-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VAqWR6OP+OCMvVOIHWpzBIr0qvuq3wdfB5ye0lDqrJAhThHRXU8H3H2NpAuis/9c 8yzgjV436eJjVB8ZC1dMsg== 0000934798-04-000010.txt : 20040113 0000934798-04-000010.hdr.sgml : 20040113 20040113165323 ACCESSION NUMBER: 0000934798-04-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20031129 FILED AS OF DATE: 20040113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICON INTERNATIONAL HOLDINGS INC CENTRAL INDEX KEY: 0000785312 IRS NUMBER: 841425493 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-93711-01 FILM NUMBER: 04523178 BUSINESS ADDRESS: STREET 1: C/O ICON HEALTH & FITNESS INC STREET 2: 1500 SOUTH 100 WEST CITY: LOGAN STATE: UT ZIP: 84321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREE MOTION FITNESS INC CENTRAL INDEX KEY: 0001174469 IRS NUMBER: 870666332 STATE OF INCORPORATION: UT FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-89440-02 FILM NUMBER: 04523175 BUSINESS ADDRESS: STREET 1: 1500 SOUTH STREET 2: 1000 WEST CITY: LOGAN STATE: UT ZIP: 86321 MAIL ADDRESS: STREET 1: 1500 SOUTH STREET 2: 1000 WEST CITY: LOGAN STATE: UT ZIP: 86321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORDICTRACK INC CENTRAL INDEX KEY: 0001174470 IRS NUMBER: 870674680 STATE OF INCORPORATION: UT FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-89440-01 FILM NUMBER: 04523176 BUSINESS ADDRESS: STREET 1: 1500 SOUTH STREET 2: 1000 WEST CITY: LOGAN STATE: UT ZIP: 86321 MAIL ADDRESS: STREET 1: 1500 SOUTH STREET 2: 1000 WEST CITY: LOGAN STATE: UT ZIP: 86321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICON HEALTH & FITNESS INC CENTRAL INDEX KEY: 0000934798 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 870531206 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-87930 FILM NUMBER: 04523173 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357507737 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL TECHNICAL SERVICES INC CENTRAL INDEX KEY: 0001101200 IRS NUMBER: 870468754 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-93711-02 FILM NUMBER: 04523179 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357507737 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JUMPKING INC CENTRAL INDEX KEY: 0001101201 IRS NUMBER: 870481821 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-93711-03 FILM NUMBER: 04523181 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357507737 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 510152 N B LTD CENTRAL INDEX KEY: 0001101202 STATE OF INCORPORATION: A0 FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-93711-04 FILM NUMBER: 04523180 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357507737 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICON IP INC CENTRAL INDEX KEY: 0001182076 IRS NUMBER: 870649577 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-89440-07 FILM NUMBER: 04523174 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 4357505000 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 10-Q 1 str10q2qf03.txt FORM 10-Q WITH DEBT SHOWN ST FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [*]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended November 29, 2003 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ________to_____ Commission file number: 333-93711 ICON Health & Fitness, Inc. (Exact name of registrant as specified in its charter) Delaware 87-0531206 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 1500 South 1000 West, Logan, Utah 84321 (Address and zip code of principal executive offices) 435 750-5000 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: ICON Health & Fitness, Inc. 1,000 shares. ICON Health & Fitness, Inc. INDEX Page No. -------- PART I - FINANCIAL INFORMATION 3 Item 1. Financial Statements 3-6 Condensed Consolidated Balance Sheets as of November 29, 2003(unaudited), May 31, 2003 and November 30, 2002(unaudited) 3 Condensed Consolidated Statements of Operations (unaudited) for the three months ended November 29, 2003 and November 30, 2002 4 Condensed Consolidated Statements of Operations (unaudited) for the six months ended November 29, 2003 and November 30, 2002 5 Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended November 29, 2003 and November 30, 2002 6 Notes to Condensed Consolidated Financial Statements (unaudited) 7-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-23 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 Item 4. Controls and Procedures 23 PART II - OTHER INFORMATION 24 Item 1. Legal Proceedings 24 Item 2. Changes in Securities 24 Item 3. Defaults Upon Senior Securities 24 Item 4. Submission of Matters to a Vote of Securities Holders 24 Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 24 Signatures 24-25 Certifications 26-28 Exhibit Index 29 PART I - FINANCIAL INFORMATION Item 1. Financial Statements ICON Health & Fitness, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) November 29, 2003 May 31, 2003 November 30, 2002 ----------------- ------------ ----------------- Assets (Unaudited) (Restated) (Restated) (Unaudited) Current assets: Cash $ 7,803 $ 4,650 $ 4,372 Accounts receivable, net 303,053 175,164 246,350 Inventories, net: Raw materials 95,255 53,748 94,312 Finished goods 121,239 107,960 106,229 -------- -------- -------- Total inventories, net 216,494 161,708 200,541 Deferred income taxes 6,727 7,323 6,188 Other current assets 10,829 9,830 12,396 -------- -------- -------- Total current assets 544,906 358,675 469,847 Property and equipment 109,336 98,266 103,135 Less accumulated depreciation (55,444) (49,489) (55,113) -------- -------- -------- Property and equipment, net 53,892 48,777 48,022 Intangible assets, net 30,194 29,069 30,877 Deferred income taxes 6,577 8,379 11,022 Other assets, net 20,836 20,214 19,070 -------- -------- -------- Total assets $656,405 $465,114 $578,838 ======== ======== ======== Liabilities and Stockholder's Equity Current liabilities: Current portion of long-term debt $ 5,000 $ 91,328 $190,486 Accounts payable 203,234 121,177 166,249 Accrued liabilities 31,641 33,964 25,452 Income taxes payable 4,001 4,228 3,631 Interest payable 7,517 7,484 7,626 -------- -------- -------- Total current liabilities 251,393 258,181 393,444 Long term-debt 331,341 152,904 152,876 Other liabilities 11,293 9,691 6,842 -------- -------- -------- Total liabilities 594,027 420,776 553,162 -------- -------- -------- Minority interest 3,500 - - Stockholder's Equity Common stock and additional paid-in capital 204,155 204,155 204,155 Receivable from Parent (2,200) (2,200) (2,200) Accumulated deficit (143,577) (157,252) (173,681) Accumulated other comprehensive income(loss) 500 (365) (2,598) -------- -------- -------- Total stockholder's equity 58,878 44,338 25,676 -------- -------- -------- Total liabilities and stockholder's equity $656,405 $465,114 $578,838 ======== ======== ======== See accompanying notes to condensed consolidated financial statements. ICON Health & Fitness, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands) For the Three Months Ended November 29, 2003 November 30, 2002 ----------------- ----------------- Net sales $331,822 $292,732 Cost of sales 235,804 210,725 -------- -------- Gross profit 96,018 82,007 -------- -------- Operating expenses: Selling 35,821 30,632 Research and development 3,353 2,588 General and administrative 25,714 20,101 -------- -------- Total operating expenses 64,888 53,321 -------- -------- Income from operations 31,130 28,686 Interest expense 6,359 6,526 Amortization of deferred financing fees 277 184 -------- -------- Income before income taxes 24,494 21,976 Provision for income taxes 9,093 8,275 -------- -------- Net income 15,401 13,701 Other comprehensive income(loss), comprised of foreign currency translation adjustment, net of income tax expense of $1,009 in 2003 and income tax benefit of $342 in 2002. 1,645 (567) -------- -------- Comprehensive income $17,046 $13,134 ======== ======== See accompanying notes to condensed consolidated financial statements. ICON Health & Fitness, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In Thousands) For the Six Months Ended November 29, 2003 November 30, 2002 ----------------- ----------------- Net sales $529,645 $462,955 Cost of sales 370,053 337,545 -------- -------- Gross profit 159,592 125,410 -------- -------- Operating expenses: Selling 70,162 53,102 Research and development 6,603 5,208 General and administrative 46,926 36,342 -------- -------- Total operating expenses 123,691 94,652 -------- -------- Income from operations 35,901 30,758 Interest expense 12,352 12,925 Amortization of deferred financing fees 318 486 -------- -------- Income before income taxes 23,231 17,347 Provision for income taxes 9,556 7,087 -------- -------- Net income 13,675 10,260 Other comprehensive income(loss), comprised of foreign currency translation adjustment, net of income tax expense of $530 in 2003 and net of income tax benefit of $486 in 2002 865 (793) -------- -------- Comprehensive income $ 14,540 $ 9,467 ======== ======== See accompanying notes to condensed consolidated financial statements. ICON Health & Fitness, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Thousands) For the Six Months Ended November 29, 2003 November 30, 2002 ----------------- ----------------- OPERATING ACTIVITIES: Net income $ 13,675 $ 10,260 Adjustments to reconcile net income to net cash used in operating activities: Provision for deferred taxes 1,868 167 Amortization of deferred financing fees 318 486 Depreciation and amortization 11,116 8,216 Amortization of debt discount 127 46 Changes in operating assets and liabilities: Accounts receivable, net (127,889) (93,172) Inventories, net (54,786) (66,788) Other assets, net (84) 8,873 Accounts payable and accrued liabilities 79,734 55,085 Income taxes, net (227) (1,789) Interest payable 33 4,581 Other liabilities (228) - -------- -------- Net cash used in operating activities (76,343) (74,035) -------- -------- INVESTING ACTIVITIES: Purchase of property and equipment (9,123) (9,452) Purchase of property and equipment, China (3,088) - Purchase of intangible assets (5,145) (2,476) -------- -------- Net cash used in investing activities (17,356) (11,928) -------- -------- FINANCING ACTIVITIES: Borrowings on revolving credit facility, net of payments 94,482 89,879 Payments on term note (2,500) (2,500) Minority Interest 3,500 - Payment of fees-debt (25) (538) -------- -------- Net cash provided by financing activities 95,457 86,841 -------- -------- Effect of exchange rates on cash 1,395 (1,279) -------- -------- Net increase (decrease) in cash 3,153 (401) Cash, beginning of period 4,650 4,773 -------- -------- Cash, end of period $ 7,803 $4,372 ======== ======== See accompanying notes to condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation This report covers ICON Health & Fitness, Inc. & Subsidiaries (collectively, "the Company"). The Company's parent company, HF Holdings, Inc. ("HF Holdings"), is not a registrant. The Company is one of the world's leading manufacturers and marketers of fitness equipment. The Company is headquartered in Logan, Utah and has more than 4,500 employees worldwide. The Company develops, manufactures and markets fitness equipment under the following company-owned brand names: NordicTrack, ProForm, HealthRider, Weslo, Weider, IMAGE and Free Motion, as well as Reebok and Gold's Gym under license agreements. The accompanying unaudited condensed consolidating financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation. In addition, certain minor reclassifications of previously reported financial information were made to conform to the current period's presentation. The Company, in its opinion, has included all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the results of operations for the three months and six months ended November 29, 2003 and November 30, 2002. The condensed consolidating financial statements and notes thereto should be read in conjunction with the audited financial statements and notes for the year ended May 31, 2003 included in the Company's annual report on Form 10-K/A as amended with the Securities and Exchange Commission on October 14, 2003. Interim results including comparative balance sheets are not necessarily indicative of results for the full fiscal year due to the inherent seasonality in the Company's business. See "Seasonality" in Management's Discussion and Analysis of Financial Condition and Results of Operations. Critical Accounting Policies The Company's discussion of results of operations and financial condition relies on its consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. The Company believes that investors need to be aware of these policies and how they impact its financial statements as a whole, as well as its related discussion and analysis presented herein. While the Company believes that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts. The accounting policies and related risks described in the Company's annual report on Form 10-K/A as amended with the Securities and Exchange Commission on October 14, 2003 are those that depend most heavily on these judgments and estimates. As of November 29, 2003, there have been no material changes to any of the critical accounting policies contained therein. Stock-Based Compensation Plans - The Company accounts for employee stock-based compensation arrangements in accordance with provisions of Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized for options granted to employees under its fixed stock option plan. On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure," which amends SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation, which the Company has adopted for the period ending May 31, 2003. As permitted by SFAS No. 148, the Company will continue to account for its stock based compensation according to the provisions of APB No. 25. There were no stock options granted in the six months ended November 29, 2003 and November 30, 2002, respectively. All previously granted options were fully vested as of November 30, 2002. Had compensation cost for the Company's stock options been recognized based upon the estimated fair value on the grant date under the fair value methodology prescribed by SFAS No. 123, the Company's net earnings would have been as follows (table in thousands):
Six Months Ended November 29, November 30, 2003 2002 ------------ ------------ Net income, as reported $13,675 $10,260 Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects - 28 ------- ------- Pro forma net income $13,675 $10,232 ======= =======
Note B - Accounting Changes See "Recent Accounting Standards" under Management's Discussion and Analysis of Financial Condition and Results of Operations. Note C - Commitments and Contingencies Due to the nature of the Company's products, the Company is subject to product liability claims involving personal injuries allegedly related to the Company's products. These claims include injuries sustained by individuals using the Company's products. The Company currently carries an occurrence-based product liability insurance policy. The current policy provides coverage for the period from October 1, 2003 to October 1, 2004 of up to $10.0 million per occurrence and $10.0 million in the aggregate. The policy has a deductible on each claim of up to $1.0 million. For occurrences prior to October 1, 2003, the policy provided coverage of up to $5.0 million per occurrence and $5.0 million in the aggregate. The policy had a deductible on each claim of up to $1.0 million. For occurrences prior to October 1, 2002, the policy provided coverage of up to $5.0 million per occurrence and $5.0 million in the aggregate. The policy had a deductible on each claim of up to $0.5 million. The Company believes that its insurance is generally adequate to cover product liability claims. Nevertheless, currently pending claims and any future claims are subject to the uncertainties related to litigation, and the ultimate outcome of any such proceedings or claims cannot be predicted. Due to uncertainty with respect to the nature and extent of manufacturers' and distributors' liability for personal injuries, the Company cannot guarantee that its product liability insurance is or will be adequate to cover such claims. The Company vigorously defends any and all product liability claims brought against it and does not believe that any current pending claims or series of claims will have a material adverse effect on its results of operations, liquidity or financial position. The Company is party to a variety of non-product liability commercial lawsuits involving contract claims, arising in the ordinary course of its business. The Company believes that adverse resolution of these lawsuits would not have a material adverse effect upon its results of operations, liquidity or financial position. In December 2001, a claim was made against the Company alleging the Company received $1.7 million of preferential transfers in connection with the 1999 Service Merchandise bankruptcy proceedings. The Company's counsel is currently vigorously defending the proposed claim. At this time, the Company and its counsel are unable to determine the likelihood of an unfavorable outcome or the amount or range of potential recovery or loss. The Company was involved in litigation with Vectra Fitness, Inc. ("Vectra"). Vectra filed a civil action in the United States District Court, for the Western District of Washington in Seattle, Washington. In September 2003, the Company, in settlement of litigation, entered into a license agreement with Vectra for certain strength training equipment. The Company is also involved in several intellectual property and patent infringement claims, arising in the ordinary course of its business. The Company believes that the ultimate outcome of these matters will not have a material adverse effect upon its results of operations, liquidity or financial position. In fiscal 2003, the Company formed a foreign subsidiary to build a manufacturing facility in Xiamen, China. The Company's equity interest in the foreign subsidiary is 70%, which will be funded in the form of equity and debt. The Company is in the process of arranging for the debt portion of the financing, which is expected to be provided by the Bank of China. As of November 29, 2003, the Company has made contributions of $2.0 million and the minority interest contributions were $3.5 million. The minority interest shareholder is also a long-time vendor of the Company. The Company has recorded sales in separate sales transactions from this customer of approximately $40.6 million and $23.5 million during the six month and three month period ended November 29, 2003. He also holds an equity interest in the Company. As a result of the Company's controlling interest in the foreign subsidiary, the investment has been reported on a consolidated basis beginning in the first quarter of fiscal 2004. Note D - Revolving Credit Line The credit agreement which includes the Company's $210 million revolving credit line ("Revolver") requires the Company to maintain a lock-box arrangement whereby remittances from the Company's customers reduce the borrowings outstanding under the Revolver. Recently, the Company determined that the credit agreement also contains a Material Adverse Effect ("MAE") clause which grants the agent and lenders having more the 66 and 2/3% of the commitment or borrowings the right to block the Company's requests for future advances. EITF Issue 95-22 "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement" requires borrowings under credit agreements with these two provisions to be classified as current obligations. On January 13, 2004, the Company obtained written waivers from the agent and lenders having more than 33 and 1/3% of the commitment or borrowings waiving their rights under the MAE clause for the period from January 13, 2004 to January 18, 2005. Accordingly, the Company has classified the outstanding borrowings under the credit agreement, which totaled $178.3 million at November 29, 2003 as a long-term liability. In addition, the Company has restated the May 31, 2003 and November 30, 2002 balance sheets to properly reflect the borrowings as current as of May 31, 2003 and November 30, 2002. This reclassification had no impact on the Company's debt covenants under the credit agreement, its ability to draw on existing facilities or its previously reported net income. Note E - Guarantor/Non-Guarantor Financial Information The Company's subsidiaries Jumpking, Inc., 510152 N.B. Ltd., Universal Technical Services, Inc., ICON International Holdings, Inc., NordicTrack, Inc., Free Motion Fitness, Inc. and ICON IP, Inc. ("Subsidiary Guarantors") have fully and unconditionally guaranteed on a joint and several basis, the obligation to pay principal and interest with respect to the 11.25% Notes. A significant portion of the Company's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Company's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Company's subsidiaries, could limit the Company's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the 11.25% Notes. Although holders of the 11.25% Notes will be direct creditors of the Company's principal direct subsidiaries by virtue of the guarantees, the Company has indirect subsidiaries located primarily in Europe ("Non-Guarantor Subsidiaries") that are not included among the Guarantor Subsidiaries, and such subsidiaries will not be obligated with respect to the 11.25% Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Company, including the holders of the 11.25% Notes. The following supplemental condensed consolidating financial statements are presented (in thousands): 1. Condensed consolidating balance sheets as of November 29, 2003, May 31, 2003 and November 30, 2002, condensed consolidating statements of operations for the three months and six months ended November 29, 2003 and November 30, 2002, and condensed consolidating statements of cash flows for the six months ended November 29, 2003 and November 30, 2002. 2. The Company's combined Subsidiary Guarantors and combined Non-Guarantor subsidiaries with their investments in subsidiaries are accounted for using the equity method. 3. Elimination entries necessary to consolidate the Company and all of its subsidiaries.
Supplemental Condensed Consolidating Balance Sheet November 29, 2003 ------------------------------------------------------ ICON Combined Combined Health & Guarantor Non-Guarantor Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ ASSETS Current assets: Cash $ 113 $ 6,223 $ 1,467 $ - $ 7,803 Accounts receivable, net 236,587 77,027 18,070 (28,631) 303,053 Inventories, net 128,920 70,686 17,622 (734) 216,494 Deferred income taxes 6,469 254 4 - 6,727 Other current assets 569 6,557 3,703 - 10,829 -------- -------- ------- --------- -------- Total current assets 372,658 160,747 40,866 (29,365) 544,906 -------- -------- ------- --------- -------- Property and equipment, net 39,642 12,929 1,321 - 53,892 Receivable from affiliates 123,363 18,866 - (142,229) - Intangible assets, net 21,901 7,075 1,218 - 30,194 Deferred income taxes 4,950 1,627 - - 6,577 Investment in subsidiaries 46,909 - - (46,909) - Other assets, net 14,473 6,337 26 - 20,836 -------- -------- ------- --------- -------- Total assets $623,896 $207,581 $43,431 $(218,503) $656,405 ======== ======== ======= ========== ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt $ 5,000 $ - $ - $ - $ 5,000 Accounts payable 153,405 38,479 39,981 (28,631) 203,234 Accrued liabilities 19,000 7,748 4,893 - 31,641 Income taxes payable 2,591 694 716 4,001 Interest payable 7,517 - - - 7,517 -------- --------- ------- --------- -------- Total current liabilities 187,513 46,921 45,590 (28,631) 251,393 -------- --------- ------- --------- -------- Long-term debt 331,329 12 - - 331,341 Other liabilities 5,845 5,448 - - 11,293 Payable to affiliates 25,749 94,358 22,123 (142,230) - Minority interest - - - 3,500 3,500 Stockholder's Equity(deficit): Common stock and additional paid-in capital 206,323 42,760 5,481 (50,409) 204,155 Receivable from parent (2,200) - - - (2,200) Retained earnings (accumulated deficit) (131,145) 14,652 (26,351) (733) (143,577) Accumulated other comprehensive income (loss) 482 3,430 (3,412) - 500 -------- --------- ------- --------- -------- Total stockholder's equity (deficit) 73,460 60,842 (24,282) (51,142) 58,878 -------- --------- ------- --------- -------- Total liabilities and stockholder's equity(deficit) $623,896 $207,581 $43,431 $(218,503) $656,405 ======= ======= ====== ======== =======
Supplemental Consolidating Condensed Balance Sheet May 31, 2003 --------------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness, Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------- ------------ ------------ ------------ ------------ (Restated) (Restated) ASSETS Current assets: Cash $ 941 $ 2,385 $ 1,324 $ - $ 4,650 Accounts receivable, net 103,461 74,425 12,376 (15,098) 175,164 Inventories, net 101,297 51,142 9,825 (556) 161,708 Deferred income taxes 6,838 241 244 - 7,323 Other current assets 1,611 4,397 3,822 - 9,830 -------- -------- ------- --------- -------- Total current assets 214,148 132,590 27,591 (15,654) 358,675 -------- -------- ------- --------- -------- Property and equipment, net 37,813 9,581 1,383 - 48,777 Receivable from affiliates 116,479 25,889 - (142,368) - Intangible assets, net 20,295 7,556 1,218 - 29,069 Deferred income taxes 8,154 225 - - 8,379 Investment in subsidiaries 57,793 - - (57,793) - Other assets, net 12,936 7,255 23 - 20,214 -------- -------- ------- --------- -------- Total assets $467,618 $183,096 $30,215 $(215,815) $465,114 ======== ======== ======= ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt $ 91,328 $ - $ - $ - $ 91,328 Accounts payable 86,192 25,876 24,207 (15,098) 121,177 Accrued liabilities 21,772 6,802 5,390 - 33,964 Income taxes payable 3,969 (856) 1,115 - 4,228 Interest payable 7,484 - - - 7,484 -------- -------- ------- --------- -------- Total current liabilities 210,745 31,822 30,712 (15,098) 258,181 -------- -------- ------- --------- -------- Long-term debt 152,889 15 - - 152,904 Other liabilities 4,015 5,676 - - 9,691 Payable to affiliates 25,889 95,128 21,351 (142,368) - Stockholder's equity(deficit): Common stock and additional paid-in capital 206,324 37,259 5,481 (44,909) 204,155 Receivable from Parent (2,200) - - - (2,200) Retained earnings (accumulated deficit) (130,525) 11,191 (24,478) (13,440) (157,252) Accumulated other comprehensive income (loss) 481 2,005 (2,851) - (365) -------- -------- ------- --------- -------- Total stockholder's equity (deficit) 74,080 50,455 (21,848) (58,349) 44,338 -------- -------- ------- --------- -------- Total liabilities and stockholder's equity (deficit) $467,618 $183,096 $30,215 $(215,815) $465,114 ======== ======== ======= ========= ========
Supplemental Condensed Consolidating Balance Sheet November 30, 2002 ------------------------------------------------------ ICON Combined Combined Health & Guarantor Non-Guarantor Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ (Restated) (Restated) ASSETS Current assets: Cash $ 1,589 $ 1,438 $ 1,345 $ - $ 4,372 Accounts receivable, net 199,597 57,687 12,604 (23,538) 246,350 Inventories, net 125,992 65,573 9,484 (508) 200,541 Deferred income taxes 5,894 210 84 - 6,188 Other current assets 3,435 5,938 3,023 - 12,396 -------- -------- ------- --------- -------- Total current assets 336,507 130,846 26,540 (24,046) 469,847 -------- -------- ------- --------- -------- Property and equipment, net 37,110 10,053 859 - 48,022 Receivable from affiliates 99,439 15,155 - (114,594) - Intangible assets, net 21,622 8,037 1,218 - 30,877 Deferred income taxes 9,830 1,192 - - 11,022 Investment in subsidiaries 44,909 - - (44,909) - Other assets, net 19,052 - 18 - 19,070 -------- -------- ------- --------- -------- Total assets $568,469 $165,283 $28,635 $(183,549) $578,838 ======== ======== ======= ========== ======== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt $190,482 $ 4 $ - $ - $190,486 Accounts payable 131,980 34,094 23,713 (23,538) 166,249 Accrued liabilities 14,419 7,798 3,235 - 25,452 Income taxes payable 3,010 501 120 - 3,631 Interest payable 7,626 - - - 7,626 -------- --------- ------- --------- -------- Total current liabilities 347,517 42,397 27,068 (23,538) 393,444 -------- --------- ------- --------- -------- Long-term debt 152,858 18 - - 152,876 Other liabilities 3,146 3,696 - - 6,842 Payable to affiliates 15,155 78,109 21,330 (114,594) - Stockholder's Equity (deficit): Common stock and additional paid-in capital 206,324 37,259 5,481 (44,909) 204,155 Receivable from parent (2,200) - - - (2,200) Retained earnings (accumulated deficit) (154,813) 5,215 (23,575) (508) (173,681) Accumulated other comprehensive income (loss) 482 (1,411) (1,669) - (2,598) -------- --------- ------- --------- -------- Total stockholder's equity (deficit) 49,793 41,063 (19,763) (45,417) 25,676 -------- --------- ------- --------- -------- Total liabilities and stockholder's equity (deficit) $568,469 $165,283 $28,635 $(183,549) $578,838 ======= ======= ====== ======== =======
Supplemental Condensed Consolidating Statement of Operations Three Months Ended November 29, 2003 --------------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $233,430 $78,076 $20,316 $ - $331,822 Cost of sales 175,206 47,095 13,396 107 235,804 -------- ------- ------- ------ -------- Gross profit 58,224 30,981 6,920 (107) 96,018 Total operating expenses 31,355 28,227 5,306 - 64,888 -------- ------- ------- ------ -------- Income from operations 26,869 2,754 1,614 (107) 31,130 Interest expense (5,860) (1) (498) - (6,359) Amortization of deferred financing fees (277) - - - (277) Equity in earnings of subsidiaries 3,472 - - (3,472) - -------- ------- ------- ------ -------- Income before income taxes 24,204 2,753 1,116 (3,579) 24,494 Provision (benefit) for income taxes 8,803 (510) 800 - 9,093 -------- ------- ------- ------ -------- Net income $ 15,401 $ 3,263 $ 316 $(3,579) $ 15,401 ======== ======= ======= ======== ========
Supplemental Condensed Consolidating Statement of Operations Three Months Ended November 30, 2002 --------------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $208,156 $68,315 $16,261 $ - $292,732 Cost of sales 157,648 43,840 9,146 91 210,725 -------- ------- ------- ---- -------- Gross profit 50,508 24,475 7,115 (91) 82,007 Total operating expenses 24,319 23,657 5,345 - 53,321 -------- ------- ------- ---- -------- Income from operations 26,189 818 1,770 (91) 28,686 Interest expense (6,080) (1) (445) - (6,526) Amortization of deferred financing fees (184) - - - (184) Equity in earnings of subsidiaries 1,788 - - (1,788) - -------- ------- ------- ------ -------- Income before income taxes 21,713 817 1,325 (1,879) 21,976 Provision for income taxes 8,012 26 237 - 8,275 -------- ------- ------- ------ -------- Net income $ 13,701 $ 791 $ 1,088 $(1,879) $ 13,701 ======== ======= ======= ======= ========
Supplemental Condensed Consolidating Statement of Operations Six Months Ended November 29, 2003 --------------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $346,006 $154,217 $29,422 $ - $529,645 Cost of sales 257,459 93,358 19,058 178 370,053 -------- -------- ------- ----- -------- Gross profit 88,547 60,859 10,364 (178) 159,592 Total operating expenses 55,786 57,046 10,859 - 123,691 -------- -------- ------- ----- -------- Income (loss) from operations 32,761 3,813 (495) (178) 35,901 Interest expense (11,377) (1) (974) - (12,352) Amortization of deferred financing fees (318) - - - (318) Equity in earnings of subsidiaries 1,411 - - (1,411) - -------- -------- ------- ------ -------- Income (loss) before taxes 22,477 3,812 (1,469) (1,589) 23,231 Provision for income taxes 8,802 350 404 - 9,556 -------- -------- ------- ------ -------- Net income (loss) $ 13,675 $ 3,462 $ (1,873) $(1,589) $ 13,675 ======== ======== ========= ======== ========
Supplemental Condensed Consolidating Statement of Operations Six Months Ended November 30, 2002 --------------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Net sales $314,555 $124,585 $23,815 $ - $462,955 Cost of sales 240,821 82,489 14,036 199 337,545 -------- -------- ------- ----- -------- Gross profit 73,734 42,096 9,779 (199) 125,410 Total operating expenses 44,074 42,459 8,119 - 94,652 -------- -------- ------- ----- -------- Income (loss) from operations 29,660 (363) 1,660 (199) 30,758 Interest expense (12,036) (5) (884) - (12,925) Amortization of deferred financing fees (486) - - - (486) Equity in earnings of subsidiaries (76) - - 76 - -------- -------- ------- ----- -------- Income (loss) before taxes 17,062 (368) 776 (123) 17,347 Provision for income taxes 6,802 48 237 - 7,087 -------- -------- ------- ----- -------- Net income (loss) $ 10,260 $ (416) $ 539 $(123) $ 10,260 ======== ========= ======= ====== ========
Supplemental Condensed Consolidating Statement of Cash Flows Six Months Ended November 29, 2003 ------------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Operating activities: Net cash provided by (used in) operating activities: $(71,967) $ (4,492) $ 116 $ - $(76,343) -------- -------- ------- ------ -------- Investing activities: Net cash used in investing activities: (12,327) (4,845) (184) - (17,356) -------- -------- ------- ------ -------- Financing activities: Proceeds from new credit facility, net of payments 94,485 - - - 94,485 Payments on term note (2,500) - - - (2,500) Payments on other long-term debt, net - (3) - - (3) Minority interest (2,000) 5,500 - - 3,500 Payment of fees-debt (25) - - - (25) Other (7,024) 6,253 771 - - -------- -------- ------- ------ -------- Net cash provided by financing activities: 82,936 11,750 771 - 95,457 -------- -------- ------- ------ -------- Effect of exchange rates on cash 530 1,425 (560) - 1,395 -------- -------- ------- ------ -------- Net increase (decrease) in cash (828) 3,838 143 - 3,153 Cash, beginning of period 941 2,385 1,324 - 4,650 -------- -------- ------- ------ -------- Cash, end of period $ 113 $ 6,223 $ 1,467 $ - $ 7,803 ======== ======== ======= ====== ========
Supplemental Condensed Consolidating Statement of Cash Flows Six Months Ended November 30, 2002 ------------------------------------------------------------------- ICON Combined Combined Health & Guarantor Non-Guarantor Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Operating activities: Net cash used in operating activities: $(55,717) $(16,787) $(1,531) $ - $(74,035) -------- -------- ------- ------ -------- Investing activities: Net cash used in investing activities: (10,391) (1,361) (176) - (11,928) -------- -------- ------- ------ -------- Financing activities: Proceeds from new credit facility, net of payments 89,901 - - - 89,901 Payments on term note (2,500) - - - (2,500) Payments on other long-term debt, net - (22) - - (22) Payment of fees-debt (538) - - - (538) Other (19,009) 18,531 478 - - -------- -------- ------- ------ -------- Net cash provided by financing activities: 67,854 18,509 478 - 86,841 -------- -------- ------- ------ -------- Effect of exchange rates on cash (484) (371) (424) - (1,279) -------- -------- ------- ------ -------- Net increase (decrease) in cash 1,262 (10) (1,653) - (401) Cash, beginning of period 327 1,448 2,998 - 4,773 -------- -------- ------- ------ -------- Cash, end of period $ 1,589 $ 1,438 $ 1,345 $ - $ 4,372 ======== ======== ======= ====== ========
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations. We are one of the world's leading manufacturers and marketers of fitness equipment. We are headquartered in Logan, Utah and have more than 4,500 employees worldwide. We develop, manufacture and market fitness equipment under the following company-owned brand names: NordicTrack, ProForm, HealthRider, Weslo, Weider, IMAGE and Free Motion, as well as Reebok and Gold's Gym under license agreements. This Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The forward-looking statements contained in this report involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements. Forward-looking statements include, without limitation, statements containing the words "anticipates," "believes," "expects," "intends," "future," and words and terms of similar substance express management's belief, expectations or intentions regarding future performance. Our actual results could differ materially from our historical operating results and from those anticipated in these forward-looking statements as a result of certain factors, including without limitation, those set forth in our Annual Report on Form 10-K/A and other factors and uncertainties contained in our other filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date they were made. We disclaim any obligation or undertaking to provide any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which the forward-looking statement is based. Three Months Ended November 29, 2003 Compared to Three Months Ended November 30, 2002 - -------------------------------------------------------------------------------- Net sales for the second quarter of fiscal 2004 increased $39.1 million, or 13.4%, to $331.8 million from $292.7 million in the comparable period in 2003. The increase in sales was not attributable to a single customer, distributor or any other specific factor. The increase was across all product lines for which there was increased demand, particularly direct to consumer sales. Sales of our cardiovascular and other equipment in the second quarter of fiscal 2004 increased $27.1 million, or 11.0%, to $273.4 million. Sales of our strength training equipment in the second quarter of fiscal 2004 increased $12.0 million, or 25.9%, to $58.4 million. Gross profit in the second quarter of fiscal 2004 was $96.0 million, or 28.9% of net sales, compared to $82.0 million, or 28.0% of net sales, in the second quarter of fiscal 2003. This 17.1% increase was largely due to increased direct to consumer sales, changes in product mix and manufacturing efficiencies. Selling expenses increased $5.2 million, or 17.0%, to $35.8 million in the second quarter of fiscal 2004. This increase is a result of increased direct consumer advertising. Expressed as a percentage of net sales, selling expenses were 10.8% in the second quarter of fiscal 2004 and 10.5% in the second quarter of fiscal 2003. Research and development expenses increased $0.8 million, or 30.8%, to $3.4 million in the second quarter of fiscal 2004. Expressed as a percentage of net sales, research and development expenses were 1.0% in the second quarter of fiscal 2004 and 0.9% in the second quarter of fiscal 2003. This increase is attributable to management's efforts to continue to develop both current and future products. General and administrative expenses increased $5.6 million, or 27.9%, to $25.7 million in the second quarter of fiscal 2004. This increase was attributable to significant increases in legal fees, depreciation, and rent and lease expense. Expressed as a percentage of net sales, general and administrative expenses were 7.7% in the second quarter of fiscal 2004 and 6.9% in second quarter of fiscal 2003. As a result of the foregoing factors, income from operations increased $2.4 million, or 8.4%, to $31.1 million in the second quarter of fiscal 2004. Expressed as a percentage of net sales, income from operations was 9.4% in the second quarter of fiscal 2004 compared with 9.8% in the second quarter of fiscal 2003. As a result of the foregoing factors, EBITDA (as defined under "Seasonality") increased $4.1 million or 12.5% to $36.8 million in the second quarter of fiscal 2004. Expressed as a percentage of net sales, EBITDA was 11.1% in the second quarter of fiscal 2004 compared with 11.2% in the second quarter of fiscal 2003. Interest expense, including amortization of deferred financing fees, remained at $6.7 million for the second quarter of fiscal 2004. This result reflects the continued lower interest rates on our borrowings during the period. Expressed as a percentage of net sales, interest expense including amortization of deferred financing fees was 2.0% in the second quarter of fiscal 2004 and 2.3% in the second quarter of fiscal 2003. The provision for income taxes was $9.1 million for the second quarter of fiscal 2004, compared with a provision of $8.3 million in the second quarter of fiscal 2003. Income tax expense, as a percentage of pre-tax income, was 37.1% in the second quarter of fiscal 2004, compared to 37.7% in the second quarter of fiscal 2003. The change in the effective tax rate was primarily the result of an increase in foreign losses. As a result of the foregoing factors, net income was $15.4 million for the second quarter of fiscal 2004, compared to net income in the second quarter of fiscal 2003 of $13.7 million, an increase of 12.4% over the same period last year. Six Months Ended November 29, 2003 Compared to Six Months Ended November 30, 2002 - -------------------------------------------------------------------------------- During the first six months of fiscal 2004, net sales increased $66.6 million, or 14.4%, to $529.6 million from $463.0 million in the first six months of fiscal 2003. The increase in sales was not attributable to a single customer, distributor or any other specific factor. The increase was across all product lines for which there was increased demand, particularly direct to consumer sales. Sales of our cardiovascular and other equipment in the first six months of fiscal 2004 increased $39.0 million or 9.9%, to $432.1 million. Sales of our strength training equipment in the first six months of fiscal 2004 increased $27.6 million, or 39.5%, to $97.5 million. Gross profit for the first six months of fiscal 2004 was $159.6 million, or 30.1% of net sales, compared to $125.4 million, or 27.1% of net sales, for the first six months of fiscal 2003. This 27.3% increase was largely due to increased direct to consumer sales, changes in product mix and manufacturing efficiencies. Selling expenses increased $17.1 million, or 32.2% to $70.2 million in the first six months of fiscal 2004. This increase reflected increased direct consumer advertising, freight and commissions. Expressed as a percentage of net sales, selling expenses were 13.3% in the first six months of fiscal 2004 and 11.5% in the first six months of fiscal 2003. Research and development expenses increased $1.4 million, or 26.9%, to $6.6 million in the first six months of fiscal 2004. Expressed as a percentage of net sales, research and development expenses were 1.2% in the first six months of fiscal 2004 and 1.1% in the first six months of fiscal 2003. This increase is attributable to management's efforts to continue to develop both current and future products. General and administrative expenses increased $10.6 million, or 29.2%, to $46.9 million in the first six months of fiscal 2004. This increase was attributable to significant increases in insurance costs, higher salaries and wages, supplies, and rent and lease expense. Expressed as a percentage of net sales, general and administrative expenses were 8.9% in the first six months of fiscal 2004 and 7.8% in the first six months of fiscal 2003. As a result of the foregoing factors, income from operations increased $5.1 million, or 16.6%, to $35.9 million in the first six months of fiscal 2004. Expressed as a percentage of net sales, income from operations income was 6.8% in the first six months of fiscal 2004 compared with 6.7% in the first six months of fiscal 2003. As a result of the foregoing factors, EBITDA (as defined under "Seasonality") increased $8.0 million or 20.5% to $47.0 million in the second quarter of fiscal 2004. Expressed as a percentage of net sales, EBITDA was 8.9% in the second quarter of fiscal 2004 compared with 8.4% in the second quarter of fiscal 2003. Interest expense, including amortization of deferred financing fees, decreased $0.7 million, or 5.2%, to $12.7 million in the first six months of fiscal 2004. This decrease reflects the continued lower interest rates on our borrowings during the period. Expressed as a percentage of net sales, interest expense including amortization of deferred financing fees was 2.4% in the first six months of fiscal 2004 and 2.9% in the first six months of fiscal 2003. The provision for income taxes was $9.5 million for the first six months of fiscal 2004, compared with a provision of $7.1 million for the first six months of fiscal 2003. Income tax expense, as a percentage of pre-tax income, for the first six months of fiscal 2004 was 40.9%, compared to 41.0% in the first six months of fiscal 2003. The change in the effective tax rate was primarily the result of an increase in foreign losses. As a result of the foregoing factors, net income was $13.7 million for the first six months of fiscal 2004, compared to net income in the first six months of fiscal 2003 of $10.3 million, an increase of 33.0% over the same period last year. Seasonality The market for exercise equipment is highly seasonal, with peak periods occurring from late fall through February. As a result, the first and fourth quarters of every fiscal year are generally our weakest periods in terms of sales. During these periods, we build product inventory to prepare for the heavy demand anticipated during the upcoming peak season. This operating strategy helps us to realize the efficiencies of a steady pace of year-round production. The following are the net sales, net income (loss) and EBITDA by quarter for fiscal years 2004, 2003 and 2002:
First Second Third Fourth Quarter(1) Quarter(2) Quarter(3) Quarter(4) ---------- ---------- --------- ---------- (dollars in millions) Net Sales (5) 2004 $197.8 $331.8 $ - $ - 2003 170.2 292.7 344.0 204.6 2002 134.2 264.6 296.0 176.6 Net Income (Loss) 2004 (1.7) 15.4 - - 2003 (3.4) 13.7 20.3 (3.9) 2002 (7.5) 11.1 25.5 (9.7) The following is a reconciliation of net income (loss) to EBITDA by quarter (6): EBITDA 2004 Net income (loss) $(1.7) $15.4 $ - $ - Add back: Depreciation and amortization 5.5 5.6 - - Provision for income tax 0.4 9.1 - - Interest expense 6.0 6.4 - - Amortization of deferred financing fees - .3 - - ----- ----- ----- ----- EBITDA $10.2 $36.8 $ - $ - ===== ===== ===== ===== 2003 Net income (loss) $(3.4) $13.7 $20.3 $(3.9) Add back: Depreciation and amortization 4.2 4.0 5.0 6.0 Provision for (benefit from) income tax (1.2) 8.3 10.7 (0.2) Interest expense 6.4 6.5 6.3 5.9 Amortization of deferred financing fees 0.3 0.2 0.2 0.5 ----- ----- ----- ----- EBITDA $ 6.3 $32.7 $42.5 $ 8.3 ===== ===== ===== ===== 2002 Net income (loss) $(7.5) $11.1 $25.5 $(9.7) Add back: Depreciation and amortization 4.5 4.3 4.9 5.5 Provision for (benefit from) income tax (4.8) 8.2 1.4 (4.4) Interest expense 6.8 6.8 6.0 6.6 Amortization of deferred financing fees 0.9 0.9 0.9 0.4 ----- ----- ----- ----- EBITDA $(0.1) $31.3 $38.7 $(1.6) ===== ===== ===== ===== - ----------- (1) Our first quarter ended August 30, August 31, and September 1 for fiscal years 2004, 2003 and 2002, respectively. (2) Our second quarter ended November 29, November 30 and December 1 for fiscal years 2004, 2003 and 2002, respectively. (3) Our third quarter ended March 1 and March 2 for fiscal years 2003 and 2002, respectively. (4) Our fourth quarter ended May 31 for fiscal years 2003 and 2002, respectively. (5) In November of 2001, the Emerging Issues Task Force issued EITF 01-09, "Accounting for Consideration Given by Vendor to a Customer" ("EITF 01-09") effective for annual or interim financial statements for periods beginning after December 15, 2001. EITF 01-09 provides guidance on the accounting treatment of various types of consideration given by a vendor to a customer. We adopted EITF 01-09 in fiscal 2003. Net sales are shown as if EITF 01-09 were adopted for all periods presented. Net sales without the adjustment for EITF 01-09 were as follows: First Second Third Fourth Quarter(1) Quarter(2) Quarter(3) Quarter(4) ---------- ---------- ---------- ---------- (dollars in millions) Net Sales 2004 $202.8 $339.2 $ - $ - 2003 175.8 301.5 354.8 210.9 2002 138.1 272.1 304.9 181.0 (6) EBITDA is a presentation of "earnings before interest, taxes, depreciation, and amortization." EBITDA data is included because management understands that such information is considered by bankers and certain investors as an additional basis on evaluating a company's ability to pay interest, repay debt and make capital expenditures. In addition, performance bonuses paid to management are based in part on EBITDA. EBITDA may not be comparable to similarly titled measures reported by other companies. In addition, EBITDA is a non-GAAP measure and should not be considered an alternative to operating or net income in measuring company results.
Liquidity and Capital Resources Net cash used in operating activities was $76.3 million in the first six months of fiscal 2004, compared to $74.0 million of cash used in operating activities in the first six months of fiscal 2003. In the first six months of fiscal 2004, major sources of funds were non-cash provisions of $11.1 million for depreciation and amortization and an increase in accounts payable and accrued liabilities of $79.7 million. These changes were offset by increases in inventories of $54.8 million and accounts receivable of $127.9 million. These changes are due to our increase in sales during the course of the first several months of the fiscal year leading up to its peak selling season, which occurs between the months of October and December. In the first six months of fiscal 2003, major sources of funds were non-cash provisions of $8.2 million for depreciation and amortization, and an increase in accounts payable and accrued liabilities of $55.1 million. These increases were offset by increases in inventories of $66.8 million and accounts receivable of $93.2 million. Such increases were due to the aforementioned factors relating to sales increases. Net cash used in investing activities was $17.4 million in the first six months of fiscal 2004, compared to $11.9 million in the first six months of fiscal 2003. Investing activities in the first six months of fiscal 2004 consisted primarily of capital expenditures of $9.1 million related to upgrades in plant and tooling, purchases of additional manufacturing equipment excluding $3.1 million of capital expenditures for the manufacturing facility in China and purchases of intangibles of $5.1 million. Cash used in investing activities in the first six months of fiscal 2003 was primarily for capital expenditures of $9.5 million and purchases of intangibles of $2.5 million. Net cash provided by financing activities was $95.5 million in the first six months of fiscal 2004, compared to $86.8 million of cash provided by financing activities in the first six months of fiscal 2003. Cash provided by financing activities resulted from net borrowings on our existing credit facilities and the minority contribution of $3.5 million from our recent expansion to China. Our primary short-term liquidity needs consist of financing seasonal merchandise inventory buildups and paying cash interest expense under our existing credit facilities and on the 11.25% subordinated notes due in April of 2012. Our principal source of financing for our seasonal merchandise inventory buildup and increased accounts receivable is revolving credit borrowings under the existing credit facilities. At November 29, 2003, we had $50.0 million of availability under these facilities. Our working capital borrowing needs are typically at their lowest level from April through June, increase somewhat through the summer and sharply increase from September through November to finance accounts receivable and purchases of inventory in advance of the holiday and post-holiday selling season. Generally, in the period from November through February, our working capital borrowings remain at their highest level and then are paid down to their lowest annual levels from April through August. The credit agreement which includes our $210 million revolving credit line ("Revolver") requires us to maintain a lock-box arrangement whereby remittances from our customers reduce the borrowings outstanding under the Revolver. Recently, we determined that the credit agreement also contains a Material Adverse Effect ("MAE") clause which grants the agent and lenders having more the 66 and 2/3% of the commitment or borrowings the right to block our requests for future advances. EITF Issue 95-22 "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement" requires borrowings under credit agreements with these two provisions to be classified as current obligations. On January 13, 2004, we obtained written waivers from the agent and lenders having more than 33 and 1/3% of the commitment or borrowings waiving their rights under the MAE clause for the period from January 13, 2004 to January 18, 2005. Accordingly, we have classified the outstanding borrowings under the credit agreement, which totaled $178.3 million at November 29, 2003 as a long-term liability. In addition, we have restated the May 31, 2003 and November 30, 2002 balance sheets to properly reflect the borrowings as current as of May 31, 2003 and November 30, 2002. This reclassification had no impact on our debt covenants under the credit agreement, its ability to draw on existing facilities or its previously reported net income. We do not believe that any of these MAEs have occurred or can reasonably be expected to occur based upon our history and our relationship with the Revolver lenders. We intend to manage the Credit Facility as long-term debt with a final maturity date in 2007, as provided for in the credit agreement that we signed. The balance outstanding under the existing credit facility consisted of (in millions):
November 29, 2003 May 31, 2003 November 30, 2002 ----------------- ------------ ----------------- Revolver $167.0 $72.6 $169.2 Term Loan 16.3 18.7 21.3 ------ ------ ------ $183.3 $91.3 $190.5 ====== ====== ======
As of November 29, 2003, our consolidated indebtedness was approximately $336.3 million, of which approximately $183.3 million was senior indebtedness. With the exception of the increases in the revolver noted above, our contractual cash obligations and commercial commitments remained consistent with those at the end of fiscal 2003. Based on our current level of operations, we believe that cash flow from operations and available cash, together with available borrowings under our existing credit facility, will be adequate to meet future liquidity needs for at least the next few years. We may, however, need to refinance all or a portion of the principal amount of the notes on or prior to maturity. In May of 2003, we amended our credit agreement to provide for the debt financing in China. Critical Accounting Policies Our discussion of results of operations and financial condition relies on our consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. We believe that investors need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts. The accounting policies and related risks described in our annual report on Form 10-K/A as amended with the Securities and Exchange Commission on October 14, 2003 are those that depend most heavily on these judgments and estimates. As of November 29, 2003, there have been no material changes to any of the critical accounting policies contained therein. Recent Accounting Pronouncements In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities", which clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements" to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is applicable immediately for variable interest entities created after January 31, 2003. For variable interest entities created prior to January 31, 2003, the provisions of FIN 46, as amended, are applicable no later than December 31, 2003. The adoption of FIN 46 did not have a material effect on our consolidated financial statements. On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure," which amends SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation, which the Company has adopted for the period ending May 31, 2003. As permitted by SFAS No. 148, the Company will continue to account for its stock based compensation according to the provisions of APB No. 25. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity". SFAS No. 150 establishes standards on the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The provisions of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. We do not expect SFAS No. 150 to have a material effect on our consolidated financial statements. Item 3 Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk Fluctuations in the general level of interest rates on our current and future fixed and variable rate debt obligations expose us to market risk. We are vulnerable to significant fluctuations in interest rates on our variable rate debt and on any future repricing or refinancing of our fixed rate debt and on future debt. We use long-term and medium-term debt as a source of capital. At November 29, 2003, we had approximately $153.0 million in outstanding fixed rate debt, consisting of 11.25% subordinated notes maturing in April 2012. When debt instruments of this type mature, we typically refinance such debt at the then-existing market interest rates, which may be more or less than the interest rates on the maturing debt. Our credit facility has variable interest rates and any fluctuation in interest rates could increase or decrease our interest expense. At November 29, 2003 we had approximately $183.3 million in outstanding variable rate debt. Foreign Currency Risk In addition to the United States, we have operations or transact business in Canada, the United Kingdom, France, Italy, Germany, and Asia. The operations in these foreign countries conduct business in their local currencies as well as other regional currencies. To mitigate our exposure to transactions denominated in currencies other than the functional currency of each entity, we enter into forward exchange contracts from time to time to protect our margin on a portion of our forecasted foreign currency sales. As of November 29, 2003, no forecast sales were hedged by forward exchange contracts. Because of the variety of currencies in which purchases and sales are transacted, it is not possible to predict the impact of a movement in foreign currency exchange rates on future operating results. However, we intend to continue to mitigate our exposure to foreign exchange gains or losses. Item 4 Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of November 29, 2003 (the "Evaluation Date"). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in alerting them, on a timely basis, to material information relating to us (including our consolidated subsidiaries) required to be included in our periodic filings under the Exchange Act. (b) Changes in Internal Controls. Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such controls. PART II - OTHER INFORMATION Item 1. Legal Proceedings. See Note C in Item 1 in Part I. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 99.01. Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.02. Certification of Chief Operating Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.03. Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K Report on Form 8-K dated October 14, 2003 containing the Company's press release dated October 14, 2003 announcing earnings for the first quarter and fiscal 2004, which ended August 30, 2003. Report on Form 8-K dated January 6, 2004 outlining a pending management transition based on news that Scott Watterson, Chief Executive Officer and Gary Stevenson, Chief Operating Officer intend to resign from their respective positions sometime in the second or third quarter of calendar 2004. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized. ICON Health & Fitness, Inc. (Registrant) By /s/ Gary Stevensen Date: January 13, 2004 ------------------------------------------ Gary Stevenson, Chief Operating Officer By /s/ S. Fred Beck Date: January 13, 2004 -------------------------------------- S. Fred Beck, Chief Financial Officer CERTIFICATION ------------- I, Scott R. Watterson, certify that: 1. I have reviewed this quarterly report of ICON Health & Fitness, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 13, 2004 /s/ Scott R. Watterson - ---------------------- Scott R. Watterson Chief Executive Officer CERTIFICATION ------------- I, Gary E. Stevenson, certify that: 1. I have reviewed this quarterly report of ICON Health & Fitness, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 13, 2004 /s/ Gary E. Stevenson - --------------------- Gary E. Stevenson Chief Operating Officer CERTIFICATION ------------- I, S. Fred Beck, certify that: 1. I have reviewed this quarterly report of ICON Health & Fitness, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 13, 2004 /s/ S. Fred Beck - ---------------- S. Fred Beck Chief Financial Officer EXHIBIT INDEX Exhibit No. Name - ----------- ---- 99.01 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.02 Certification of Chief Operating Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.03 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 EX-99 3 ex9901-2q.txt 99.1 EXHIBIT 99.01 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of ICON Health & Fitness, Inc. (the "Company") on Form 10-Q for the period ended November 29, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Scott R. Watterson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Scott R. Watterson Chief Executive Officer January 13, 2004 A signed original of this written statement is required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 4 ex9902-2q.txt 99.2 EXHIBIT 99.02 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of ICON Health & Fitness, Inc. (the "Company") on Form 10-Q for the period ended November 29, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary E. Stevenson, Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. Gary E. Stevenson Chief Operating Officer January 13, 2004 A signed original of this written statement is required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 5 ex9903-2q.txt 99.3 EXHIBIT 99.03 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of ICON Health & Fitness, Inc. (the "Company") on Form 10-Q for the period ended November 29, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, S. Fred Beck, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. S. Fred Beck Chief Financial Officer January 13, 2004 A signed original of this written statement is required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----