-----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, AQ3rvJM7TV9F7G5TFa1RnBL5Evhp5vKoAmULcum651K9PvGkVQD1mbhuAbnQXzhP +/yLv6j9U06YKLhFIeLAdQ== 0001029294-98-000020.txt : 19981014 0001029294-98-000020.hdr.sgml : 19981014 ACCESSION NUMBER: 0001029294-98-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980829 FILED AS OF DATE: 19981013 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: 98724819 BUSINESS ADDRESS: STREET 1: 1500 SOUTH 1000 WEST CITY: LOGAN STATE: UT ZIP: 84321 BUSINESS PHONE: 801-750-77 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: 98724820 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: 98724821 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 August 29, 1998 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) 435-750-5000 (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 X 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, IHF Holdings, Inc. 1,000 shares, ICON Fitness Corporation 100 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 . . . . . . . . . . . . . . . . . . . . . 3-6 Consolidated Condensed Balance Sheets as of August 29, 1998 and May 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . 3-4 Consolidated Condensed Statements of Operations for the three months ended August 29, 1998 and August 30, 1997. . . . . . . . . . . . . . . 5 Consolidated Condensed Statements of Cash Flows for the three months ended August 29, 1998 and August 30, 1997 . . . . . . . . . . . 6 Notes to Consolidated Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 7-10 PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 10 Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 10 Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 10 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 11 Item 4. Submission of Matters to a Vote of Securities Holders . . . . 11 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 11 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 11 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 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 IHF ICON ICON IHF ICON Fitness Holdings, Health & Fitness Holdings, Health & Corporation Inc. Fitness, Inc. Corporation Inc. Fitness,Inc. August 29, August 29, August 29, May 31, May 31, May 31, 1998 1998 1998 1998 1998 1998 ------------ ---------- ------------- ------------ --------- ------------ Assets Current assets Cash $4,475 $4,475 $4,475 $3,892 $3,892 $3,892 Accounts receivable-net 120,614 120,614 120,614 124,301 124,301 124,301 Inventories: Raw materials 39,072 39,072 39,072 42,609 42,609 42,609 Finished goods 104,408 104,480 104,480 78,857 78,857 78,857 Deferred income taxes 11,343 11,343 11,343 11,177 11,177 11,177 Other current assets 8,166 8,166 8,166 6,202 6,202 6,202 Income tax receivable 760 760 760 781 781 781 ------- ------- ------- ------- ------- ------- Total current assets 288,910 288,910 288,910 267,819 267,819 267,819 Property and equipment Land 1,430 1,430 1,430 1,430 1,430 1,430 Building 16,675 16,675 16,675 16,675 16,675 16,675 Machinery and equipment 73,931 73,931 73,931 71,293 71,293 71,293 ------ ------ ------ ------ ------ ------ Total 92,036 92,036 92,036 89,398 89,398 89,398 Less:accum depreciation (44,193) (44,193) (44,193) (40,579) (40,579) (40,579) -------- -------- -------- ------- ------- ------- Property & equipment-net 47,843 47,843 47,843 48,819 48,819 48,819 Receivable from parent 2,362 2,362 2,362 2,362 2,362 2,362 Trademarks,ne 16,982 16,982 16,982 17,244 17,244 17,244 Deferred income taxes 29,240 21,696 9,183 22,572 16,265 4,927 Other assets 27,490 24,214 21,004 29,057 25,585 21,958 -------- -------- -------- -------- -------- -------- Total assets $412,827 $402,007 $386,284 $387,873 $378,094 $363,129 ======== ======== ======== ======== ======== ========
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 IHF ICON ICON IHF ICON Fitness Holdings, Health & Fitness Holdings, Health & Corporation Inc. Fitness, Inc. Corporation Inc. Fitness,Inc. August 29, August 29, August 29, May 31, May 31, May 31, 1998 1998 1998 1998 1998 1998 ------------ ---------- ------------- ------------ --------- ------------ Liabilities and Stockholders' Equity (Deficit) Current liabilities Current portion of long-term debt $6,375 $6,375 $6,375 $6,051 $6,051 $6,051 Accounts payable 94,860 94,860 94,860 83,965 83,965 83,965 Interest payable 3,082 3,082 3,082 6,596 6,596 6,596 Accrued expenses 18,931 18,931 18,931 18,090 18,090 18,090 Income taxes payable 344 344 344 249 249 249 ------- ------- ------- ------- ------- ------- Total current liabilities 123,592 123,592 123,592 114,951 114,951 114,951 Long term-debt 490,168 386,392 290,816 460,707 360,413 268,495 Stockholders' equity (deficit) Common stock & additional paid-in capital 49,701 127,770 166,187 49,701 127,769 166,186 Receivable from officers for purchase of equity (656) (656) (656) (656) (656) (656) Cumulative translation adjustment (401) (401) (401) (547) (547) (547) Retained earnings(deficit) (249,577) (234,690) (193,254) (236,283) (223,836) (185,300) -------- -------- -------- -------- -------- -------- Total Stockholders' Equity (200,933) (107,977) (28,124) (187,785) (97,270) (20,317) -------- -------- -------- -------- -------- -------- Total liabilities and stockholders' equity $412,827 $402,007 $386,284 $387,873 $378,094 $363,129 ======== ======== ======== ======== ======== ========
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 IHF ICON ICON IHF ICON Fitness Holdings, Health & Fitness Holdings, Health & Corporation Inc. Fitness, Inc. Corporation Inc. Fitness,Inc. August 29, August 29, August 29, May 31, May 31, May 31, 1998 1998 1998 1998 1998 1998 ------------ ---------- ------------- ------------ --------- ------------ Net sales $117,207 $117,207 $117,207 $127,482 $127,482 $127,482 Cost of goods sold 85,525 85,525 85,525 92,334 92,334 92,334 Cost of goods sold- revaluation of, HealthRider, Weider Sports and CanCo inventory -- -- -- 326 326 326 -------- ------- ------- ------- ------- ------ Total cost of goods sold 85,525 85,525 85,525 92,660 92,660 92,660 -------- ------- ------- ------- ------- ------- Gross profit 31,682 31,682 31,682 34,822 34,822 34,822 Operating expenses: Selling expenses 20,538 20,538 20,538 26,645 26,645 26,645 Research and development 1,684 1,684 1,684 1,920 1,920 1,920 General and administrative 12,822 12,822 12,822 13,837 13,837 13,837 -------- ------- ------- ------- ------- ------- Total operating expenses 35,044 35,044 35,044 42,402 42,402 42,402 -------- ------- ------- ------- ------- ------- Operating income (loss) (3,362) (3,362) (3,362) (7,580) (7,580) (7,580) Interest expense 14,672 11,190 7,533 14,591 11,569 8,482 Amortization of deferred financing fees 2,038 1,842 1,425 1,758 1,588 1,236 -------- ------- ------- ------- ------- ------- Loss before income tax (20,072) (16,394) (12,320) (23,929) (20,737) (17,298) Benefit from income taxes (6,778) (5,540) (4,366) (8,487) (7,413) (6,379) --------- -------- -------- -------- -------- -------- Net loss $(13,294) $(10,854) $(7,954) $(15,442) $(13,324) $(10,919) ========= ======== ======== ========= ========= =========
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 Three Months Ended ICON IHF ICON ICON IHF ICON Fitness Holdings, Health & Fitness Holdings, Health & Corporation Inc. Fitness, Inc. Corporation Inc. Fitness,Inc. August 29, August 29, August 29, May 31, May 31, May 31, 1998 1998 1998 1998 1998 1998 ------------ ---------- ------------- ------------ --------- ------------ OPERATING ACTIVITIES: Net income/(loss) ($13,294) ($10,854) ($7,954) ($15,442) ($13,324) ($10,919) Adjustments to reconcile net income to net cash provided by operating activity: Provision/(benefit)for deferred taxes (6,833) (5,596) (4,422) (8,767) (7,693) (6,659) Amortization of debt discount and deferred financing fees 9,246 5,569 1,495 7,944 4,752 1,313 Depreciation & amortization 4,316 4,316 4,316 3,966 3,966 3,966 Inventory revaluation -- -- -- 326 326 326 Changes in operating assets and liabilities: Accounts receivable 3,687 3,687 3,687 49,197 49,197 49,197 Inventory (22,086) (22,086) (22,086) (40,558) (40,558) (40,558) Other assets (2,876) (2,876) (2,876) (2,166) (2,166) (2,166) Account payable and accrued expenses 8,339 8,339 8,339 3,441 3,441 3,441 ------- ------- ------- -------- -------- -------- Net cash received from/(used in) operating activities (19,501) (19,501) (19,501) (2,059) (2,059) (2,059) INVESTING ACTIVITIES: Purchases of property and equipment (2,638) (2,638) (2,638) (2,325) (2,325) (2,325) ------- ------- ------- -------- -------- -------- Net cash received from /(used in) investing activities (2,638) (2,638) (2,638) (2,325) (2,325) (2,325) FINANCING ACTIVITIES: Proceeds from long-term debt, net of payments 22,576 22,576 22,576 4,378 4,378 4,378 ------ ------ ------ ----- ----- ----- Net cash received from/ (used in) financing activities 22,576 22,576 22,576 4,378 4,378 4,378 Effect of exchange rate change on cash 146 146 146 117 117 117 ------ ------ ------ ------ ------ ------ Net increase/(decrease) in cash 583 583 583 111 111 111 Cash at beginning of period 3,892 3,892 3,892 5,560 5,560 5,560 ------ ------ ------ ------ ------ ------ Cash at end of period $4,475 $4,475 $4,475 $5,671 $5,671 $5,671 ====== ====== ====== ====== ====== ====== SUPPLEMENTAL DISCLOSURES: Cash paid (received) during the year for: Interest $10,908 $10,908 $10,908 $11,481 $11,481 $11,481 Income taxes $3 $3 $3 $(174) $(174) $(174)
See notes to consolidated condensed financial statements. 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 Health"), 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. In June 1997, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). The Company adopted SFAS 130 and 131 on June 1, 1998. SFAS 130 establishes standards for reporting comprehensive income and its components in the consolidated condensed financial statements. There were no material differences between net income and comprehensive income for the three months ended August 29, 1998. SFAS 131 establishes standards for reporting information on operating segments and will first be applicable to the May 31, 1999 year end consolidated financial statements. 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. Year 2000 Compliance - -------------------- The Company utilizes and is dependent upon data processing systems and software to conduct its business. The data processing systems and software include those developed and maintained by the Company's third-party data processing vendors and software which is run on in-house computer networks. The Company has reviewed and assessed all hardware and software to confirm that it will function properly in the year 2000. With respect to internal systems, the results of the evaluation to date have not revealed any year 2000 issues that, in the Company's opinion, create a material risk of disruption of operations. With respect to outside vendors and shippers, those that have been contacted have indicated that their hardware or software is or will be Year 2000 compliant in time frames that meet regulatory requirements. Evaluation of these issues is continuing and there can be no assurance that additional issues, not presently known to the Company, will not be discovered which could present a material risk of disruption to the Company's operations. 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 quarter of fiscal 1999 and for each quarter in fiscal 1998 and 1997: First Second Third Fourth Quarter Quarter Quarter Quarter ---------------------------------------- Fiscal 1999 $117.2 --- -- -- Fiscal 1998 $127.5 $236.3 $252.0 $133.5 Fiscal 1997 $125.8 $249.5 $248.7 $212.2 Operating Results for the First Quarters of Fiscal 1999 and 1998 During the first quarter of fiscal 1999, net sales decreased $10.3 million, or 8.1% to $117.2 million from $127.5 million in the first quarter of fiscal 1998. Domestic treadmill sales for the first quarter of fiscal 1999 accounted for approximately 55% of total net sales versus 53% in the first quarter of fiscal 1998. First quarter fiscal 1998, domestic treadmill sales were $64.2 million compared to $67.3 million, which is a $3.1 million decrease. Other decreases in sales include airwalkers of $5.4 million, ab shapers of $1.2 million, upright rowers of $1.2 million, gyms and benches of $1.2 million, and international sales declined $2.6 million. The sale of softgoods increased $1.8 million, stationary bike sales increased $1.1 million, home spas increased $1.1 million, and elliptical sales increased approximately $0.4 million over the same period of a year ago. Sales for the first quarter are consistent with management's expectations and budgeted numbers for the first quarter. Gross profit for the first quarter of fiscal 1999 was $31.7 million, or 27.0% of net sales, compared to $34.8 million, or 27.3% of net sales, for the first quarter of fiscal 1998. Included in the first quarter of fiscal 1998 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 $0.3 million, which had a negative 0.3% effect on the margin. Without this charge, the decrease of 0.6% in profit margin is attributable to the changes in product mix. Selling expenses were $20.5 million, or 17.5% of net sales, in the first quarter of fiscal 1999 compared to $26.6 million, or 20.9% of net sales, for the first quarter of fiscal 1998. This decrease is attributed primarily to a reduction in advertising expenses that have decreased by approximately $3.1 million for the first quarter of 1999 versus the first quarter of 1998. Other selling expense decreases included a reduction in bad debt expense of approximately $1.0 million and approximately a $0.5 million reduction in each of customer service expense, freight out, salaries and wages and other. Research and development expenses were $1.7 million, or 1.4% of net sales, for the first quarter of fiscal 1999 compared to $1.9 million or 1.5% of net sales for the first quarter of 1998. This decrease both in dollar value and as a percentage of sales is attributable to management's efforts to reduce costs in the current year. General and administrative expenses totaled $12.8 million, or 10.9% of net sales, for the first quarter of fiscal 1999 compared to $13.8 million, or 10.9% of net sales, for the first quarter of fiscal 1998. This decrease of approximately $1.0 million in general and administrative expenses for the first quarter of fiscal 1999 is attributable to a decrease in legal expenses of $0.4 million, distribution expenses of $0.4 million, salaries and wages of $0.2 million and insurance claims of $0.2 million. These decreased expenses were offset by an increase in depreciation expense of $0.2 million. As a result of the foregoing factors, operating losses were $3.4 million in the first quarter of fiscal 1999, compared to losses of $7.6 million in the first quarter of fiscal 1998. The Company has focused on reducing expenses in the current fiscal year. This effort has shown in the decreased first quarter losses reported by the Company. Interest expense was $7.5 million for ICON Health, $11.2 million for IHF Holdings and $14.7 million for ICON Fitness in the first quarter of fiscal 1999 compared to $8.5 million for ICON Health, $11.6 million for IHF Holdings and $14.6 million for ICON Fitness for the first quarter of fiscal 1998. The decrease in interest expense for the operating company is due to a lower level of outstanding indebtedness in fiscal 1999 as a result of decreased borrowings under the credit agreement. However, in IHF Holdings and ICON Fitness, there is an additional level of borrowings with respect to accretion of the principal balances of the Company's outstanding indentures. The income tax benefit is $4.4 million for ICON Health, $5.5 million for IHF Holdings and $6.8 million for ICON Fitness for the first quarter of fiscal 1999, compared with a tax benefit of $6.4 million for ICON Health, $7.4 million for IHF Holdings and $8.5 for ICON Fitness during the first quarter of fiscal 1998. The decreased tax benefit in the first quarter of fiscal 1999 compared to the first quarter of fiscal 1998 is a result of the decreased losses of the Company. As a result of the foregoing factors, net losses were $8.0 million for ICON Health, $10.9 million for IHF Holdings and $13.3 million for ICON Fitness for the first quarter of fiscal 1999 compared to net losses in the first quarter of fiscal 1998 of $10.9 million for ICON Health, $13.3 million for IHF Holdings and $15.4 million for ICON Fitness. Liquidity and Capital Resources - ------------------------------- In the first three months of fiscal 1999, the Company used $19.5 million of cash in operating activities compared to $2.1 for the same period in fiscal 1998. The majority of this use of cash relates to an increase in inventory. The Company used $2.6 million of cash for investing activities in the first three months of fiscal 1999, compared to $2.3 million in the first three months of fiscal 1998. This cash was used for capital expenditures, the majority of which is related to tooling and other manufacturing equipment. During the first quarter of fiscal 1999, the Company received cash of $22.6 million from financing activities, compared to $4.4 million received in the same period in 1998. The Company is in compliance with all financial covenants associated with the amended Credit Agreement. ICON Health had $172.5 million of revolving credit borrowings under the Credit Agreement at August 29, 1998 compared to $184.5 million at August 30, 1998. The revolving credit borrowings have increased by $24.0 million from $148.5 million reported at the end of fiscal 1998. 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. The term loans have decreased from $19.5 million reported at the end of fiscal 1998 to $17.8 million at August 29, 1998. This decrease is a result of scheduled debt payments. Management believes that cash flows from operations and the Company'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 a period of at least one year. 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 financial position or results of operations of 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. Exhibits. (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 A Form 8-K was filed on August 19, 1998. 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. Date: October 13, 1998 By /s/ Gary Stevenson ---------------- ------------------------- Gary Stevenson President Date: October 13, 1998 By /s/ S. Fred Beck ---------------- -------------------- S. Fred Beck Chief Accounting Officer EX-27 2 SCHEDULE 27.1
5 SCHEDULE 27.1 This schedule contains summary financial information extracted from the August 29, 1998 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 3-MOS MAY-31-1999 JUN-01-1998 AUG-29-1998 4475 0 120614 0 143552 288910 92036 44193 412827 123592 490167 0 0 49701 (250634) 412827 117207 117207 85525 35044 0 0 14672 (20072) (6778) (13294) 0 0 0 (13294) 0 0
EX-27 3 SCHEDULE 27.2
5 SCHEDULE 27.2 This schedule contains summary financial information extracted from the August 29, 1998 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 3-MOS MAY-31-1999 JUN-01-1998 AUG-29-1998 4475 0 120614 0 143552 288910 92036 44193 402007 123592 386392 0 0 127770 (235747) 0 117207 117207 85525 35044 0 0 11190 (16394) (5540) (10854) 0 0 0 (10854) 0 0
EX-27 4 SCHEDULE 27.3
5 SCHEDULE 27.3 This schedule contains summary financial information extracted from the August 29, 1998 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 3-MOS MAY-31-1998 JUN-01-1998 AUG-29-1998 4475 0 120614 0 143552 288910 92036 44193 386284 123592 290816 0 0 166187 (194311) 386284 117207 117207 85525 35044 0 0 7533 (12320) (4366) (7954) 0 0 0 (7954) 0 0
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