will have over $500 million in aggregate guaranteed minimum royalties through the current terms of our existing licenses excluding any renewals.

Our weighted average interest rate on all debt for the third quarter was approximately 4.8%. At the end of the quarter, the company had approximately $84 million in cash and this cash balance was prior to the $26 million we paid for the Waverly acquisition, which closed on October 6.

We spent a great deal of time evaluating the best use of the cash that our business generates. Today, we announced that our Board of Directors has authorized a program to repurchase up to $75 million of stock over the next three years. We feel at certain price levels buying back our shares would create great value for shareholders. However, we will also remain committed to our growth strategy that includes acquiring iconic brands, and we will continue to evaluate what are the best options for the company and its shareholders.

Before I turn the call over to Neil, I would like to discuss one last point. As most of you are aware, and beginning only in 2009 a new GAAP accounting rule will require us to record incremental non-cash interest related to our convertible debt for 2009 and for 2008 comparability purposes. The impact of this change in accounting policy will be $0.14 per diluted share for 2009 and $0.13 for 2008, all of which relates to non-cash interest.

This change in accounting policy will not impact the actual economics of our convertible debt and the interest rate remains at 1 7/8.

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

Neil Cole

Thank you, Warren. Good morning, everybody. I am pleased with our performance in the third quarter and believe that our model has demonstrated its resilience in this difficult environment, as we continue to generate substantial revenue and sustainable earnings with even stronger cash flows.

Further, we believe that Iconix is one of the few consumer-driven companies, well positioned in this economic environment to deliver strong organic growth in 2009. First, I will take you through some of the highlights from the quarter.

Overall, it was a challenging quarter for retail, but with our diversification among brands, retailers and licensees our business has performed well. Starting with our direct to retail apparel brands, Candie’s was a little soft, reflecting lean inventory management at Kohl’s.

Accessories and intimates were the standout categories for Candie’s as consumers chose to update their wardrobe with lower-ticket items rather than investing in new outfits. Mossimo has been impacted by the weak retail environment, but still remains a fixture within Target and will represent close to $2 billion in retail sales this year.

Joe Boxer sales at Kmart continued to perform well and the new women’s intimate product is gaining good traction. However, the slow rollout at Sears has been disappointing. The big upside for our three brands in Wal-Mart; OP, Danskin Now and Starter will come in 2009 with additional doors and categories. We are excited to say that the repositioned Danskin Now product is already receiving a great response.

In looking at our traditional wholesale brands, the results were mixed. The two biggest standouts in the quarter were Rocawear and London Fog. As the urban market consolidates, Rocawear has maintained its position as a dominant player. Jay-Z’s commitment to the brand has been a critical component of our recent success that we are seeing in his role as a spokesperson in the most recent ad campaign has driven a lot of excitement.

Our London Fog business continues to see growth driven by its strong core outerwear business and the introduction of new categories. In the third quarter, we launched London Fog footwear in 400 Macy doors, and we currently have one of the best-selling footwear boots. The London Fog e-commerce website also launched in the third quarter and is receiving great traction.

Badgley Mischka sales were down slightly, reflecting the over all slowdown in the luxury retail segment. We recently signed a new sportswear license with ECI for Rampage and are excited about their ability to grow the business. ECI will deliver its first collection for spring in ‘09. We are also working on new strategies for our junior denim brands, Bongo and Mudd, and hope to make an announcement for at least one of them in the very near future.

As for our home brands, the initial launch of Cannon at Sears is off to a very strong start. Royal Velvet’s Bed Bath & Beyond business has been off slightly, reflecting increased competition as Linens N Things liquidate their stores. However, Bed Bath & Beyond is a great partner for us.

Fieldcrest is on plan at Target and they are excited about the potential for the brand in 2009. Charisma, our smallest home brand, has been weak. We are looking to reposition it for next year.

For our full 2008 results, we are on track to achieve revenue guidance of $215 million to $220 million and earnings of $1.15 to $1.20 a share, but are now guiding towards the low end of these ranges.

We are expecting to maintain strong EBITDA margins for the year of approximately 70%, and our model continues to generate strong free cash flow, which we expect to be in excess of $120 million for the year or approximately $2 a share.

I would now like to discuss our Waverly acquisition which was closed at the beginning of the fourth quarter, despite the challenging economic and credit markets. Waverly was a great bolt-on acquisition for Iconix, as it adds $7 million in incremental revenue with minimal incremental expense. We paid $26 million with our existing cash at a multiple of 3.7 revenue, and have over 80% of that guaranteed back to us over the lives of the existing contracts.

We believe this acquisition demonstrates the power of cash on hand in this environment, as it provided us with the ability to be opportunistic and execute an acquisition at an extremely attractive valuation.

In addition to the favorable economics of the deal, there are also strategic benefits. Through Waverly, we gain access to new retail relationships with Lowe’s and Jo-Ann’s and also enter some new categories including paint and window treatments.

Looking forward to the full year 2009, we believe retail will continue to be extremely difficult, and we expect retailers to remain focused on tightly managing inventory. That being said, we are still projecting strong top-line growth for ‘09, driven entirely by our organic revenue.

Our largest and most exciting opportunity is with our three brands at Wal-Mart; OP, Starter and Danskin Now. We believe Wal-Mart is a strong partner, well positioned for this current environment and are thrilled with their enthusiasm for our brands. The plan for next year is to take OP from 1,000 doors today to all doors in Spring ‘09 and to transition Starter and Danskin Now to become the anchor brands for athletic apparel within Wal-Mart, as referenced at Wal-Mart’s investor conference last week.

As we execute our strategy and gain traction within Wal-Mart, we believe sales at retail will more than double to exceed $2 billion and reach $3 billion over the next few years. Through Wal-Mart’s global branded strategy, we will also have the opportunity to leverage their international platform. OP has already launched in Canada and Mexico, and we are in discussions for the U.K., Brazil and Argentina.

We also expect growth from our home business next year as Cannon fully launches in all Kmart and Sears stores for spring ‘09. This is another exciting opportunity for us, as the Martha Stewart brand exits the store. To-date, sales of towels have been strong even outperforming the Martha Stewart collection.

In addition to the many opportunities we have for our brands in the U.S., we believe there is a big opportunity to take our brands worldwide. As we explore new markets, we are becoming more inclined to join with local partners who understand the marketplace and know the key players.

We remain excited about our China joint venture with Novel Fashions, which is run by Silas Chou. We anticipate having two equity deals in China signed by the end of this year and plan to have a total of four to five brands signed by the end of ‘09.

In addition, we are discussing a joint venture for Central and South America with a strong partner for that region. Based on the initiatives we just discussed and the visibility our model provides, we feel comfortable in issuing ‘09 guidance at this time. In 2009, we expect revenue to increase approximately 7% to a range of $225 million to $235 million. Approximately two-thirds of this is supported by guaranteed minimums.

As I discussed earlier, this growth will be driven by our Wal-Mart and our home initiatives, including the addition of the Waverly brand. For our other brands, we expect sales to be down slightly as retailers continue to plan inventories conservatively for the first half of the year.

Luckily they consider the direct to retail brands the best for them economically, which is an advantage we have going into ‘09. We plan to continue to support our brands with great marketing to gain market share, but we will remain focused on maintaining our 70% EBITDA margin that we have delivered over the last couple of years.

We are forecasting earnings growth of approximately 8% for next year. Therefore, excluding any impact from the accounting change for the convertible, we expect earnings per share to be in the range of $1.20 to $1.30, which includes approximately $0.08 of non-cash comp.

Due to the change in the convertible accounting that Warren discussed earlier, including the non-cash interest, earnings per share would then be put into the range of $1.06 to $1.16. We expect to continue to generate strong free cash flow and are forecasting free cash flow to be in the range of $114 million to $118 million next year, which translate to a free cash flow per share of approximately $1.90.

While our guidance does not include any revenue for future acquisition, we are and will continue to assess potential acquisitions. The apparel and retail industry is going through a transformation and we believe there will be tremendous consolidations in the industry over the next couple of years. As brand owners with the ability to create value, we should see opportunities arise over the next 12 months that allow us to continue to broaden our portfolio.

In addition, as the consumer returns, we will be incredibly well positioned to prosper, as we have created strong relationships with best-in-class retailers like Wal-Mart, Target, Kohl’s, Bed Bath Beyond, and strong wholesalers including Li & Fung, Elizabeth Arden, and Kids Headquarters.

In closing, like a lot of you we are very frustrated with our current stock price. When we look at all that we have accomplished, and the opportunities that we know that our current valuation is not indicative of our fundamentals. To the contrary, our company is stronger today than any other time in our history.

Recently, Crain’s New York ranked Iconix as the second fastest-growing company in the New York region, based on a three-year annualized growth rate of 130% and a three-year annualized net income rate of over 100%. Fortune Magazine also included Iconix as number 47 in 2008’s list of America’s fastest-growing companies.

As we look into the future, we continue to see tremendous growth opportunities for our brands and are now projecting our 17 brands to generate approximately $8 billion in sales in 2009.

Four years ago, when we began transforming our business, we never anticipated an environment like this and it is encouraging to see how well our model is holding up in this environment. We are energized with the strength and resilience we have shown over the past year and we are excited about our organic growth plans for the future. We have a great company that is prepared for the short-term challenges ahead and will benefit from the consolidations we see happening in the future.

With that, I would like to thank all of you for listening this morning and to open it up for a question-and-answer.




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