ICON Health & Fitness Reports Financial Results for the Second Fiscal
Quarter 2004 Ended November 29, 2003
For the second quarter ended November 29, 2003, ICON reported net sales of
$331.8 million, compared to $292.7 million for the second quarter ended November
30, 2002, which represents a $39.1 million, or 13.4%, increase over the
prior-year quarter. For the six months ended November 29, 2003, ICON reported
net sales of $529.6 million, compared to $463.0 million for the six months ended
November 30, 2002, which represents a $66.6 million, or 14.4%, increase over the
prior year six month period. The increase in sales was not attributable to a
single customer, distributor or any other specific factor. The increase was
across all product lines for which there was increased demand, particularly
direct to consumer sales.
Net income for the three-month period ended November 29, 2003 was $15.4 million,
compared to a net income of $13.7 million for the three-month period ended
November 30, 2002. Net income before taxes for the three-month period ended
November 29, 2003 was $24.5 million, compared to a net income before taxes of
$22.0 million for the three-month period ended November 30, 2002. The provision
for taxes for the three-month period ended November 29, 2003 was $9.1 million
compared to a provision of $8.3 million in the three-month period ended November
30, 2002. Depreciation and amortization for the three-month period ended
November 29, 2003 was $5.6 million compared to $4.0 million for the three-month
period ended November 30, 2002. Interest expense, including amortization of
deferred financing fees, for the three-month period ended November 29, 2003 and
November 30, 2002 was $6.7 million.
Net income for the six month period ended November 29, 2003 was $13.7 million,
compared to net income of $10.3 million for the corresponding period ended
November 30, 2002. This increase resulted primarily from increased sales and
improved gross margins. The improved gross margin was a result of increased
direct to consumer sales, changes in product mix and manufacturing efficiencies
in both the first and second quarters of fiscal 2004. Income before taxes for
the six month period ended November 29, 2003 was $23.2 million, compared to
income before taxes of $17.3 million for six month period ended November 30,
2002. The provision for taxes for the six month period ended November 29, 2003
was $9.5 million compared to a provision of $7.1 million in the six month period
ended November 30, 2002. Depreciation and amortization for the six month period
ended November 29, 2003 was $11.1 million versus the prior year's comparable
period depreciation and amortization of $8.2 million. Interest expense,
including amortization of deferred financing fees, for the six month period
ended November 29, 2003 was $12.7 million versus the prior year's comparable
period interest expense and deferred financing fees of $13.4 million.
The market for exercise equipment is highly seasonal, with peak periods
occurring from late fall through February. As a result, the first and fourth
quarters of every year are generally the Company's weakest periods in terms of
sales. During these periods, ICON builds product inventory to prepare for the
heavy demand anticipated during the upcoming peak season. This operating
strategy helps ICON to realize the efficiencies of a steady pace of year-round
production.
The Company has established earnings before net interest expense, income taxes,
depreciation and amortization ("EBITDA") as an indicator of operating
performance and as a measure of cash generating ability. EBITDA for the
three-month period ended November 29, 2003 was $36.8 million, or 11.1% of net
sales, compared to $32.7 million, or 11.2% of net sales, for the three-month
period ended November 30, 2002. This increase resulted primarily from increased
customer demand for the Company's products. Management considers EBITDA to be
one measure of the cash flows from operations of the Company before debt service
that provides a relevant basis for comparison, and EBITDA is presented to assist
investors in analyzing the performance of the Company. This information should
not be considered as an alternative to any measure of performance as promulgated
under accounting principles generally accepted in the United States, nor should
it be considered as an indicator of the overall financial performance of the
Company. The Company's calculation of EBITDA may be different from the
calculation used by other companies and, therefore, comparability may be
limited.
The following is a reconciliation of net income (loss) to EBITDA for the three
month period and the six month period ended November 29, 2003:
Three months Six months
------------ ----------
ended November 29, 2003
Net income $15.4 $13.7
Add back:
Depreciation and amortization 5.6 11.1
Provision for income tax 9.1 9.5
Interest expense 6.4 12.4
Amortization of deferred
financing fees 0.3 0.3
--------- ---------
EBITDA $36.8 $47.0
===== =====
ended November 30, 2002
Net income $13.7 $10.3
Add back:
Depreciation and amortization 4.0 8.2
Provision for income tax 8.3 7.1
Interest expense 6.5 12.9
Amortization of deferred
financing fees 0.2 0.5
--------- ---------
EBITDA $32.7 $39.0
===== =====
Total assets for the three-month period ended November 29, 2003 and the fiscal
year ended May 31, 2003 were $656.4 million and $465.1 million, respectively.
This increase represents a higher account receivable balance related to overall
sales increases particularly direct to consumer sales and higher raw materials
on hand directly related to production for the upcoming busy season. Management
believes the current level of inventory reflects normal seasonal production
activities. Net debt (current portion of long-term debt plus long-term debt less
cash) for the six-month period ended November 29, 2003 and the fiscal year ended
May 31, 2003 was $328.5 million and $239.6 million, respectively. This increase
represents the build up of inventory for the busy season. Capital expenditures
for the six months ended November 29, 2003 were $9.1 million versus the prior
year's comparable period capital expenditures of $9.5 million. Capital
expenditures on the manufacturing facility in China for the six month period
ended November 29, 2003 were $3.1 million.
ICON Health & Fitness, Inc. will hold a conference call with investors on
Wednesday, January 14th; at 4:30 p.m. EST to discuss its financial results for
the second quarter of fiscal 2004 filed on Form 10-Q with the Securities and
Exchange Commission on January 13, 2004. The Form 10-Q can be accessed at
www.sec.gov. ICON Chairman and CEO, Scott Watterson, President and COO, Gary
Stevenson and CFO, Fred Beck will co-host the call.
To participate by phone, please dial 888-323-9686. Callers should ask to be
connected to the ICON Health & Fitness earnings conference call.
ICON Health & Fitness, Inc. is the world's largest manufacturer and marketer of
fitness equipment. The company is headquartered in Logan, Utah and has more than
5,000 employees worldwide. ICON develops, manufactures and markets fitness
equipment under the following company-owned brand names: NordicTrack, ProForm,
HealthRider, Weslo, Weider, IMAGE and Free Motion, as well as Reebok and Gold's
Gym under license.
This press release contains forward-looking statements that involve a variety of
business risks and other uncertainties that could cause actual results to differ
materially. These risks and uncertainties include the possibility of changes or
fluctuations in global economic conditions; currency exchange rates; product
demand and industry capacity; competitive products and pricing; availability and
costs of critical components and materials; new product development and
commercialization; order activity and demand from major customers; capital
spending by larger customers in the telecommunications industry and other
business segments; the mix of sales between premium and non-premium products;
possible disruption in commercial activities due to terrorist activity and armed
conflict; ability to obtain financing and capital on commercially reasonable
terms; acquisition and divestiture activities; the level of excess or obsolete
inventory; the ability to enforce patents; product and components performance
issues; and litigation. These and other risk factors are identified in ICON's
filings with the Securities and Exchange Commission. Forward-looking statements
speak only as of the day that they are made, and ICON undertakes no obligation
to update them in light of new information or future events.
For more information, please contact:
Fred Beck
CFO and Treasurer
Tel. (1) 435 750 5000
fbeck@iconfitness.com