ICON Swings to Q3 Profit Despite Revenue Decline

ICON Health & Fitness, Inc. reported net sales decreased
3.9% to $299.4 million for the fiscal third quarter ended
March 4 from $311.5 million for the same period last year. Sales of cardiovascular and other equipment decreased 1.4% to $250.2 million. Sales of strength training equipment decreased 14.9% to $49.2 million. The decrease in product sales was primarily due to lower customer demand for certain products.

Gross profit in the quarter was $86.1 million, or 28.8% of net sales, compared to $80.3 million, or 25.8% of net sales, in the three months ended February 26, 2005. The increase was primarily due to the timely release of products, manufacturing efficiencies and reductions in air freight.

Selling expenses decreased $3.7 million, or 8.9%, to $38.0 million in the three months ended March 4, 2006. This decrease includes lower advertising, salaries and wages, commissions and bad debt expenses of approximately $14.1 million offset by increases in freight and transportation costs of approximately $8.2 million. Expressed as a percentage of net sales, selling expenses were 12.7% in the three months ended March 4, 2006 compared to 13.4% in the three months ended February 26, 2005.

Research and development expenses in the three months ended March 4, 2006 were $2.9 million, compared to $3.0 million in the three months ended February 26, 2005. Expressed as a percentage of net sales, research and development expenses were 1.0% in the three months ended March 4, 2006 and 1.0% in the three months ended February 26, 2005.

General and administrative expenses decreased $2.0 million, or 8.1%, to $22.8 million in the three months ended March 4, 2006. These decreases include lower salaries and wages, rent and lease expenses and depreciation and amortization of approximately $5.6 million offset by increases in currency transaction losses, professional services and contract labor expenses of approximately $2.0 million. Expressed as a percentage of net sales, general and administrative expenses were 7.6% in the three months ended March 4, 2006 and 8.0% in the three months ended February 26, 2005.

As a result of the foregoing factors, income from operations was $22.4 million in the three months ended March 4, 2006 compared to income from operations of $10.8 million in the three months ended February 26, 2005.

As a result of the foregoing factors, EBITDA increased by $10.4 million to $27.7 million in the three months ended March 4, 2006 compared to EBITDA of $17.3 million in the three months ended February 26, 2005.

Net income for the three months ended March 4, 2006 was $10.3 million, compared to a net loss of $0.8 million for the three months ended February 26, 2005.

For the nine months period, the company reported net sales of $709.1 million, compared to $729.5 million for the nine months of last year, which represents a $20.4 million, or 2.8%, decrease over the corresponding six-month period ended February 26, 2005. The decrease in product sales was primarily due to lower customer demand for certain products.

Net loss for the nine months ended March 4, 2006 was $20.4 million, compared to a net loss of $39.7 million for the nine months ended February 26, 2005.

Total assets as of March 4, 2006 and May 31, 2005 were $466.2 million and $460.7 million, respectively. The increase in assets was primarily attributable to the increases in accounts receivable. Accounts receivable increased as a result of the Company entering into its peak periods for sales. Net debt (current portion of long-term debt plus long-term debt less cash) for the nine-month period ended March 4, 2006 and the fiscal year ended May 31, 2005 was $325.4 million and $282.1 million, respectively. This increase represents the amounts to fund operating activities for the period, including capital expenditures purchases which were $7.7 million compared to capital expenditures of $16.1 million in the nine months ended February 26, 2005.