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 30, 2002
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 (unaudited) as of November 30, 2002
and May 31, 2002 3
Condensed Consolidated Statements of
Operations (unaudited) for the three months
ended November 30, 2002 and December 1, 2001 4
Condensed Consolidated Statements of
Operations (unaudited) for the six months
ended November 30, 2002 and December 1, 2001 5
Condensed Consolidated Statements
of Cash Flows (unaudited) for the six months
ended November 30, 2002 and December 1, 2001 6
Notes to Condensed Consolidated
Financial Statements (unaudited) 7-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15-21
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 21
Item 4 Controls and Procedures 22
PART II - OTHER INFORMATION 22
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of
Securities Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 23
Certifications 24-26
Exhibit Index 27
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ICON Health & Fitness, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands)
November 30, 2002 May 31, 2002
----------------- ------------
Assets
Current assets
Cash $ 4,372 $ 4,773
Accounts receivable, net 246,350 153,178
Inventories:
Raw materials 94,312 60,136
Finished goods 106,229 73,617
-------- --------
Total inventories 200,541 133,753
Deferred income taxes 6,188 4,807
Other current assets 12,396 18,675
-------- --------
Total current assets 469,847 315,186
Property and equipment 103,135 95,950
Less accumulated depreciation (55,113) (50,965)
-------- --------
Property and equipment, net 48,022 44,985
Intangible assets, net 30,877 30,201
Deferred income taxes 11,022 12,084
Other assets, net 19,070 20,768
-------- --------
Total assets $578,838 $423,224
======== ========
Liabilities and Stockholder's Equity
Current liabilities
Current portion of long-term debt $ 5,004 $ 5,044
Accounts payable 166,249 113,927
Accrued expenses 25,452 23,751
Income taxes payable 3,631 5,421
Interest payable 7,626 3,045
-------- --------
Total current liabilities 207,962 151,188
Long term-debt 338,358 250,893
Other liabilities 6,842 4,934
-------- --------
Total liabilities 553,162 407,015
-------- --------
Stockholder's Equity
Common stock and additional
paid-in capital 204,155 204,155
Receivable from parent (2,200) (2,200)
Accumulated deficit (173,681) (183,941)
Accumulated other comprehensive loss (2,598) (1,805)
-------- --------
Total stockholder's equity 25,676 16,209
-------- --------
Total liabilities and
stockholder's equity $578,838 $423,224
======== ========
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 30, 2002 December 1, 2001
----------------- ----------------
Net sales $292,732 $264,631
Cost of goods sold 210,725 195,645
-------- --------
Gross profit 82,007 68,986
-------- --------
Operating expenses:
Selling 30,632 22,919
Research and development 2,588 2,391
General and administrative 20,101 16,654
-------- --------
Total operating expenses 53,321 41,964
-------- --------
Income from operations 28,686 27,022
Interest expense 6,526 6,878
Amortization of deferred financing fees 184 888
-------- --------
Income before income taxes 21,976 19,256
Provision for income taxes 8,275 8,246
-------- --------
Net income 13,701 11,010
Other comprehensive loss,
comprised of foreign currency
translation adjustment, net of
income tax benefit of $342 in 2002
and $169 in 2001. (567) (267)
-------- --------
Comprehensive income $ 13,134 $ 10,743
======== ========
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 30, 2002 December 1, 2001
----------------- ----------------
Net sales $462,955 $398,794
Cost of goods sold 337,545 295,943
-------- --------
Gross profit 125,410 102,851
-------- --------
Operating expenses:
Selling 53,102 43,840
Research and development 5,208 5,382
General and administrative 36,342 31,188
-------- --------
Total operating expenses 94,652 80,410
-------- --------
Income from operations 30,758 22,441
Interest expense 12,925 13,730
Amortization of deferred
financing fees 486 1,752
-------- --------
Income before income taxes 17,347 6,959
Provision for income taxes 7,087 3,412
-------- --------
Net income 10,260 3,547
Other comprehensive loss,
comprised of foreign currency
translation adjustment, net of
income tax benefit of $486 in
2002 and $24 in 2001. (793) (40)
-------- --------
Comprehensive income $ 9,467 $ 3,507
======== ========
See accompanying notes to condensed consolidated financial statements.
ICON Health & Fitness, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
November 30, 2002 December 1, 2001
----------------- ----------------
OPERATING ACTIVITIES:
Net income $ 10,260 $ 3,547
Adjustments to reconcile net income to net
cash used in operating activities:
Provision for deferred taxes 167 (83)
Amortization of gain on extinguishment
of debt - (650)
Amortization of deferred financing fees 486 1,752
Amortization of discount on 11.25%
Notes 46 -
Depreciation 6,416 6,765
Amortization 1,800 1,963
Changes in operating assets and liabilities:
Accounts receivable (93,172) (75,123)
Inventories (66,788) (24,836)
Income taxes receivable/payable (1,789) 5,542
Other assets, net 8,873 (4,456)
Accounts payable and accrued expenses 59,666 45,246
-------- --------
Net cash used in operating activities (74,035) (40,333)
-------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment (9,452) (7,144)
Purchase of intangible assets (2,476) (3,299)
Other assets - (226)
Acquisitions, net of cash - (202)
-------- --------
Net cash used in investing activities (11,928) (10,871)
-------- --------
FINANCING ACTIVITIES:
Proceeds from old credit facility, net
of payments - 59,522
Proceed from new credit facility, net
of payments 89,901 -
Payments on term note (2,500) -
Payments on old term notes - (5,659)
Payments on other long-term debt (22) (15)
Payment of fees-debt (538) (444)
-------- --------
Net cash provided by financing
activities 86,841 53,404
-------- --------
Effect of exchange rates on cash (1,279) (64)
-------- --------
Net increase (decrease) in cash (401) 2,136
Cash, beginning of period 4,773 3,324
-------- --------
Cash, end of period $ 4,372 $ 5,460
======== ========
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. and its subsidiaries
(collectively, "the Company"). The Company's parent company, HF Holdings, Inc.
("HF Holdings"), is not a registrant.
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which, in the Company's opinion, are necessary to
present fairly its financial position at November 30, 2002 and the results of
operations and cash flows for the periods ended November 30, 2002 and December
1, 2001. All adjustments in the periods presented herein are normal and
recurring in nature.
Certain reclassifications of previously reported financial information were
made to conform to the current period's presentation.
Note B - Accounting Changes
In November of 2001, the Emerging Issues Task Force issued EITF 01-09,
Accounting for Consideration Given by a 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. The Company
adopted EITF 01-09 in fiscal 2003. Net sales for the three and six months ended
December 1, 2001 are shown as if EITF 01-09 was adopted for those periods.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"), was issued by the Financial Accounting
Standards Board in June 2001. The statement changes the accounting for goodwill
from an amortization method to an impairment only approach, and the Company was
required to adopt it for the fiscal year ended May 31, 2003. Prior to the
adoption of SFAS 142, the Company amortized goodwill using the straight-line
method over the estimated life of twenty years. Upon adoption of SFAS 142, the
Company ceased amortization of goodwill (which totaled $6.3 million, net, at
June 1, 2002) thereby eliminating approximately $98,000 and $196,000 in
amortization expense for the three month period ended November 30, 2002 and six
month period ended November 30, 2002 compared to the same periods in fiscal
2002, respectively.
SFAS 142 requires that companies perform evaluations of potential
impairment of goodwill at least annually. During the first quarter of fiscal
2003, the Company completed an impairment evaluation of its goodwill as of
June 1, 2002. No impairment was identified.
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, 2002 to October 1, 2003 of up to $5.0 million per
occurrence and $5.0 million in the aggregate. The policy has a deductible on
each claim of up to $1,000,000. 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 currently pending claim
or series of claims will have a material adverse effect on its results of
operations or financial position.
The Company is a 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 or financial
position.
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 or financial position.
The Company is involved in litigation with Service Merchandise in
connection with its filing for bankruptcy protection. Service Merchandise filed
three (3) separate adversarial proceedings against the Company in the United
States Bankruptcy Court, Middle District of Tennessee, Nashville Division,
alleging preferential transfer in Adversarial Proceeding Nos. 301-0738A and
301-0770A, and Breach of Contract in Adversarial Proceeding No. 301-0586A. The
bankruptcy trustee has filed suit in connection with the foregoing seeking to
recapture an aggregate amount of $1.7 million in payments made to the Company as
a voidable preference. The summons was issued on April 16, 2001.
Note D - 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 30, 2002 and May
31, 2002, condensed consolidating statements of operations for the three months
and six months ended November 30, 2002 and December 1, 2001, and condensed
consolidating statements of cash flows for the six months ended
November 30, 2002 and December 1, 2001.
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 30, 2002
---------------------------------------------------------------------
ICON Combined Combined
Health & Guarantor Non-Guarantor
Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
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 $ 5,000 $ 4 $ - $ - $ 5,004
Accounts payable 131,980 34,094 23,713 (23,538) 166,249
Accrued expenses 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 162,035 42,397 27,068 (23,538) 207,962
-------- --------- ------- --------- --------
Long-term debt 338,340 18 - - 338,358
Other long-term
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)
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 $568,469 $165,283 $28,635 $(183,549) $578,838
======== ======== ======= ========== ========
Supplemental Condensed Consolidating Balance Sheet
May 31, 2002
---------------------------------------------------------------------
ICON Combined Combined
Health & Guarantor Non-Guarantor
Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash $ 327 $ 1,448 $ 2,998 $ - $ 4,773
Accounts receivable,
net 104,553 54,071 11,249 (16,695) 153,178
Inventories, net 82,558 45,657 5,847 (309) 133,753
Deferred income taxes 4,591 214 2 - 4,807
Other current assets 8,472 8,457 1,746 - 18,675
-------- -------- ------- --------- --------
Total current assets 200,501 109,847 21,842 (17,004) 315,186
-------- -------- ------- --------- --------
Property and
equipment, net 34,031 10,101 853 - 44,985
Receivable from
affiliates 81,636 16,361 - (97,997) -
Intangible assets,
net 20,466 8,517 1,218 - 30,201
Deferred income taxes 11,402 377 305 - 12,084
Investment in
subsidiaries 44,909 - - (44,909) -
Other assets, net 20,756 - 12 - 20,768
-------- -------- ------- --------- --------
Total Assets $413,701 $145,203 $24,230 $(159,910) $423,224
======== ======== ======= ========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of
long-term debt $ 5,000 $ 44 $ - $ - $ 5,044
Accounts payable 81,909 28,586 20,127 (16,695) 113,927
Accrued expenses 16,280 4,998 2,473 - 23,751
Income taxes payable - 5,069 352 - 5,421
Interest payable 3,045 - - - 3,045
-------- -------- ------- --------- --------
Total current
liabilities 106,234 38,697 22,952 (16,695) 151,188
-------- -------- ------- --------- --------
Long-term debt 247,197 3,696 - - 250,893
Other liabilities 4,934 - - - 4,934
Payable to affiliates 16,361 60,784 20,852 (97,997) -
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)
Accumulated deficit (165,149) 5,632 (24,115) (309) (183,941)
Accumulated other
comprehensive loss - (865) (940) - (1,805)
-------- -------- ------- --------- --------
Total stockholder's
equity (deficit) 38,975 42,026 (19,574) (45,218) 16,209
-------- -------- ------- --------- --------
Total Liabilities
and Stockholder's
Equity $413,701 $145,203 $24,230 $(159,910) $423,224
======== ======== ======= ========== ========
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
-------- ------- ------- ---- --------
Income before
income taxes 19,925 817 1,325 (91) 21,976
Provision for
income taxes 8,012 26 237 - 8,275
-------- ------- ------- ---- --------
Net income $ 11,913 $ 791 $ 1,088 $(91) $ 13,701
======== ======= ======= ===== ========
Supplemental Condensed Consolidating Statement of Operations
Three Months Ended December 1, 2001
---------------------------------------------------------------------
ICON Combined Combined
Health & Guarantor Non-Guarantor
Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $192,656 $58,889 $13,086 $ - $264,631
Cost of sales 148,279 38,906 8,639 (179) 195,645
-------- ------- ------- ----- --------
Gross profit 44,377 19,983 4,447 179 68,986
Total operating
expenses 16,642 21,514 3,808 - 41,964
-------- ------- ------- ----- --------
Income (loss) from
operations 27,735 (1,531) 639 179 27,022
Interest expense 5,692 642 544 - 6,878
Amortization of
deferred financing
fees 888 - - - 888
-------- ------- ------- ----- --------
Income (loss)
before taxes 21,155 (2,173) 95 179 19,256
Provision (benefit)
for income taxes 9,311 (960) (105) - 8,246
-------- -------- ------- ----- --------
Net income (loss) $ 11,844 $(1,213) $ 200 $ 179 $ 11,010
======== ======== ======= ===== ========
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
-------- -------- ------- ----- --------
Income (loss)
before taxes 17,138 (368) 776 (199) 17,347
Provision for
income taxes 6,802 48 237 - 7,087
-------- -------- ------- ----- --------
Net income (loss) $ 10,336 $ (416) $ 539 $(199) $ 10,260
======== ========= ======= ====== ========
Supplemental Condensed Consolidating Statement of Operations
Six Months Ended December 1, 2001
---------------------------------------------------------------------
ICON Combined Combined
Health & Guarantor Non-Guarantor
Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Net sales $288,785 $91,215 $18,794 $ - $398,794
Cost of sales 219,862 63,548 12,656 (123) 295,943
-------- ------- ------- ----- --------
Gross profit 68,923 27,667 6,138 123 102,851
Total operating
expenses 42,285 31,998 6,127 - 80,410
-------- ------- ------- ----- --------
Income (loss) from
operations 26,638 (4,331) 11 123 22,441
Interest expense 11,652 1,170 908 - 13,730
Amortization of
deferred financing
fees 1,752 - - - 1,752
-------- ------- ------- ----- --------
Income (loss) before
income taxes 13,234 (5,501) (897) 123 6,959
Provision (benefit)
for income taxes 5,289 (1,793) (84) - 3,412
-------- ------- ------- ----- --------
Net income (loss) $ 7,945 $(3,708) $ (813) $ 123 $ 3,547
======== ======== ======== ===== ========
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 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 rate
changes 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
======== ======== ======= ====== ========
Supplemental Condensed Consolidating Statement of Cash Flows
Six Months Ended December 1, 2001
---------------------------------------------------------------------
ICON Combined Combined
Health & Guarantor Non-Guarantor
Fitness,Inc. Subsidiaries Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Operating activities:
Net cash used in operating
activities: $(22,025) $(17,582) $ (726) $ - $(40,333)
-------- -------- ------ ---- --------
Investing activities:
Net cash used in
investing activities: (8,255) (2,298) (318) - (10,871)
-------- -------- ------ ---- --------
Financing activities:
Proceeds from old
credit facility, net 59,522 - - - 59,522
Payments on old
term notes (5,659) - - - (5,659)
Payments on other
long-term debt - (15) - - (15)
Payment of fees-debt (444) - - - (444)
Other (22,525) 21,694 831 - -
-------- -------- ------ ---- --------
Net cash provided by
financing activities: 30,894 21,679 831 - 53,404
-------- -------- ------ ---- --------
Effect of exchange rate
changes on cash - (242) 178 - (64)
-------- -------- ------ ---- --------
Net increase (decrease)
in cash 614 1,557 (35) - 2,136
Cash, beginning
of period 1,036 1,192 1,096 - 3,324
-------- -------- ------ ---- --------
Cash, end of period $ 1,650 $ 2,749 $1,061 $ - $ 5,460
======== ======== ====== ==== ========
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Three Months Ended November 30, 2002 Compared to Three Months Ended
December 1, 2001
--------------------------------------------------------------------
Net sales for the second quarter of fiscal 2003 increased $28.1 million, or
10.6%, to $292.7 million from $264.6 million in the comparable period in 2002.
Sales increased primarily due to increased customer demand. Sales of the
Company's cardiovascular and other equipment in the second quarter of fiscal
2003 increased $26.6 million, or 12.1%, to $246.3 million. Sales of the
Company's strength training equipment in the second quarter of fiscal 2003
increased $1.5 million, or 3.3%, to $46.5 million.
Gross profit in the second quarter of fiscal 2003 was $82.0 million, or
28.0% of net sales, compared to $69.0 million, or 26.1% of net sales, in the
second quarter of fiscal 2002. This 18.8% increase was largely due to increased
direct to consumer sales, changes in product mix and manufacturing efficiencies.
Selling expenses increased $7.7 million, or 33.6%, to $30.6 million in the
second quarter of fiscal 2003. This increase reflected increased bad debt
expense associated with the Kmart Corporation bankruptcy filing and increased
direct consumer advertising. Expressed as a percentage of net sales, selling
expenses were 10.5% in the second quarter of fiscal 2003 and 8.7% in the second
quarter of fiscal 2002.
Research and development expenses increased $0.2 million, or 8.3%, to $2.6
million in the second quarter of fiscal 2003. Expressed as a percentage of net
sales, research and development expenses were 0.9% in the second quarter of
fiscal 2003 and fiscal 2002.
General and administrative expenses increased $3.4 million, or 20.4%, to
$20.1 million in the second quarter of fiscal 2003. 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 6.9% in the second quarter of
fiscal 2003 and 6.3% in the second quarter of fiscal 2002.
As a result of the foregoing factors, operating income increased $1.7
million, or 6.3%, to $28.7 million in the second quarter of fiscal 2003.
Expressed as a percentage of net sales, operating income was 9.8% in the second
quarter of fiscal 2003 compared with 10.2% in the second quarter of fiscal 2002.
As a result of the foregoing factors, EBITDA was $32.7 million, or 11.2% of
net sales, in the second quarter of fiscal 2003, compared to $31.3 million, or
11.8% of net sales, in the second quarter of fiscal 2002.
Interest expense including amortization of deferred financing fees
decreased $1.1 million, or 14.1%, to $6.7 million for the second quarter of
fiscal 2003. This decrease reflects lower interest rates during the 2003 period.
Expressed as a percentage of net sales, interest expense including amortization
of deferred financing fees was 2.3% in the second quarter of fiscal 2003 and
2.9% in the second quarter of fiscal 2002.
The provision for income taxes was $8.3 million for the second quarter of
fiscal 2003, compared to a provision of $8.2 million in the second quarter of
fiscal 2002. Income tax expense, as a percentage of pre-tax income, was 37.7% in
the second quarter of fiscal 2003, compared to 42.5% in the second quarter of
fiscal 2002. The change in the effective tax rate was primarily the result of
adjustments from an Internal Revenue Service audit where previously deducted
expenses were capitalized and are being amortized over a fifteen year period.
As a result of the foregoing factors, net income was $13.7 million for the
second quarter of fiscal 2003, compared to net income in the second quarter of
fiscal 2002 of $11.0 million, an increase of 24.5% over the same period last
year.
Six Months Ended November 30, 2002 Compared to Six Months Ended December 1, 2001
- --------------------------------------------------------------------------------
During the first six months of fiscal 2003, net sales increased $64.2
million, or 16.1%, to $463.0 million from $398.8 million in the first six months
of fiscal 2002. Sales increased primarily due to customer demand. Sales of the
Company's cardiovascular and other equipment in the first six months of fiscal
2003 increased $64.9 million or 19.8%, to $393.0 million. Sales of the Company's
strength training equipment in the first six months of fiscal 2003 decreased
$0.8 million, or 1.2%, to $69.9 million.
Gross profit for the first six months of fiscal 2003 was $125.4 million, or
27.1% of net sales, compared to $102.9 million, or 25.8% of net sales, for the
first six months of fiscal 2002. This 21.9% increase was largely due to
increased direct to consumer sales, changes in product mix and manufacturing
efficiencies.
Selling expenses increased $9.3 million, or 21.2%, to $53.1 million in the
first six months of fiscal 2003. This increase reflected increased bad debt
expense associated with the Kmart Corporation bankruptcy filing and increased
direct consumer advertising. Expressed as a percentage of net sales, selling
expenses were 11.5% in the first six months of fiscal 2003 and 11.0% in the
first six months of fiscal 2002.
Research and development expenses decreased $0.2 million, or 3.7%, to $5.2
million in the first six months of fiscal 2003. Expressed as a percentage of net
sales, research and development expenses were 1.1% in the first six months of
fiscal 2003 and 1.4% in the first six months of fiscal 2002.
General and administrative expenses increased $5.1 million, or 16.3%, to
$36.3 million in the first six months of fiscal 2003. 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 7.8% in the first six months of
fiscal 2003 and fiscal 2002.
As a result of the foregoing factors, operating income increased $8.4
million, or 37.5%, to $30.8 million in the first six months of fiscal 2003.
Expressed as a percentage of net sales, operating income was 6.7% in the first
six months of fiscal 2003 compared with 5.6% in the second quarter of fiscal
2002.
As a result of the foregoing factors, EBITDA was $39.0 million, or 8.4% of
net sales, in the first six months of fiscal 2003, compared to $31.2 million, or
7.8% of net sales, in the first six months of fiscal 2002.
Interest expense including amortization of deferred financing fees
decreased $2.1 million, or 13.5%, to $13.4 million in the first six months of
fiscal 2003. This decrease reflects lower interest rates during the 2003 period.
Expressed as a percentage of net sales, interest expense including amortization
of deferred financing fees was 2.9% in the first six months of fiscal 2003 and
3.9% in the first six months of fiscal 2002.
The provision for income taxes was $7.1 million for the first six months of
fiscal 2003, compared to a provision of $3.4 million for the first six months of
fiscal 2002. Income tax expense, as a percentage of pre-tax income, for the six
month period ended November 30, 2002, was 41.0%, compared to 48.6% in the six
month period ended December 1, 2001. The change in the effective tax rate was
primarily the result of adjustments from an Internal Revenue Service audit where
previously deducted expenses were capitalized and are being amortized over a
fifteen year period.
As a result of the foregoing factors, net income was $10.3 million for the
first six months of fiscal 2003, compared to net income in the first six months
of fiscal 2002 of $3.5 million, an increase of 194.3% over the same period last
year.
Seasonality
The following are the net sales, net income (loss) and EBITDA by quarter
for fiscal years 2003, 2002 and 2001:
First Second Third Fourth
Quarter(1) Quarter(2) Quarter(3) Quarter(4)
---------- ---------- ---------- ----------
(dollars in millions)
Net Sales (5) $170.2 $292.7 $ - $ -
2002 134.2 264.6 296.0 176.6
2001 125.9 267.6 247.6 155.9
Net Income (Loss) (3.4) 13.7 - -
2002 (7.5) 11.1 25.5 (9.7)
2001 (8.2) 11.7 10.8 (1.0)
EBITDA
2003 6.3 32.7 - -
2002 (0.1) 31.3 38.7 5.8
2001 1.6 34.2 32.2 4.1
- -----------
<FN>
(1) The Company's first quarter ended August 31, September 1, and September 2
for fiscal years 2003, 2002 and 2001, respectively.
(2) The Company's second quarter ended November 30, December 1, and December 2
for fiscal years 2003, 2002 and 2001, respectively.
(3) The Company's third quarter ended March 2 and March 3 for fiscal years 2002
and 2001, respectively.
(4) The Company's fourth quarter ended May 31 for the fiscal years 2002 and
2001, respectively.
(5) In November of 2001, the Emerging Issues Task Force issued EITF 01-09,
Accounting for Consideration Given by a 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. The Company
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 (5)
2003 $175.8 $301.5 $ - $ -
2002 138.1 272.1 304.9 181.0
2001 129.5 276.0 254.6 160.4
</FN>
The Company sells a majority of its products to customers in its second
and third fiscal quarters (i.e., from September through February). Increased
sales and distribution typically occur in the Christmas retail season and the
beginning of a new calendar year because of increased promotions by the
Company's retail customers, increased consumer purchases and seasonal changes
that prompt people to exercise inside. If actual sales for a quarter do not meet
or exceed projected sales for that quarter, expenditures and inventory levels
could be disproportionately high for such quarter and the Company's cash flow
for that quarter and future quarters could be adversely affected. The timing of
large orders from customers and the mix of products sold may also contribute to
periodic fluctuations.
Liquidity and Capital Resources
Net cash used in operating activities was $74.0 million in the first six
months of fiscal 2003, compared to $40.3 million of cash used in operating
activities in the first six months of fiscal 2002. 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
expenses of $59.7 million. These changes were offset by increases in inventories
of $66.8 million and accounts receivable of $93.2 million. These changes are due
to the Company's increasing 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 2002,
major sources of funds were non-cash provisions of $8.7 million for depreciation
and amortization, an increase in accounts payable and accrued expenses of $45.2
million. These increases were offset by increases in inventories of $24.8
million and accounts receivable of $75.1 million. Such increases were due to the
aforementioned factors relating to sales increases.
Net cash used in investing activities was $11.9 million in the first six
months of fiscal 2003, compared to $10.9 million in the first six months of
fiscal 2002. Investing activities in the first six months of fiscal 2003
consisted primarily of capital expenditures of $9.5 million related to upgrades
in plant and tooling, purchases of additional manufacturing equipment and
purchases of intangibles of $2.5 million. Cash used in investing activities in
the first six months of fiscal 2002 was primarily for capital expenditures of
$7.1 million and purchases of intangibles of $3.3 million.
Net cash provided by financing activities was $86.8 million in the first
six months of fiscal 2003, compared to $53.4 million of cash provided by
financing activities in the first six months of fiscal 2002. Cash provided by
financing activities resulted from the Company's net borrowings on its existing
credit facilities.
On January 22, 2002, Kmart, a customer for over a decade, filed for
bankruptcy protection. At the time of the filing, the Company had $12.1 million
of unsecured accounts receivable outstanding with Kmart. As of November 30,
2002, the Company had a dedicated reserve of $6.1 million against these
receivables. The Company recognizes that a considerable amount of judgment is
required to assess the ultimate realization of accounts receivable, and
therefore, re-evaluates the collectibility of these pre-petition receivables
from Kmart on a continuous basis. Additional adjustments for Kmart and other
potentially uncollectible accounts receivable may be appropriate in future
periods. For the six month period ending November 30, 2002, the Company had net
sales to Kmart of $21.5 million, representing approximately 4.6% of total net
sales for that six month period. In the first six months of fiscal 2002, the
Company had net sales to Kmart of approximately $30.6 million, representing
approximately 7.7% of total net sales for that period. Kmart has secured debtor
in possession financing and continues to operate in bankruptcy. The Company
resumed shipments to Kmart as of February 5, 2002 with payment terms of 30 days,
reduced from 60 days.
The Company's primary short-term liquidity needs consist of financing
seasonal merchandise inventory buildups and paying cash interest expense under
its existing credit facilities and on the 11.25% subordinated notes due in April
2012. The Company's principal source of financing for its seasonal merchandise
inventory buildup and increased accounts receivable is revolving credit
borrowings under its existing credit facilities. At November 30, 2002, the
Company had $40.8 million of availability under these facilities. The Company's
working capital borrowing needs are typically at its 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 Christmas and post-holiday selling season.
Generally, in the period from November through February, working capital
borrowings remain at its highest level and then are paid down to its lowest
annual levels from April through August.
In connection with the Company's debt refinancing in April 2002, the
Company entered into its existing credit facility totaling $235.0 million of
revolving and term loans with a syndicate of banks and financial services
companies.
Proceeds of the Company's existing credit facility were used to refinance
the Company's then existing senior credit facilities and 12% senior subordinated
notes due 2005, to fund transaction fees and expenses, and to provide general
working capital.
The Company has a significant amount of indebtedness. The Company's
consolidated indebtedness consists of the following (table in thousands):
November 30, 2002 May 31, 2002
----------------- ------------
Revolver $169.2 $ 79.3
Term Loan 21.3 23.8
11.25% Senior Subordinated Notes 152.9 152.8
------ ------
$343.4 $255.9
====== ======
The Company's ability to make scheduled payments of principal, or to pay
the interest, or to refinance its indebtedness, including the 11.25% Notes,
or to fund planned capital expenditures will depend on its ability to generate
cash in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond the Company's control.
Based on the Company's current level of operations, management believes
that cash flow from operations and available cash, together with available
borrowings under the Company's new credit facility, will be adequate to meet
future liquidity needs for at least the next few years. The Company may,
however, need to refinance all or a portion of the principal amount of the notes
on or prior to maturity.
The Company cannot assure you that its business will generate sufficient
cash flow from operations, or that future borrowings will be available under its
new credit facility in an amount sufficient to enable the Company to service its
indebtedness, including the 11.25% Notes, or to fund its other liquidity needs.
In addition, the Company cannot assure you that it will be able refinance any of
its indebtedness, including the new credit facility and the 11.25% Notes, on
commercially reasonable terms or at all.
Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which
provides a comprehensive standard of accounting for business combinations. SFAS
141 is effective for all business combinations after June 30, 2001. In June
2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets,"
which requires a change in accounting for goodwill and certain other intangible
assets. SFAS 142 is effective for fiscal years beginning after December 15,
2001.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which establishes accounting standards for the
recognition and measurement of an asset retirement obligation and its associated
asset retirement cost. SFAS 143 is effective for fiscal years beginning after
June 15, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" which supercedes SFAS No. 121 and requires that
one accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. SFAS 144 broadens the
presentation of discontinued operations to include more disposal transactions.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FAS Nos. 4, 44
and 64, Amendment of FAS 13 and Technical Corrections as of April 2002", which
rescinds FAS Nos. 4, 44 and 64 and amends other existing authoritative
pronouncements to make various technical corrections, clarify meaning, or
describe their applicability under changed conditions. SFAS No. 145 is effective
for fiscal years beginning after May 15, 2002 and will require the modification
of prior financial statements to reclassify the 2002 loss on debt extinguishment
from extraordinary to income from continuing operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses significant issues
relating to the recognition, measurement, and reporting of costs associated with
exit and disposal activities. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002.
Based on current circumstances, except for SFAS 145, the Company believes
that the application of the new accounting rules described above will not have a
material impact on its financial statements.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Fluctuations in the general level of interest rates on the Company's
current and future fixed and variable rate debt obligations expose it to market
risk. The Company is vulnerable to significant fluctuations in interest rates on
its variable rate debt and on any future repricing or refinancing of its fixed
rate debt and on future debt.
The Company uses long-term and medium-term debt as a source of capital. At
November 30, 2002, the Company had approximately $152.9 million in outstanding
fixed rate debt, consisting of 11.25% subordinated notes maturing in April 2012.
When debt instruments of this type mature, the Company typically refinances such
debt at the then-existing market interest rates, which may be more or less than
the interest rates on the maturing debt.
The Company's credit facility has variable interest rates and any
fluctuation in interest rates could increase or decrease its interest expense.
At November 30, 2002, the Company had approximately $190.5 million in
outstanding variable rate debt.
Due to the uncertainty of fluctuations in interest rates and the specific
actions that might be taken by the Company to mitigate the impact of such
fluctuations and their possible effects, the Company assumes no changes in its
financial structure.
The Company imports certain finished products and components from Canada
and Asia. All purchases from Asia have been fixed in United States dollars and,
therefore, the Company is not subject to foreign currency fluctuations on such
purchases, although the Company's vendors may respond to foreign currency
fluctuations by seeking to raise their prices. U.S. purchases of inventory from
Canada are settled in Canadian dollars and therefore the Company is subject to
fluctuations in the value of the Canadian dollar, which could have an impact on
the Company's operating results. In addition, European purchases of inventory
from Canada and the U.S. are settled in U.S. and Canadian dollars and,
therefore, are subject to fluctuations in the value of the U.S. and Canadian
dollars, which also could have an impact on the Company's operating results. In
connection with the importation of products and components from Canada, the
Company from time to time engages in hedging transactions by entering into
forward contracts for the purchase of Canadian dollars, which are designed to
protect against such fluctuations. The Company's hedging transactions do not
subject it to exchange rate risk because gains and losses on these contracts
offset losses and gains on the transaction being hedged.
As of November 30, 2002, the Company had no open forward exchange contracts
to sell Canadian dollars. During the first six months of fiscal years 2001 and
2002, the Company recognized no significant gains or losses upon settlement of
foreign currency transactions denominated in Canadian dollars.
Item 4 Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive officer, Chief Operating Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's 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 a date within 90
days prior to the filing date of this quarterly report (the "Evaluation Date").
Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures are effective
in alerting them, on a timely basis, to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic filings under the Exchange Act.
(b) Changes in Internal Controls. Since the Evaluation Date, there have not been
any significant changes in the Company's internal controls or in other factors
that could significantly affect such controls.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See note B
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
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 Health & Fitness, Inc.
(Registrant)
By /s/ Gary E. Stevenson Date: January 14, 2003
-----------------------
Gary E. Stevenson
Chief Operating Officer
By /s/ S. Fred Beck Date: January 14, 2003
-----------------------
S. Fred Beck
Chief Financial Officer
CERTIFICATION
--------------
I, Scott R. Watterson, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, 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 in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By /s/ Scott R. Watterson Date: January 14, 2003
- -------------------------
Scott R. Watterson
Chief Executive Officer
CERTIFICATION
--------------
I, Gary E. Stevenson, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, 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 in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By /s/ Gary E. Stevenson Date: January 14, 2003
- ------------------------
Gary E. Stevenson
Chief Operating Officer
CERTIFICATION
--------------
I, S. Fred Beck, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, 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 in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
By /s/ S. Fred Beck Date: January 14, 2003
- -----------------------
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