ICON Health & Fitness, Inc. reported net sales dipped 1.8% to $301.3 million for the fiscal third quarter ended February 26, compared to $306.9 million for the three months ended February 28, 2004. Sales of cardiovascular and other equipment increased 11.2%, to $264.6 million, while sales of strength training equipment 46.7% to $36.7 million.
Net loss for the quarter was $0.8 million, compared to net income of $18.2 million for the three months ended February 28, 2004. Net loss before taxes and discontinued operations for the three months ended February 26, 2005 was $3.0 million, compared to a net income before taxes and discontinued operations of $25.5 million for the three months ended February 28, 2004.
The provision for taxes for the three months ended February 26, 2005 was $1.9 million compared to a provision of $5.7 million in the three months ended February 28, 2004. Depreciation and amortization for three months ended February 26, 2005 was $6.4 million compared to $6.1 million for the three months ended February 28, 2004. Interest expense, including amortization of deferred financing fees, for the three months ended February 26, 2005 was $8.3 million versus the prior year's comparable period interest expense and amortization of deferred financing fees of $6.7 million. The loss from discontinued operations for the three months ended February 26, 2005 net of a tax benefit of $3.8 million was $2.0 million compared to a loss on discontinued operations of $1.6 million net of tax benefit of $0.5 million for the three months ended February 28, 2004.
For the nine months ended February 26, 2005, ICON reported net sales of $707.4 million, compared to $780.2 million for the nine months ended February 28, 2004, which represents a $72.8 million, or 9.3%, decrease over the corresponding nine-month period ended February 28, 2004. Due to the historically high sales for the nine-month period ended February 28, 2004 and weak demand, sales were lower in the nine-month period ended February 26, 2005.
During the second quarter of fiscal 2005, management determined that the Company's JumpKing, Inc. (“JumpKing”) subsidiary would discontinue manufacturing, marketing and distributing all outdoor recreational equipment (“outdoor recreational equipment operations”) which includes trampolines, spas and other non-exercise related products. The outdoor recreational equipment operations have been classified as a discontinued operation and its expenses are not included in the results of continuing operations. The results of operations for the nine months ended February 26, 2005 for the outdoor recreational equipment operations have been reclassified to loss from discontinued operations. As of February 26, 2005, the Company has approximately $17.3 million of assets that have been written down which consist of inventory of approximately $15.9 million and fixed assets of approximately $1.3 million. The loss from operations, net of tax, for the outdoor recreational equipment was $25.2 million and $3.8 million for the nine months ended February 26, 2005 and February 28, 2004 respectively. The Company expects to complete this discontinuation of its outdoor recreational operations by the second quarter of fiscal 2006. The outdoor recreational equipment operations were not part of the Companys core business operations or its strategic focus. The outdoor recreational operations were not making a positive contribution to the Companys earnings and also required a substantial investment in working capital.
Net loss for the nine months ended February 26, 2005 was $39.7 million, compared to net income of $31.9 million for the nine months ended February 28, 2004. Net loss before taxes for the nine months ended February 26, 2005 was $24.1 million, compared to a net income before taxes of $52.2 million for the nine months ended February 28, 2004. The benefit from taxes for the nine months ended February 26, 2005 was $9.5 million compared to a provision of $16.5 million in the nine months ended February 28, 2004. Depreciation and amortization for the nine months ended February 26, 2005 was $17.8 million compared to $16.8 million for the nine months ended February 28, 2004. Interest expense, including amortization of deferred financing fees, for the nine months ended February 26, 2005 was $22.0 million versus the prior year's comparable period interest expense and amortization of deferred financing fees of $19.4 million. The loss from discontinued operations for the nine months ended February 26, 2005 net of a tax benefit of $16.7 million was $25.2 million compared to a loss on discontinued operations of $3.8 million net of tax benefit of $1.8 million for the nine months ended February 28, 2004.
The market for exercise equipment is highly seasonal, with peak periods occurring from late fall through early spring. 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, the Company builds product inventory to prepare for the heavy demand anticipated during the peak season. This operating strategy helps the Company to realize the efficiencies of a steady pace of year-round production.
The Company defines EBITDA as income before interest expense, income tax expense, depreciation and amortization and certain non-recurring items. The loss on discontinuing operations incurred in the nine months ended February 26, 2005 meets the definition of “non-recurring” in relevant SEC guidelines. EBITDA for the three months ended February 26, 2005 was $17.8 million compared to $38.3 million for the three months ended February 28, 2004. EBITDA for the nine months ended February 26, 2005 was $15.8 million compared to $88.4 million for the nine months ended February 28, 2004.
