-----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, Rwyv+/qLBqJoalsBrkudktjlaI34XtrKzoooNgKDIKrHIBVCqT+wBFSm+aEU8A1D /R4vlis4jC5uWVxfE0QEsg== 0001029294-98-000003.txt : 19980114 0001029294-98-000003.hdr.sgml : 19980114 ACCESSION NUMBER: 0001029294-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971129 FILED AS OF DATE: 19980113 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICON FITNESS CORP CENTRAL INDEX KEY: 0001029294 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 870566936 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-18475 FILM NUMBER: 98505511 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 801-750-7737 MAIL ADDRESS: STREET 1: 1500 SOUTH 1000 WEST STREET 2: ONE INTERNATIONAL PLACE CITY: LOGAN STATE: UT ZIP: 84321 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: SEC FILE NUMBER: 033-87930 FILM NUMBER: 98505512 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: IHF HOLDINGS INC CENTRAL INDEX KEY: 0000934799 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 870531209 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-87930-01 FILM NUMBER: 98505513 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 10-Q 1 ICON FITNESS, IHF HOLDINGS, ICON HEALTH 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, 1997 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 Numbers: 333-18475, 33-87930-0, 33-87930 ICON Fitness Corporation IHF Holdings, Inc. ICON Health & Fitness, Inc. (Exact name of registrant as specified in its charter) Delaware 87-0566936, 87-0531209, 87-0531206 (State or other jurisdiction of (I.R.S. Employer Identification Nos.) incorporation or organization) 1500 South 1000 West Logan, Utah 84321 (Address and zip code of principal executive offices) (801) 750-5000 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if change since last report) Indicate by check mark 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 Fitness Corporation 100 shares, IHF Holdings, Inc. 1,000 shares, ICON Health & Fitness, Inc. 1,000 shares. ICON Fitness Corporation and its wholly-owned subsidiary, IHF Holdings, Inc. and its wholly-owned subsidiary, ICON Health & Fitness, Inc. FORM 10-Q INDEX Page No. PART I - FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . 3 Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . 3-7 Consolidated Condensed Balance Sheets as of November 29, 1997 and May 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 3-4 Consolidated Condensed Statements of Operations for the six months ended November 29, 1997 and November 30, 1996 . . . . . . . . 5-6 Consolidated Condensed Statements of Cash Flows for the six months ended November 29, 1997 and November 30, 1996 . . . . . . . . . 7 Notes to Consolidated Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 8-12 PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 13 Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 13 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 13 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 13 Item 4. Submission of Matters to a Vote of Securities Holders . . . . 13 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 13 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements ICON Fitness Corporation and its wholly-owned subsidiary, IHF Holdings, Inc. and its wholly-owned subsidiary, ICON Health & Fitness, Inc. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)(In Thousands)
ICON Fitness IHF ICON Health ICON Fitness IHF Holding, ICON Health Corporation Holdings, Inc. & Fitness, Inc. Corporation Inc. &Fitness,Inc. November 29, November 29, November 29, May 31, 1997 May 31,1997 May 31,1997 1997 1997 1997 ____________ ______________ _______________ ____________ ____________ ____________ Assets Current assets Cash $4,000 $4,700 $4,700 $5,560 $5,560 $5,560 Accounts receivable, net 224,050 224,050 224,050 192,825 192,825 192,825 Inventories: Raw materials 59,472 59,472 59,472 27,974 27,974 27,974 Finished goods 81,156 81,156 81,156 93,864 93,864 93,864 Deferred income taxes 14,581 14,395 13,952 8,401 8,301 8,006 Other current assets 10,360 10,360 10,360 12,895 12,895 12,895 Asset held for sale 17,080 17,080 17,080 17,080 17,080 17,080 Income tax receivable 7,440 7,440 7,440 7,429 7,429 7,429 _______ _______ _______ _______ _______ _______ Total current assets 418,839 418,653 418,210 366,028 365,928 365,633 Property and equipment Land 2,371 2,371 2,371 2,371 2,371 2,371 Building 17,130 17,130 17,130 17,391 17,391 17,391 Machinery and equipment 66,326 66,326 66,326 59,318 59,318 59,318 ______ ______ ______ ______ ______ ______ Total 85,827 85,827 85,827 79,080 79,080 79,080 Less:accum depreciation (34,064) (34,064) (34,064) (27,342) (27,342) (27,342) ________ ________ ________ ________ ________ ________ Property & equipment, net 51,763 51,763 51,763 51,738 51,738 51,738 Receivable from parent 2,303 2,159 2,159 2,307 2,307 2,307 Trademarks, net 17,747 17,747 17,747 18,236 18,236 18,236 Deferred income taxes 12,228 8,231 -- 8,338 6,405 -- Other assets 30,516 26,594 21,910 28,157 24,066 19,029 ________ ________ ________ ________ ________ ________ Total assets $531,657 $523,725 $510,719 $474,804 $468,680 $456,943 ======== ======== ======== ======== ======== ========
See notes to consolidated condensed financial statements. ICON Fitness Corporation and its wholly-owned subsidiary, IHF Holdings, Inc. and its wholly-owned subsidiary, ICON Health & Fitness, Inc. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)(Continued)(In Thousands)
ICON Fitness IHF ICON Health ICON Fitness IHF Holding, ICON Health Corporation Holdings, Inc. & Fitness, Inc. Corporation Inc. &Fitness,Inc. November 29, November 29, November 29, May 31, 1997 May 31,1997 May 31,1997 1997 1997 1997 ____________ ______________ _______________ ____________ ____________ _____________ Liabilities and Stockholders' Equity (Deficit) Current liabilities Current portion of long-term debt $5,921 $5,921 $5,607 $5,401 $5,401 $5,401 Accounts payable 142,485 142,485 117,850 112,079 112,079 112,079 Interest payable -- - 6,220 6,220 6,220 Accrued expenses 27,238 27,238 27,238 20,696 20,696 20,696 Income taxes payable 2,696 2,696 2,696 1,165 1,165 1,165 _______ _______ _______ _______ _______ _______ Total current liabilities 178,340 178,340 147,340 145,561 145,561 145,561 Long term-debt 529,018 434,769 349,024 489,400 401,196 321,625 Deferred income taxes 87 87 686 -- -- 501 Other liabilities -- -- -- -- -- Stockholders' equity (deficit) Common stock & additional paid-in capital 49,699 127,767 166,184 49,699 127,767 166,184 Receivable from officers for purchase of equity (656) (656) (656) (656) (656) (656) Cumulative translation adjustment (8) (8) (8) (506) (506) (506) Retained earnings(deficit) (224,823) (216,574) (182,851) (208,694) (204,682) (175,766) _________ _________ _________ _________ _________ _________ Total Stockholders' Equity (175,788) (89,471) (17,331) (160,157) (78,077) (10,744) Total liabilities and _________ _________ _________ _________ _________ _________ stockholders' equity $531,657 $523,725 $510,719 $474,804 $468,680 $456,943 ========= ========= ========= ========= ========= =========
See notes to consolidated condensed financial statements. ICON Fitness Corporation and its wholly-owned subsidiary, IHF Holdings, Inc. and its wholly-owned subsidiary, ICON Health & Fitness, Inc. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)(In Thousands)
For The Three Months Ended ICON Fitness IHF ICON Health ICON Fitness IHF Holding, ICON Health Corporation Holdings, Inc. & Fitness, Inc. Corporation Inc. &Fitness,Inc. November 29, November 29, November 29, November 29, November 29, November 29, 1997 1997 1997 1996 1996 1996 ____________ ______________ _______________ ____________ ____________ _____________ Net sales $236,312 $236,312 $236,312 $249,495 $249,495 $249,495 Cost of goods sold 168,428 168,428 168,428 170,029 170,029 170,029 Cost of goods sold- revaluation of HealthRider, Weider Sports and CanCo inventory 4 4 4 6,300 6,300 6,300 _______ ________ ________ _______ _______ _______ Total cost of goods sold 168,432 168,432 168,432 176,329 176,329 176,329 _______ ________ ________ _______ _______ _______ Gross profit 67,880 67,880 67,880 73,166 73,166 73,166 Operating expenses: Selling expenses 33,584 33,584 33,584 37,557 33,557 33,557 Research and development 2,074 2,074 2,074 1,835 1,835 1,835 General and administrative 16,485 16,483 16,483 16,115 16,115 16,115 Weider Settlement - 16,465 16,465 16,465 ______ ______ ______ ______ ______ ______ Total operating expenses 52,143 52,141 52,141 71,972 71,972 71,972 _______ _______ _______ _______ _______ _______ Operating income (loss) 15,737 15,739 15,739 1,194 1,194 1,194 Interest expense 14,758 11,736 8,649 11,856 11,594 8,988 Dividend on cumulative redeemable preferred stock of Subsidiary -- -- -- 850 -- -- Amortization of deferred financing fees 1,480 1,310 957 1,110 1,098 800 ________ ________ ________ _______ _______ _______ Income(Loss) before income tax (501) 2,693 6,133 (12,622) (11,498) (8,594) Provision(Benefit)from income taxes 186 1,261 2,299 (3,731) (3,731) (3,105) _________ _________ _________ ________ ________ ________ Net loss ($687) $1,432 $3,834 ($8,891) ($7,767) ($5,489) ========= ========= ========= ======== ======== ========
See notes to consolidated condensed financial statements. ICON Fitness Corporation and its wholly-owned subsidiary, IHF Holdings, Inc. and its wholly-owned subsidiary, ICON Health & Fitness, Inc. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)(In Thousands)
For The Six Months Ended ICON Fitness IHF ICON Health ICON Fitness IHF Holding, ICON Health Corporation Holdings, Inc. & Fitness, Inc. Corporation Inc. &Fitness,Inc. November 29, November 29, November 29, November 29, November 29, November 29, 1997 1997 1997 1996 1996 1996 ____________ ______________ _______________ ____________ ____________ _____________ Net sales $363,794 $363,794 $363,794 $375,305 $375,305 $375,305 Cost of goods sold 260,762 260,762 260,762 260,610 260,610 260,610 Cost of goods sold- revaluation of HealthRider, Weider Sports and CanCo inventory 330 330 330 8,165 8,165 8,165 _______ ________ ________ _______ _______ _______ Total cost of goods sold 261,092 261,092 261,092 268,775 268,775 268,775 _______ ________ ________ _______ _______ _______ Gross profit 102,702 102,702 102,702 106,530 106,530 106,530 Operating expenses: Selling expenses 60,229 60,229 60,229 56,370 56,370 56,370 Research and development 3,994 3,994 3,994 3,474 3,474 3,474 General and administrative 30,322 30,320 30,320 27,002 27,002 27,002 Weider Settlement - 16,465 16,465 16,465 ______ ______ ______ ______ ______ ______ Total operating expenses 94,545 94,543 94,543 103,311 103,311 103,311 _______ _______ _______ _______ _______ _______ Operating income (loss) 8,157 8,159 8,159 3,219 3,219 3,219 Interest expense 29,349 23,305 17,131 20,629 20,367 15,155 Dividend on cumulative redeemable preferred stock of Subsidiary -- -- -- 2,125 -- -- Amortization of deferred financing fees 3,238 2,898 2,193 2,059 2,047 1,452 ________ ________ ________ ________ ________ ________ Income(Loss) before income tax(24,430) (18,044) (11,165) (21,594) (19,195) (13,388) Provision(Benefit)from income taxes (8,301) (6,152) (4,080) (5,606) (5,606) (4,278) _________ _________ _________ _________ _________ ________ Net loss ($16,129) $11,892) ($7,085) ($15,988) ($13,589) ($9,110) ========= ========= ========= ========= ========= ========
See notes to consolidated condensed financial statements. ICON Fitness Corporation and its wholly-owned subsidiary, IHF Holdings, Inc. and its wholly-owned subsidiary, ICON Health & Fitness, Inc. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)(In Thousands)
For The Six Months Ended ICON Fitness IHF ICON Health ICON Fitness IHF Holding, ICON Health Corporation Holdings, Inc. & Fitness, Inc. Corporation Inc. &Fitness,Inc. November 29, November 29, November 29, November 29, November 29, November 29, 1997 1997 1997 1996 1996 1996 ____________ ______________ _______________ ____________ ____________ _____________ OPERATING ACTIVITIES: Net income/(loss) ($16,129) ($11,892) ($7,085) ($15,988) ($13,589) ($9,110) Adjustments to reconcile net income to net cash provided by operating activity: Provision for bad debt and advertising allowance 10,263 10,263 10,263 5,284 5,284 5,284 Provision/(benefit)for deferred taxes (9,983) (7,834) (5,762) (1,596) (1,596) (101) Amortization of debt discount and deferred financing fees Depreciation & amortization 23,450 17,066 10,187 12,153 11,879 6,072 Inventory revaluation 330 330 330 8,165 8,165 8,165 Interest expense attributable to dividends on preferred stock -- -- -- 2,125 -- -- Changes in operating assets and liabilities: Accounts receivable (41,410) (41,410) (41,410) (86,137) (86,137) (86,137) Inventory (19,120) (19,120) (19,120) (36,921) (36,921) (36,921) Other assets (2,073) (2,252) (2,252) (10,756) (9,618) (9,785) Account payable and accrued expenses 32,264 32,441 32,441 31,098 31,098 31,098 ______ ______ ______ _______ ______ ______ Net cash received from (used in) operating activities (22,408) (22,408) (22,408) (92,573) (91,435) (91,435) ________ ________ ________ ________ ________ ________ INVESTING ACTIVITIES: Payments for acquisitions -- -- -- (38,962) (38,962) (38,962) Purchases of property and equipment (6,748) (6,748) (6,748) (13,622) (13,622) (13,622) _______ _______ _______ ________ ________ ________ Net cash received from (used in) investing activities (6,748) (6,748) (6,748) (52,584) (52,584) (52,584) _______ _______ _______ ________ ________ ________ FINANCING ACTIVITIES: Proceeds from long-term debt, net of payments 27,799 27,799 27,799 219,030 136,763 136,763 Return of capital to parent - - - (42,319) - - Retirement of preferred stock - -- -- (35,748) (35,748) - Capital contribution by parent -- -- -- -- 35,748 -- Payment of debt financing fees -- -- -- -- (3,062) ______ _______ _______ ________ ________ ________ Net cash received from (used in) financing activities 27,799 27,799 27,799 137,901 136,763 136,763 Effect of exchange rate change on cash 497 497 497 (492) (492) (492) Net increase(decrease) _______ _______ _______ ________ ________ ________ in cash (860) (860) (860) (7,748) (7,748) (7,748) Cash at beginning of period 5,560 5,560 5,560 19,313 19,313 19,313 _______ _______ _______ _______ _______ _______ Cash at end of period $4,700 $4,700 $4,700 $11,565 $11,565 $11,565 SUPPLEMENTAL DISCLOSURES: Cash paid (received) during the year for: Interest $17,773 $17,773 $17,773 $21,897 $21,897 $21,897 Income taxes $58 $58 $58 $3,799 $3,799 $3,799
See notes to consolidated condensed financial statements. ICON Fitness Corporation and its wholly-owned subsidiary, IHF Holdings, Inc. and its wholly owned subsidiary, ICON Health & Fitness, Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS Basis of Presentation The consolidated condensed financial statements include the accounts of ICON Fitness Corporation ("ICON Fitness"), its wholly-owned subsidiary, IHF Holdings, Inc. ("IHF Holdings"), and its wholly-owned subsidiary, ICON Health & Fitness, Inc. ("ICON"), and its wholly-owned subsidiaries (collectively, the "Company"). ICON Fitness' parent company, IHF Capital, Inc. ("IHF Capital"), is not a registrant. The accompanying consolidated condensed financial statements and notes should be read in conjunction with the financial statements contained in the Company's 'Annual Report on Form 10-K. In management's opinion, the accompanying consolidated condensed financial statements include all adjustments necessary for a fair presentation of the results of the interim periods presented and all such adjustments are of a normal recurring nature. The home fitness industry is seasonal in nature and the results of operations for the interim periods presented may not be indicative of the results for the full year. The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the consolidated financial statements and the reported amount of revenues and expenses during the period. Actual results could differ from those estimates. Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations. This quarterly Report on Form 10Q 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. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects", "intends" and similar expressions are intended to identify forward-looking statements. The Company's actual results could differ materially from those set forth in the forward-looking statements. Seasonality The Company has historically sold the majority of its products to customers in its second and third fiscal quarters (i.e., from September through February). Increased sales and distribution typically have occurred in the Christmas retail season and the beginning of a new calendar year because of increased customer promotions and customer purchases. While this seasonality has been the trend, it may not be indicative of the results to be expected for this fiscal year or any future years. The following table reflects the Company's consolidated net sales for the first two quarters of fiscal 1998 and for each quarter in fiscal 1997, and 1996. First Second Third Fourth Quarter Quarter Quarter Quarter Fiscal 1998 $127.5 $236.3 --- --- Fiscal 1997 $125.8 $249.5 $248.7 $212.2 Fiscal 1996 $124.8 $228.5 $240.9 $153.4 Operating Results for the Second Quarters of Fiscal 1998 and 1997 During the second quarter of fiscal year 1998, net sales decreased 5.3% to $236.3 million from $249.5 million in the second quarter of fiscal 1997. Domestic treadmill sales for the second quarter of fiscal year 1998 accounted for approximately 61% of total net sales versus 45% in the second quarter of fiscal 1997. Second quarter fiscal year 1998 treadmill sales increased approximately $28.9 million over the same period a year ago. Other increases include air walker sales of $5.7 million, stationary bike sales of $3 million, and relaxation chairs, home spas and elliptical products increased approximately $3 million in aggregate over the same period of a year ago. However, the sale of cardioglides and HealthRiders decreased $30 million and the ab shapers decreased approximately $16.7 million, due to a general softening of demand for those particular product categories. Trampoline sales decreased $4.1 million, and rowers and skiers sales decreased approximately $3 million over the preceding year's same period. Gross profit for the second quarter of fiscal 1998 was $67.9 million, or 28.7% of net sales, compared to $73.2 million, or 29.3% of net sales, for the second quarter of fiscal 1997. Included in the second quarter of fiscal year 1997 cost of goods sold, was a one time step-up expense for the purchase of HealthRider, Weider Sports and CanCo inventory in the amount of $6.3 million. Without the $6.3 million expense for the second quarter of fiscal 1997, the profit margin would have been $79.5 million, or 31.9% of net sales. The 3.2% decrease in profit margin is attributable to the changes in product mix. Margins on treadmills have increased to 29%, approximately 2% higher for the second quarter of fiscal 1998 as compared to the second quarter of fiscal 1997; however, they still do not compare with the 40% weighted margins the Company received in the prior year on ab shapers and HealthRiders. Selling expenses were $33.6 million, or 14.2% of net sales, in the second quarter of fiscal 1998 compared to $37.6 million, or 15.1% of net sales, for the second quarter of fiscal 1997. This decrease is primarily attributed to the one-time HealthRider selling expenses of $3.2 million included in second quarter of fiscal year 1997. Also, direct response advertising expenses decreased approximately $.8 million for the second quarter of 1998 versus the second quarter of 1997. No other significant changes occurred in selling expenses. Research and development expenses were $2.1 million or .9% of net sales, for the second quarter of fiscal 1998 compared to $1.8 million, or .7% of net sales, for the second quarter of fiscal 1997. General and administrative expenses totaled $16.5 million, or 7.0 % of net sales, for the second quarter of fiscal 1998 compared to $16.1 million, or 6.5% of net sales, for the second quarter of fiscal 1997. This increase in general and administrative expenses as a percent of sales can be attributed in part to the decrease in sales for the second quarter of fiscal year 1998. The increase in dollars spent in the second quarter of fiscal 1998 over 1997 represents an increase in depreciation taken on higher fixed assets in 1998. In the second quarter of fiscal year 1997 the Company and Weider Health and Fitness ("WHF") and its affiliates settled litigation through a number of agreements. The settlement included the release of certain claims previously asserted by WHF and its affiliates, amendments to certain agreements existing between the Company and WHF and its affiliates and certain new agreements among the Company and WHF and its affiliates. The result was a charge of $16.5 million in the second quarter of fiscal 1997. As a result of the foregoing factors, operating income was $15.7 million, or 6.6% of net sales in the second quarter of fiscal 1998, compared to $1.2 million, or .5% of net sales, in the second quarter of fiscal 1997. Operating income before the revaluation of acquired inventories, one-time selling expenses and the Weider settlement would have been $27.1 million or 10.9% of net sales for the second quarter of fiscal 1997. Interest expense was $8.6 million for ICON, $11.7 million for IHF Holdings and $14.8 million for ICON Fitness in the second quarter of fiscal year 1998 compared to $9.0 million for ICON, $11.6 million for IHF Holdings and $11.9 million for ICON Fitness for the second quarter of fiscal year 1997. The increase in interest expense is due to a higher level of outstanding indebtedness in fiscal year 1998 as a result of the loan agreement entered into by ICON Fitness in November 1996. Dividends on cumulative redeemable Preferred stock were $.9 million for ICON Fitness during the second quarter of fiscal 1997. The Preferred Stock was redeemed in the second quarter of 1997; accordingly, there were no dividends in the same period of 1998. The income tax provision was $2.3 million for ICON, $1.3 million for Holdings and $.2 million for ICON Fitness for the second quarter of fiscal 1998, compared with a tax benefit of $3.1 million for ICON, $3.7 million for IHF Holdings and ICON Fitness during the second quarter of fiscal 1997. This is a result of the increase in income before income tax during the second quarter of fiscal 1998 compared to the same period in the preceding year. As a result of the foregoing factors, the net income was $3.8 million for ICON, $1.4 million for IHF Holdings and a net loss of $.7 million for ICON Fitness for the second quarter of fiscal 1998 compared to net losses for all three companies in the second quarter of fiscal year 1997 of $5.5 million for ICON, $7.8 million for IHF Holdings and $8.9 million for ICON Fitness. Operating Results for the First Six Months of fiscal 1998 and 1997 Net sales were $363.8 million in the first six months of fiscal 1998, compared to $375.3 million in the first six months of fiscal 1997. Treadmill sales totaled $210.3 million in the first six months of fiscal year 1998 compared to $165.5 for the first six months of the preceding year. Other increases include air walker sales of $8.1 million, bike sales of $5.3 million, and relaxation chairs, home spas, and elliptical products increased sales approximately $5.5 million in aggregate over the same period of a year ago. HealthRiders and Cardioglides totaled $4.0 million during the first six months of fiscal 1998 versus $54.3 million for the same period in the preceding year, and sales of the Company's ab shaper decreased $24.9 million, due to a general softening of demand for those particular product categories. Gross profit for the first six months of fiscal 1998 was $102.7 million, or 28.2% of net sales, compared to $106.5 million, or 28.4% of net sales, for the first six months of fiscal 1997. The step-up of the HealthRider and ICON of Canada inventory increased the cost of sales by $8.2 million for the first six months of fiscal year 1997. Without this charge, gross profit would have been 30.6% for the first six months of fiscal 1997. The decrease of 2.2% profit margin relates directly with the product mix sold as treadmills have a lower margin than HealthRiders and ab shapers. Margins on treadmills have increased to 29%, approximately 2% higher for the second quarter of 1998 than 1997; however, they still do not compare with the 40% weighted margins we received in the prior year on ab shapers and HealthRriders. Selling expenses were $60.2 million, or 16.5% of net sales, in the first six months of fiscal 1998 compared to $56.4 million, or 15.0% of net sales for the first six months of fiscal year 1997. This increase is primarily attributed to the higher costs of shipping treadmills versus ab shakers and HealthRriders during the first six months of 1998. Freight costs were $6.5 million in the first six months of 1998 compared to $3.7 million for the first six months of fiscal 1997. HealthRider selling expenses accounted for approximately $1 million of the increase in the first six months of 1998 over 1997, as the retail locations of HealthRider were part of the Company for only three of the six months in the prior year. Research and development expenses were $4.0 million or 1.1% of net sales, for the first six months of fiscal 1998 compared to $3.5 million, or .9% of net sales, for the first six months of fiscal 1997. General and administrative expenses totaled $30.3 million, or 8.3% of net sales, for the first six months of fiscal 1997 compared to $27.0 million, or 7.2% of net sales, for the first six months of 1997. The largest single increase in 1998 over 1997 is depreciation of $2.8 million, which increased due to the purchase of HealthRider as well as other fixed asset additions. Distribution expenses have also increased approximately $1.8 million in the first six months of fiscal 1998 over 1997. Bonuses have decreased by $1 million and other items which are not significant account for the remaining $.3 million decrease in the first six months of 1998 over 1997. In the second quarter of fiscal year 1997 the Company and Weider Health and Fitness ("WHF") and its affiliates settled litigation through a number of agreements. The settlement included the release of certain claims previously asserted by WHF and its affiliates, amendments to certain agreements existing between the Company and WHF and its affiliates and certain new agreements among the Company and WHF and its affiliates. The result was a charge of $16.5 million in the second quarter of fiscal 1997. As a result of the foregoing factors, operating income was $8.2 million, or 2.3% of net sales in the first six months of fiscal 1998, compared to a $3.2 million, or .9% of net sales in the first six months of fiscal 1997. Operating income before the revaluation of acquired inventories, one time HealthRider selling expenses, integration expenses associated with the HealthRider and CanCo Acquisitions and the expense of the Weider settlement would have been $31.1 million or 8.3% of net sales for the first six months of fiscal year 1997. Interest expense was $17.1 million for ICON, $23.3 million for IHF Holdings and $29.3 million for ICON Fitness in the first six months of fiscal 1998 compared to $15.2 million for ICON, $20.4 million for IHF Holdings and $20.6 million for ICON Fitness for the first six months of fiscal 1997. The increase in interest expense is due to a higher level of outstanding indebtedness in fiscal year 1998 as a result of the loan agreement entered into by ICON Fitness in November 1996. Dividends on cumulative redeemable Preferred Stock totaled $2.1 million for ICON Fitness for the first six months of fiscal 1997. The Preferred Stock was redeemed in the second quarter of 1997; accordingly, there will be no additional dividends associated with this Preferred Stock. The income tax benefit was $4.1 million for ICON, $6.2 million for IHF Holdings and $8.3 million for ICON Fitness for the first six months of fiscal 1998 compared with a tax benefit of $4.3 million for ICON, $5.6 million for IHF Holdings and ICON Fitness during the first six months of fiscal 1997. This is a result of the loss before income tax during the first six months of both years. As a result of the foregoing factors, the net loss was $7.1 million for ICON, $11.9 million for IHF Holdings and $16.1 million for ICON Fitness for the first six months of fiscal 1998 compared to net losses of $9.1 million for ICON, $13.6 million for IHF Holdings and $16.0 million for ICON Fitness during the same period for fiscal 1997. Advertising allowances with retail customers total $5.6 million at November 29, 1997. Advertising allowances are generally a fixed percentage of sales to customers. Fluctuations in the balance of this allowance are attributable to changes in customer sales mix and the timing of when allowances are taken. Liquidity and Capital Resources In the first six months of fiscal 1998, the Company used $22.4 million of cash in operating activities compared to $92.6 for the same period in 1997. This use of cash includes increased accounts receivable and inventory, offset by increased accounts payable. The Company also used $6.7 million of cash for investing activities in the first six months of fiscal 1998 for capital expenditures primarily related to tooling and other manufacturing equipment. During the first six months of fiscal 1998, the Company had a net decrease in cash of $.9 million compared to $7.7 million in the same period in 1997. On November 25, 1997, ICON amended certain terms of its credit agreement, which is secured by the Company's eligible accounts receivable and inventory. The Company must comply with certain financial covenants under the credit agreement. ICON had $233.4 million of revolving credit borrowings under the Credit Agreement at November 29, 1997 compared to $228.5 at November 30, 1996. The revolving credit borrowings have increased by $23.6 million from $209.8 million reported at the end of fiscal 1997. Line of Credit borrowings have been used to fund inventory levels, finance normal trade credit for customers, make interest payments on debt obligations and to fund capital expenditures. Management believes that cash flows from operations and ICON's ability to make revolving credit borrowings under the amended Credit Agreement will provide adequate funds for working capital, planned capital expenditures and debt service obligations for the foreseeable future. Nevertheless, the Company is highly leveraged, and the ability to fund operations, make planned capital expenditures, make scheduled debt payments and refinance indebtedness depends on future operating performance and cash flows, which in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond the Company's control. PART II - OTHER INFORMATION Item 1. Legal Proceedings. The Company is party to a variety of non-product liability commercial suits involving contract claims and intellectual property claims. The Company believes that potential adverse resolution of these suits will not have a material adverse effect on the Company. The Company is also involved in several 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 affect on the Company. 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 27.1 Financial Data Schedule for ICON Fitness Corporation. 27.2 Financial Data Schedule for IHF Holdings, Inc. 27.3 Financial Data Schedule for ICON Health & Fitness, Inc. (b) Reports on Form 8-K None. 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 Fitness Corporation IHF Holdings, Inc. ICON Health & Fitness, Inc. (Registrants) By_______________________________ Date: _____________ Gary Stevenson, President By_______________________________________ S. Fred Beck, Chief Financial Officer Date: _____________ EX-27 2
5 SCHEDULE 27.1 This schedule contains summary financial information extracted from the November 29, 1997 Financial Statements included in the Company's Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 0001029294 ICON Fitness Corporation 1000 6-MOS MAY-31-1998 JUN-01-1997 NOV-29-1997 4700 0 235318 11268 140627 418839 85827 34064 531657 178340 529018 0 0 49698 (225486) 531657 236312 236312 168432 52143 0 0 14758 (501) (186) (687) 0 0 0 (687) 0 0
EX-27 3
5 SCHEDULE 27.2 This schedule contains summary financial information extracted from the November 29, 1997 Financial Statements included in the Company's Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 0000934799 IHF Holdings Inc 1000 6-MOS MAY-31-1998 JUN-01-1997 NOV-29-1997 4700 0 235318 11268 140627 418653 85827 34064 523725 178340 434769 0 0 127767 (217238) 523725 236312 236312 168432 52141 0 0 11736 2693 1261 1432 0 0 0 1432 0 0
EX-27 4
5 SCHEDULE 27.3 This schedule contains summary financial information extracted from the November 29, 1997 Financial Statements included in the Company's Form 10-Q and is qualified in its entirety by reference to such Form 10-Q. 0000934798 ICON Health & Fitness Inc 1000 6-MOS MAY-31-1998 JUN-01-1997 NOV-29-1997 4700 0 235318 11268 140627 418210 85826 34064 510719 178340 349024 0 0 166184 (183515) 510719 236312 236312 168432 52141 0 0 8649 6133 2299 3834 0 0 0 3834 0 0
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