Exhibit 10.78
| Note: All items in the following reconciliation tables are attributable to Iconix Brand Group, Inc. and exclude results related to non-controlling interests and discontinued operations. Certain numbers may not add due to rounding. |
Non-GAAP Net Income (Loss) & Diluted EPS Reconciliation:(1)
($, 000’s, except per share data)
| NET INCOME | EPS | |||||||||||||||||||||||
| Twelve Months Ended Dec. 31, | Twelve Months Ended Dec. 31, | |||||||||||||||||||||||
| 2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||||||
| GAAP net income (loss) & EPS from continuing operations attributable to Iconix (1) | (535,278 | ) | (254,498 | ) | -110 | % | $ | (9.47 | ) | $ | (4.86 | ) | -95 | % | ||||||||||
| Add: | ||||||||||||||||||||||||
| non-cash interest related to ASC 470 | 16,943 | 22,398 | $ | 0.29 | $ | 0.43 | ||||||||||||||||||
| gain on sale of Complex Media | (2,728 | ) | (10,164 | ) | $ | (0.05 | ) | $ | (0.19 | ) | ||||||||||||||
| gain on deconsolidation of JV | (3,772 | ) | — | $ | (0.07 | ) | $ | 0.00 | ||||||||||||||||
| loss on extinguishment of debt | 20,939 | 5,903 | $ | 0.37 | $ | 0.11 | ||||||||||||||||||
| loss on termination of licenses | 28,360 | — | $ | 0.50 | $ | 0.00 | ||||||||||||||||||
| trademark & goodwill impairment | 654,019 | 438,093 | $ | 11.45 | $ | 8.37 | ||||||||||||||||||
| special charges | 9,638 | 14,314 | $ | 0.17 | $ | 0.27 | ||||||||||||||||||
| settlement w/ former CEO of unearned compensation | — | (7,263 | ) | $ | 0.00 | $ | (0.14 | ) | ||||||||||||||||
| foreign currency translation gain/(loss) | 3,072 | (1,286 | ) | $ | 0.05 | $ | (0.02 | ) | ||||||||||||||||
| Deduct: | ||||||||||||||||||||||||
| Income taxes related to above | (237,006 | ) | (121,537 | ) | $ | (4.15 | ) | $ | (2.32 | ) | ||||||||||||||
| Valuation Allowance | 89,210 | — | $ | 1.56 | $ | 0.00 | ||||||||||||||||||
| Tax Rate Reduction due to tax reform | 34,205 | — | $ | 0.60 | $ | 0.00 | ||||||||||||||||||
| non-controlling interest | (32,616 | ) | (17,284 | ) | $ | (0.57 | ) | $ | (0.33 | ) | ||||||||||||||
| Accretion of redeemable non-controlling interest | — | — | $ | 0.10 | $ | 0.00 | ||||||||||||||||||
| Net Adjustments | 580,264 | 323,174 | $ | 10.25 | $ | 6.17 | ||||||||||||||||||
| Non-GAAP net income & EPS from continuing operations attributable to Iconix | 44,986 | 68,676 | -34 | % | $ | 0.78 | $ | 1.31 | -38 | % | ||||||||||||||
2017 Free Cash Flow Reconciliation:(2)
($, 000’s)
| Three Months Ended Dec. 31, | Full Year | |||||||||||||||||||||||
| 2017 | 2016 | % Change | 2017 | 2016 | % Change | |||||||||||||||||||
| Net cash provided by operating activities | $ | 9,757 | $ | 68,859 | -86 | % | $ | 12,854 | $ | 134,840 | -90 | % | ||||||||||||
| Plus: Cash related to Disc Ops sale | — | — | 36,272 | — | ||||||||||||||||||||
| Plus: Cash from sale of trademarks and related notes receivable | 1,937 | 8,458 | 8,864 | 14,595 | ||||||||||||||||||||
| Plus: Cash from notes receivable from licensees | — | 4,112 | 1,250 | 11,962 | ||||||||||||||||||||
| Plus: Cash from sale of Nick Graham | — | — | 2,561 | — | ||||||||||||||||||||
| Plus: Cash from sale of equity interest in BBC Ice Cream | — | — | — | 3,500 | ||||||||||||||||||||
| Plus: Cash from sale of Badgley Mischka | — | — | 375 | 14,000 | ||||||||||||||||||||
| Plus: Cash from sale of Sharper Image | — | 98,250 | 500 | 98,250 | ||||||||||||||||||||
| Plus: Cash from sale of equity interest in China | — | — | — | 15,415 | ||||||||||||||||||||
| Less: Capital Expenditures | (41 | ) | (674 | ) | (870 | ) | (1,518 | ) | ||||||||||||||||
| Less: Distributions to non-controlling interests | (1,341 | ) | (4,695 | ) | (5,191 | ) | (14,016 | ) | ||||||||||||||||
| Free Cash Flow from operations | $ | 10,312 | $ | 174,310 | -94 | % | $ | 56,615 | $ | 277,028 | -80 | % | ||||||||||||
Forecasted Reconciliation of Net Income:(1)
($, 000’s)
| Year Ending | ||||||||
| Dec. 31, 2018 | ||||||||
| Low | High | |||||||
| Forecasted GAAP Net Income | $ | 6,700 | $ | 16,700 | ||||
| Adjustment for non-cash interest related to ASC 470, net of tax | 8,000 | 8,000 | ||||||
| Special charges, net of tax | 6,000 | 6,000 | ||||||
| Gain on sale of Investment | (700 | ) | (700 | ) | ||||
| Net Adjustments | 13,300 | 13,300 | ||||||
| Forecasted Non-GAAP Net Income | $ | 20,000 | $ | 30,000 | ||||
Forecasted Reconciliation of Free Cash Flow:(2)
($, 000’s)
Year Ending Dec. 31, 2018 | ||||||||
| Low | High | |||||||
| Net cash provided by operating activities | $ | 61,700 | $ | 79,200 | ||||
| Plus: Cash from sale of trademarks and notes receivable | 2,800 | 5,300 | ||||||
| Plus: Cash from notes receivable from licensees | 2,500 | 2,500 | ||||||
| Less: Capital Expenditures | (1,000 | ) | (1,000 | ) | ||||
| Less: Distributions to non-controlling interests | (16,000 | ) | (16,000 | ) | ||||
| Free Cash Flow Guidance | $ | 50,000 | $ | 70,000 | ||||
Adjusted Operating Income Reconciliation for the Twelve Months Ended Dec. 31:(3)
($, 000’s)
| GAAP | Impairment | Loss on Terminations | Gain on Sale of Trademarks and JV Deconsolidation | Income from Divested Brands | Adjusted Operating Income | |||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||
| Women’s | (215,570 | ) | 62,565 | 301,502 | 31,478 | 2,000 | — | — | — | — | 381 | 87,932 | 94,424 | |||||||||||||||||||||||||||||||||||
| Men’s | (144,779 | ) | (132,574 | ) | 137,462 | 162,896 | 26,360 | — | — | — | — | — | 19,043 | 30,322 | ||||||||||||||||||||||||||||||||||
| Home | (76,680 | ) | (18,105 | ) | 101,951 | 49,993 | — | — | — | — | — | (7,986 | ) | 25,271 | 23,902 | |||||||||||||||||||||||||||||||||
| International | (64,826 | ) | (162,986 | ) | 96,256 | 193,725 | — | — | — | — | — | — | 31,430 | 30,739 | ||||||||||||||||||||||||||||||||||
| Corporate | (62,796 | ) | (21,720 | ) | 16,848 | — | — | — | (4,647 | ) | (38,104 | ) | — | — | (50,595 | ) | (59,824 | ) | ||||||||||||||||||||||||||||||
| Total Op. Income | (564,651 | ) | (272,820 | ) | 654,019 | 438,092 | 28,360 | — | (4,647 | ) | (38,104 | ) | — | (7,605 | ) | 113,081 | 119,563 | |||||||||||||||||||||||||||||||
| Adjusted Revenue by Segment | Year ended Dec. 31, | |||||||||||
| ($, 000’s) | 2017 | 2016* | % Change | |||||||||
| Women’s | 96,833 | 106,299 | -9 | % | ||||||||
| Men’s | 39,780 | 48,635 | -18 | % | ||||||||
| Home | 28,807 | 29,096 | -1 | % | ||||||||
| International | 60,413 | 59,036 | 2 | % | ||||||||
| Total Adjusted Revenue | 225,833 | 243,066 | -7 | % | ||||||||
Adjusted Revenue Reconciliation for the Twelve Months Ended Dec. 31, 2016:
($, 000’s)
| GAAP | Divested Brands | Adjusted Revenue | ||||||||||
| Women’s | 106,527 | (228 | ) | 106,299 | ||||||||
| Men’s | 48,635 | — | 48,635 | |||||||||
| Home | 38,370 | (9,274 | ) | 29,096 | ||||||||
| International | 61,611 | (2,575 | ) | 59,036 | ||||||||
| Total Revenue | 255,143 | (12,077 | ) | 243,066 | ||||||||
* Revenue is adjusted for revenue from Sharper Image, Badgley Mischka and the Southeast Asia joint venture.
| (1) | Non-GAAP net income and non-GAAP diluted EPS (along with non-GAAP weighted average diluted shares) are non-GAAP financial measures which represent net income excluding any non-cash interest related to ASC Topic 470, non-cash, non-recurring gains and charges, foreign currency translation gains and losses, and charges related to professional fees incurred as a result of the correspondence with the Staff of the SEC, the SEC investigation, internal investigations, the previously disclosed class action and derivative litigations, and costs related to the transition of Iconix management, all net of tax, and any incremental dilutive shares related to our convertible notes that are covered by their respective hedges. The Company believes these are useful financial measures in evaluating its financial condition because they are more reflective of the Company’s business purpose, operations and cash expenses. |
| (2) | Free Cash Flow, a non-GAAP financial measure, represents net cash provided by operating activities, plus cash received from the sale of trademarks and formation of joint ventures, less distributions to non-controlling interests and capital expenditures. Free Cash Flow excludes notes receivable from sale of trademarks and the formation of joint ventures, cash used to acquire the membership interests of our joint venture partners, mandatory debt service requirements, and other non-discretionary expenditures. Free Cash Flow should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP. The Company believes Free Cash Flow is useful because it provides information regarding actual cash received in a specific period from the Company’s comprehensive business strategy of maximizing the value of its brands through traditional licensing, international joint ventures and other arrangements. We have excluded the cash used to buy back our joint venture membership interests from the above definition because we believe that, like other acquisitions, such actions are capital transactions. It also provides supplemental information to assist investors in evaluating the Company’s financial condition and ability to pursue opportunities that enhance shareholder value. |
| (3) | Adjusted operating income, a non-GAAP financial measure represents operating income, less trademark, goodwill and investment impairment charges, loss on termination of licensees, gains on sales of trademarks and joint venture deconsolidations and income from divested brands. The Company believes this is a useful financial measure in evaluating its financial condition because it is more reflective of the Company’s business purpose, operations and cash expenses. |
