In its statement filed with the Securities and Exchange Commission last week, Logan, Utah-based, Icon Health & Fitness reported net income in the third quarter ended March 1 of $20.3 million compared to net income in the third quarter a year ago of $25.5 million.
Net sales for the 2003 third quarter were $344 million, however, up from net sales a year ago of $296 million. Cost of sales totaled $237.8 million compared to last year's cost of $210.4 million. Operating expenses also were up significantly -- reaching just over $68.5 million versus $51.8 million a year ago.
"The war in Iraq, the terrorist attacks on the United States and other acts of violence have created immediate significant economic and political uncertainty," wrote the management in its discussion in the filing. "The long-term effects of the war and such other attacks on the world economy and the company's business are unknown, but could be material."
Sales increased primarily due to increased customer demand, the statement said. Sales of the company's cardiovascular and other equipment in the third quarter of fiscal 2003 increased $13 million, or 4.8 percent, to $283.4 million. Sales of strength-training equipment in the third quarter of fiscal 2003 increased $19.5 million, or 47.4 percent, to $60.6 million.
Selling expenses increased $13.6 million, or 46.1 percent, to $43.1 million in the third quarter. This increase reflected increased bad debt expense associated with the pre-bankruptcy receivables of Kmart of $5.4 million and increased direct consumer advertising and commissions. Expressed as a percentage of net sales, selling expenses were 12.5 percent in the third quarter of fiscal 2003 and 10 percent in the third quarter of fiscal 2002. Absent the Kmart bad debt expense, selling expenses were 11 percent in the third quarter of fiscal 2003.
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SNEWS View: With this statement summing up the quarter ended March 1, it was a tad soon to be blaming the war for a depressed state of income, considering the war didn't start until a few weeks later. But Icon has suffered in Kmart's financial woes and analysts have said that lower-end equipment may suffer since lower-income buyers will be the ones who put off a purchase in a questionable economy. Nevertheless, taking Kmart out of the picture, selling expense still inched up by a percent.