UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
--------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the quarterly period ended 3/31/97.
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 0-4538
CYBEX INTERNATIONAL, INC.
-------------------------
(Exact name of registrant as specified in its charter)
New York 11-1731581
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2100 Smithtown Avenue, Ronkonkoma, New York 11779
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (516) 585-9000
------------------------------
Indicate by check mark 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 [ ]
On March 31, 1997, the registrant had outstanding 4,381,555 shares of Common
Stock, par value $.10 per share, which is the registrant's only class of common
stock.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
<TABLE>
<CAPTION>
CYBEX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Dollars in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1996 1997
------------- -------------
<S> <C> <C>
Net Sales $20,076 $18,297
Cost of sales 12,076 10,863
------------- -------------
Gross profit 8,000 7,434
Selling, general and administrative expenses 7,889 7,537
------------- -------------
Operating income (loss) 111 (103)
Interest expense (585) (101)
Interest income 65 200
Income from joint venture -- 50
------------- -------------
(Loss) income from continuing operations
before income tax provision (409) 46
Income tax provision -- 8
------------- -------------
(LOSS) INCOME FROM CONTINUING OPERATIONS (409) 38
Loss from discontinued operations, net (414) --
------------- -------------
NET (LOSS) INCOME $ (823) $ 38
============= =============
(LOSS) INCOME PER SHARE OF COMMON STOCK:
Continuing operations $ (.09) $ .01
Discontinued operations (.10) --
------------- -------------
NET (LOSS) INCOME $ (.19) $ .01
============= =============
</TABLE>
See notes to consolidated condensed financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
CYBEX INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(UNAUDITED)
DECEMBER 31, MARCH 31,
1996 1997
------------------ --------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 7,068 $ 5,266
Accounts receivable 20,364 17,378
Inventories 9,934 9,136
Lease receivables 2,144 2,018
Property held for sale 3,051 3,011
Refundable income taxes 2,718 2,938
Other current assets 3,729 4,971
--------------- --------------
Total Current Assets 49,008 44,718
Property, plant and equipment 9,658 9,892
Lease receivables 2,270 4,144
Intangible assets 1,215 1,094
Other assets 1,336 669
--------------- --------------
$63,487 $60,517
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 3,776 $ 3,610
Accounts payable 7,136 5,613
Other current liabilities 13,467 12,368
--------------- --------------
Total Current Liabilities 24,379 21,591
Deferred income taxes 1,584 1,584
Long-term debt 1,986 1,721
Stockholder's Equity
Common Stock, $.10 par value authorized 15,000,000 shares,
issued 4,510,068 in 1996 and 4,511,994 in 1997 451 451
Capital surplus 17,591 17,606
Retained earnings 19,252 19,290
Treasury stock at cost (131,689 shares in 1996
and 130,439 shares in 1997) (1,531) (1,517)
Unearned compensation expense (225) (209)
--------------- --------------
Total Stockholders' Equity 35,538 35,621
--------------- --------------
$63,487 $60,517
=============== ==============
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CYBEX INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Dollars in thousands)
(unaudited)
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1996 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income $ (823) $ 38
Adjustments to reconcile net (loss) income to net cash used
in operating activities:
Depreciation and amortization 734 615
Net changes in operating assets and liabilities (3,862) (2,434)
Change in net assets of discontinued operations (1,319) --
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (5,270) (1,781)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net (176) (642)
Proceeds from sales and maturities of investments 2,476 --
Purchases of intangible assets (30) (1)
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,270 (643)
FINANCING ACTIVITIES:
Proceeds from sales of lease receivables 2,473 1,054
Principal payments of long-term debt (1,150) (432)
Exercise of stock options 153 --
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,476 622
------------- -------------
DECREASE IN CASH (1,524) (1,802)
CASH AND CASH EQUIVALENTS-- January 1 1,798 7,068
------------- -------------
CASH AND CASH EQUIVALENTS-- March 31 $ 274 $ 5,266
============= =============
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
CYBEX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and changes in cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The Company has
reclassified the presentation of certain prior year information to conform to
the current year presentation format.
It is suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the company's
latest Annual Report or Form 10-K for the year ended December 31, 1996.
NOTE 2 -- MERGER AGREEMENT
On December 27, 1996, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") whereby a wholly-owned subsidiary of the Company would
be merged with and into Trotter Inc. ("Trotter"), a manufacturer of premium
quality cardiovascular and strength equipment for the home and commercial
fitness markets. Pursuant to the terms of the Merger Agreement all of the shares
of the common stock, $.01 par value ("Trotter Common Stock"), of Trotter issued
and outstanding at the effective time shall be converted into the right to
receive, and shall be exchanged for, the number of fully-paid and non-assessable
CYBEX Common Shares (rounded upward to the nearest whole share) which, upon
issuance together with the holders of options to purchase Trotter Common Stock,
shall equal 50.001% of all CYBEX Common Shares issued and outstanding on a fully
diluted basis, calculated using the treasury stock method for outstanding stock
options and assuming a price of $9.75 per share for the CYBEX Common Stock,
immediately following the effective time. The Merger is subject to the
satisfaction of certain conditions, including the approval by the Company's
shareholders.
NOTE 3 -- INVENTORIES
Inventories are valued at the lower of cost or market. Inventory costs have been
determined by the Last-in, First-out (LIFO) method for approximately 23% and 25%
of inventories at December 31, 1996 and March 31, 1997, respectively. The
estimated replacement cost of LIFO inventories exceeds stated LIFO cost by $953
at December 31, 1996 and March 31, 1997, respectively.
Inventories were as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1997
------------------ ------------------
<S> <C> <C>
Finished goods $ 3,053 $ 2,522
Work in process 3,973 3,784
Raw materials 2,908 2,830
------------------ ------------------
$ 9,934 $ 9,136
================== ==================
</TABLE>
5
<PAGE>
Because the inventory determination under the LIFO method can only be made at
the end of each fiscal year based on the inventory levels and costs at that
point, interim LIFO determinations are based on management's estimates of
expected year-end inventory levels and costs.
Since future estimates of inventory levels and prices are subject to many forces
beyond the control of management, interim financial results are subject to final
year-end LIFO inventory amounts.
NOTE 4 -- NET (LOSS) INCOME PER COMMON SHARE
Net (loss) income per common share is computed by dividing net income by the
weighted average number of common shares and common share equivalents (dilutive
stock options) outstanding during each year (4,420,986 in 1996 and 4,382,593 in
1997).
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On April 3, 1996, the Company completed the sale of substantially all the assets
of its Lumex Division for $40,750,000 in cash. Accordingly, the results of
operations of the Lumex Division have been reflected as discontinued operations.
The following discussion regarding results of operations, including statistics
presented, refers solely to continuing operations unless otherwise stated.
RESULTS OF OPERATIONS
The following table sets forth selected items from the consolidated condensed
statements of operations as a percentage of sales:
<TABLE>
<CAPTION>
Quarter Ended % Increase
March 31, 1997 (Decrease)
------------------------------- ----------------
1996 1997
------------- -------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% (8.9)
Cost of sales 60.2 59.4 (10.0)
------------- -------------
Gross profit 39.8 40.6 (7.1)
Selling, general and administrative expenses 39.3 41.2 (4.5)
------------- -------------
Operating income (loss) .5 (.6)
(Loss) income from continuing operations (2.0) .2
</TABLE>
For the first quarter ended March 31, 1997, net sales from continuing operations
declined 8.9%, to $18,297,000 compared to $20,076,000 in the same period a year
earlier. The lower sales levels for the 1997 quarter were largely due to
customer anticipation of new products being introduced at the IHRSA industry
show in April and the comparison to an unusually strong 1996 first quarter
resulting from a large 1995 backlog of new VR2 strength products. Shipments of
treadmills were lower due to the production limitations of a planned factory
move. Shipments of the VR2 strength rose 23% for the first quarter 1997 compared
to the first quarter 1996. Shipments of isokinetic products were 13% ahead of
the same period in the prior year, partly in anticipation of announced price
increases implemented April 1, 1997.
Gross profit margins improved to 40.6% during the first quarter 1997 as compared
to 39.8% in the first quarter 1996 primarily due to a favorable product mix.
Selling, general and administrative expenses were higher, as a percentage of
sales, at 41.2% in the first quarter 1997 compared to 39.3% in the same period a
year earlier, although dollars spent declined by $352,000 or 4.5%. Excluding
merger related costs of $400,000 in the first quarter of 1997, selling, general
and administrative expenses were slightly lower, as a percentage of sales, at
39% when compared to the first quarter 1996, and the overall decline in dollars
spent was $752,000 or 9.5%.
Interest expense was $484,000 lower in the first quarter 1997 as compared to the
first quarter of the prior year as the Company repaid $28 million in bank debt
in April 1996 from the proceeds received in the sale of the Company's Lumex
Division. Interest income was higher due to higher available balances of cash
and cash equivalents and lease receivables.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's working capital was approximately $23.1
million, including cash and cash equivalents of $5.3 million; its current ratio
was 2.1 to 1 and total long-term borrowings were $5.3 million.
Net cash used in operating activities was $1.8 million in the first quarter 1997
as the reduction in trade receivables ($3.0 million) and inventories ($.8
million) were more than offset by increases in lease receivables ($2.8 million)
and reductions in trade payables and accrued liabilities ($2.6 million). Net
cash used in operating activities was $5.3 million in the first quarter 1996,
including $1.7 million from discontinued operations. Cash used from continuing
operations of $3.6 million resulted largely from increased inventories ($1.1
million) and lease receivables ($1.3 million) and reductions in trade payables
and accrued liabilities ($6.2 million) offset by a decrease in trade receivables
($4.9 million).
Cash used in investing activities was $644,000 in the first quarter 1997,
substantially all of which were purchases of manufacturing equipment. Cash
provided by investing activities of $2.2 million during the first quarter 1996
was primarily due to sales and maturities of investments used to fund operating
activities.
Cash provided by financing activities in the first quarter 1997 was $622,000
representing sales of lease receivables in the Company's portfolio of $1.05
million less principal payments made under long-term debt obligations of
$432,000. In the first quarter, 1996 cash provided by financing activities was
$1.5 million, including $2.4 million in sales of lease receivables offset by
principal payments of long-term debt of $1.1 million.
At March 31, 1997, the Company's long-term debt represented 5.6% of total
equity. The Company has a $5 million bank line of credit under which there were
no outstanding borrowings. Management expects the cash flow generated from its
operations, the sale of its Ronkonkoma, New York manufacturing facility and
available vendor financing for capital equipment purchases will be sufficient to
meet its working capital and capital spending needs. The contract for the sale
of the Ronkonkoma facility, which was expected to close in the second quarter
1997, was terminated, and it is now expected that the sale of the facility will
not occur until later in the year. CFC, the Company's finance subsidiary, is
expected to support its operations through periodic sales of its lease
portfolios to third party financial institutions.
The Merger Agreement requires the consents of Trotter and Company lenders and
will result in the Company and Trotter not being in compliance with certain
financial ratios and certain other restrictive covenants of their long-term debt
agreements and credit facilities. In addition, the ongoing operations of CYBEX
Financial Corp. require arrangements with third party financial institutions to
provide funding to support its leasing programs.
The Company and Trotter believe they will be successful in obtaining the
necessary waivers and consents from their lending institutions and in securing
commitments from other financial institutions to continue to participate in
purchasing portions of the Company's lease receivables. If such waivers and
arrangements are not obtained, the Company and Trotter believe that other
sources of financing will be available to support the needs of the combined
operations.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 3, 1996, the Company completed the sale of
substantially all the assets of its Lumex Division to
Fuqua Enterprises, Inc. ("Fuqua") for $40,750,000 in cash.
The asset sale agreement with Fuqua provides for a
post-closing adjustment to the sales price based on the
change in the net assets of the Lumex Division from
December 31, 1995, through the closing date. The Company
has received notice from Fuqua that Fuqua believes the
stated amount of the net assets of the Lumex Division as
of the closing date are overstated by $9.3 million. The
Company has determined to proceed to arbitration to
resolve parts of this dispute. An initial submission to
the arbitrator was made by Fuqua in March, 1997. On March
27, 1997, Fuqua notified the Company of claims for
breaches of certain of the Company's representations and
warranties in the asset sale agreement involving
substantially the same matters submitted to the
arbitrator. The Company applied to the New York County
Supreme Court for a determination of the scope of the
arbitration clause contained in the purchase price
provision of the asset sale agreement. On April 18, 1997,
the court issued an interim stay of the arbitration
proceedings pending a hearing of the Company's application
to stay arbitration as to six of the Fuqua claims. On May
9, 1997, following the hearing, the court denied the
Company's application for a stay of arbitration and
ordered the Company to arbitrate the dispute with Fuqua in
full. The Company intends to make its initial submission
to the arbitrator on or about May 16, 1997, and intends to
appeal the court's decision.
ITEM 2. CHANGES IN SECURITIES
On March 31, 1997, the Company issued 1,250 shares of its
common stock from treasury to John C. Spratt, for serving
as Chairman of the Board of Directors. In issuing these
shares, the Company relied on the exemption from
registration provided by Section 4(2) of the Securities
Act of 1933, as amended.
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
--------
27 -- Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during
the quarter ended March 31, 1997.
9
<PAGE>
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 by the
undersigned, thereunto duly authorized.
CYBEX International, Inc.
-------------------------------------------
May 15, 1997 By: /s/ J. Raymond Elliott
- ------------ -------------------------------------------
(Date) J. Raymond Elliott
President and Chief Executive Officer
May 15, 1997 By: /s/ Robert S. Zuccaro
- ------------ -------------------------------------------
(Date) Robert S. Zuccaro
Vice President and Treasurer
10
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule. (FILED HEREWITH)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the Form
10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 5,266
<SECURITIES> 0
<RECEIVABLES> 19,396
<ALLOWANCES> 0
<INVENTORY> 9,136
<CURRENT-ASSETS> 44,718
<PP&E> 9,892
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,517
<CURRENT-LIABILITIES> 21,591
<BONDS> 1,721
0
0
<COMMON> 451
<OTHER-SE> 35,170
<TOTAL-LIABILITY-AND-EQUITY> 60,517
<SALES> 18,297
<TOTAL-REVENUES> 18,297
<CGS> 10,863
<TOTAL-COSTS> 10,863
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (101)
<INCOME-PRETAX> 46
<INCOME-TAX> 8
<INCOME-CONTINUING> 38
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
