<PAGE>
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 3/27/99.
-------
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.)
10 Trotter Drive, Medway, Massachusetts 02053
- ---------------------------------------- --------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (508) 533-4300
--------------------------
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 May 5, 1999, the Registrant had outstanding 8,678,666 shares of Common Stock,
par value $0.10 per share, which is the registrant's only class of common stock.
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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations (unaudited) -- Three months ended
March 27, 1999 and March 28, 1998 3
Condensed Consolidated Balance Sheets - March
27, 1999 (unaudited) and December 31, 1998 4
Condensed Consolidated Statements of Cash
Flows (unaudited) -- Three months ended March
27, 1999 and March 28, 1998 5
Notes to Condensed Consolidated Financial
Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
2
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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
March 27, 1999(1) March 28, 1998
--------------------- ---------------------
<S> <C> <C>
Net sales $ 33,439 $ 28,637
Cost of sales 19,900 16,572
--------------------- ---------------------
Gross profit 13,539 12,065
Selling, general and administrative expenses 9,639 9,372
--------------------- ---------------------
Operating income 3,900 2,693
Interest income 120 174
Interest (expense) (766) (244)
--------------------- ---------------------
Income before income taxes 3,254 2,623
Income taxes 1,334 1,075
--------------------- ---------------------
Net income $ 1,920 $ 1,548
===================== =====================
Basic and diluted net income per share $ .22 $ .18
===================== =====================
</TABLE>
(1) Includes the results of Tectrix (see Note 2).
See notes to the condensed consolidated financial statements.
3
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CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
----------------------------------------
(in thousands, except share information)
<TABLE>
<CAPTION>
MARCH 27, DECEMBER 31,
1999 1998
--------------------- --------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,136 $ 1,899
Accounts receivable, net of allowance of $3,469 and $3,336 27,829 28,627
Lease receivables 753 694
Inventories 10,005 10,715
Deferred income taxes 5,669 5,669
Prepaid expenses and other 2,136 1,672
--------------------- --------------------------
Total current assets 50,528 49,276
Property, plant and equipment, net 19,688 18,467
Lease receivables 690 500
Goodwill, net 30,491 30,208
Deferred income taxes 5,181 6,515
Other assets 2,862 2,931
--------------------- --------------------------
$ 109,440 $ 107,897
===================== ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 3,663 $ 3,752
Accounts payable 10,243 7,610
Accrued expenses 15,347 17,933
Income taxes payable 967 1,209
--------------------- --------------------------
Total current liabilities 30,220 30,504
Long-term debt 35,091 35,174
Accrued warranty obligation and other 2,281 2,291
--------------------- --------------------------
Total liabilities 67,592 67,969
--------------------- --------------------------
Stockholders' Equity:
Common Stock, $.10 par value, 20,000,000 shares authorized, 889 889
8,894,724 shares issued
Additional paid-in capital 44,549 44,549
Treasury stock, at cost (216,058 shares) (2,252) (2,252)
Retained earnings (accumulated deficit) (1,338) (3,258)
--------------------- --------------------------
Total stockholders' equity 41,848 39,928
--------------------- --------------------------
$ 109,440 $ 107,897
===================== ==========================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
MARCH 27, MARCH 28,
1999 1998
-------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,920 $ 1,548
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 888 793
Provision for doubtful accounts 201 521
Deferred income taxes 1,334 1,075
Net change in operating assets and liabilities (160) (1,976)
-------------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES
4,183 1,961
-------------------- -------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (1,774) (255)
-------------------- -------------------
FINANCING ACTIVITIES:
Repayment of term debt (172) (269)
Exercise of stock options -- 255
-------------------- -------------------
NET CASH USED IN FINANCING ACTIVITIES (172) (14)
-------------------- -------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,237 1,692
CASH AND CASH EQUIVALENTS, beginning of period 1,899 6,689
-------------------- -------------------
CASH AND CASH EQUIVALENTS, end of period $ 4,136 $ 8,381
==================== ===================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
NOTE 1 -- BASIS OF PRESENTATION
Cybex International, Inc. (the "Company" or "Cybex"), is a strength and
cardiovascular fitness equipment company which develops, manufactures and
markets premium performance, professional quality, human performance products
for the commercial and consumer markets.
The accompanying consolidated 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 adjustments) considered necessary
for a fair presentation have been included. Operating results for the three
months ended March 27, 1999, are not necessarily indicative of the results that
may be expected for the entire year.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's Reports filed with the Securities and Exchange Commission on Form
10-K for the year ended December 31, 1998, Form 8-K filed June 2, 1998 and its
proxy statement dated April 16, 1999.
The three month period ended March 27, 1999 includes the results of Tectrix
Fitness Equipment, Inc. ("Tectrix"). (see Note 2)
NOTE 2 -- MERGERS AND ACQUISITIONS
TECTRIX INC. ACQUISITION
On May 21, 1998, Cybex entered into an agreement with Tectrix and its
stockholders whereby Cybex acquired all of the outstanding Common Stock of
Tectrix (the "Acquisition"). The purchase price consisted of cash of
$21,060,000, of which $2,670,000 was used to repay Tectrix debt, and a
promissory note in the amount of $1,915,000. In addition, the selling
stockholders have the right to receive aggregate additional payments of up to
$6,600,000 based on Tectrix's post-closing margin performance during the
three-year period following the Acquisition. As of December 31, 1998, $536,000
has been earned under this right for the period from the Acquisition date (May
21, 1998) to December 31, 1998. The Acquisition has been accounted for using the
purchase method of accounting and the parties have made a Section 338(h)10
election for the Acquisition to be accounted for as an asset purchase for income
tax purposes. In order to fund the Acquisition, Cybex entered into a credit
agreement, which provides for a term loan of $25,000,000 and revolving loans of
up to $26,700,000 (see Note 4).
6
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NOTE 3 -- INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 27, DECEMBER 31,
1999 1998
-------------------------- -------------------------
<S> <C> <C>
Raw materials $ 5,806 $ 5,723
Work in process 757 1,251
Finished goods 3,442 3,741
-------------------------- -------------------------
$ 10,005 $ 10,715
========================== =========================
</TABLE>
NOTE 4 -- CREDIT AGREEMENT
On May 21, 1998, the Company entered into a Credit Agreement with several banks
that consisted of a $26,700,000 revolving loan and a $25,000,000 term loan,
replacing its then existing Loan and Security Agreement. The revolver matures in
May, 2004 and the term loan matures in December, 2003. Borrowings under both the
revolver and term loans bear interest at the Company's option of either Base
Rate (as defined) or LIBOR plus 0.25% to 2.25%, adjusted based on the Company's
level of compliance with certain financial covenants, as defined.
As of March 27, 1999, $7,900,000 and $25,000,000 were outstanding under the
revolver and term loan, respectively. At March 27, 1999, $16,428,000 was
available under the revolver after consideration of $2,372,000 in an outstanding
standby letter of credit.
Borrowings under the credit facility are secured by substantially all of the
assets of the Company with certain exceptions, as defined.
NOTE 5 -- EARNINGS PER SHARE
The table below sets forth a reconciliation of the shares used in the basic and
diluted income per share computations (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
MARCH 27, 1999 MARCH 28, 1998
------------------- ------------------
<S> <C>
Shares used in computing basic earnings per share 8,679 8,670
Dilutive effect of options -- 156
------------------- ------------------
Shares used in computing diluted earnings per share 8,679 8,826
=================== ==================
</TABLE>
7
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NOTE 6 -- PRO FORMA
The following table summarizes the unaudited pro forma combined results of
operations for the three months ended March 28, 1998 as if the Acquisition had
occurred at the beginning of 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 28, 1998
-------------------------
<S> <C>
Net sales $ 36,568
=========================
Net income $ 1,242
==========================
Net income per share $ .14
==========================
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
OVERVIEW
Cybex is a strength and cardiovascular fitness equipment company which develops,
manufactures and markets premium performance, professional quality, human
performance products for the commercial and consumer markets.
On May 21, 1998, Cybex entered into an agreement with Tectrix and its
stockholders whereby Cybex acquired all of the outstanding Common Stock of
Tectrix (the "Acquisition").
Results for the three months ended March 27, 1999 include the results of
Tectrix.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 28, 1998 VS. THREE MONTHS ENDED MARCH 27, 1999.
NET SALES
Net sales increased 17% from $28,637,000 to $33,439,000 for the three months
ended March 28, 1998 and March 27, 1999, respectively. This increase in net
sales is principally due to the inclusion of Tectrix sales during the 1999
period.
GROSS PROFIT
Gross profit increased from $12,065,000 to $13,539,000 for the three months
ended March 28, 1998 and March 27, 1999, respectively. The increase is primarily
due to the Tectrix acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased from $9,372,000 to
$9,639,000 for the three months ended March 28, 1998 versus March 27, 1999,
respectively. The increase is primarily due to the Tectrix acquisition.
INTEREST INCOME
Interest income decreased from $174,000 to $120,000 for the three months ended
March 28, 1998 and March 27, 1999, respectively due to lower average cash
balances in the 1999 period.
INTEREST EXPENSE
Interest expense increased for the three months ended March 28, 1998 versus
March 27, 1999 from $244,000 to $766,000, respectively. The increase is
primarily a function of increased borrowing as a result of the May 21, 1998
Tectrix acquisition.
9
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $4,136,000 at March 27, 1999 from
$1,899,000, at December 31, 1998. For the three months ended March 27, 1999, net
cash provided by operating activities was $4,183,000 compared to $1,961,000 for
the three months ended March 28, 1998 primarily due to higher earnings and
changes in various operating assets and liabilities.
Cash used in investing activities of $1,774,000 in the first quarter of 1999
resulted primarily from capital expenditures associated with the Company's new
Enterprise Resource Planning ("ERP") System.
On May 21, 1998, the Company entered into a Credit Agreement with several banks
that consisted of a $26,700,000 revolving loan and a $25,000,000 term loan
replacing its then existing Loan and Security Agreement. At March 27, 1999,
there was $16,428,000 available under the revolving loan after consideration of
a $2,372,000 outstanding standby letter of credit. Additionally, the Company's
finance subsidiary is expected to continue to support working capital
requirements through periodic sales of its lease portfolios to third party
financial institutions.
Management believes that the cash flow from its operations and available
borrowings under its line of credit will be sufficient to meet its general
working capital and capital expenditure requirements in the near term.
YEAR 2000
The year 2000 computer issue creates certain risks for the Company, including
the functionality of internal systems and the availability of key products and
services.
Following the 1997 merger with Trotter Inc., the Company performed an analysis
of its then current information technology ("IT") and non-information technology
systems ("NIT") for manufacturing, finance, sales and marketing and human
resources. Such analysis led to a decision in late 1997 to replace all IT
systems in their entirety. Commencing in 1998, the Company began the
installation of a new ERP System and currently anticipates full implementation
in 1999. The Company expects the ERP system to be Year 2000 compliant. In the
NIT area, the Company has conducted an analysis of its operations to identify
potential problems and is in the process of remedial action on an as needed
basis.
The Company has also surveyed its suppliers of products and services to
determine that the suppliers operations are year 2000 capable, or where
applicable, to monitor their progress towards year 2000 compatibility and to
identify alternative suppliers.
In addition, the Company has commenced work on contingency planning to address
potential problem areas with internal systems, suppliers and other third
parties. It is expected that assessment, remediation and contingency planning
activities will be ongoing throughout the remainder of 1999 with the goal of
appropriately resolving all identifiable material internal systems and third
party issues in 1999.
Committed costs to date related to these replacement programs approximate $6.0
million. The Company currently expects that the total cost of these programs,
including both incremental spending and redeployed resources, will approximate
$6.5 million. The total cost estimate does not include potential costs related
to any customer or other third party claims.
10
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Based on currently available information, management does not believe that the
year 2000 matters discussed above related to internal systems or products sold
to customers will have a material adverse impact on the Company's financial
condition or overall trends in results of operations; however, it is uncertain
to what extent the Company may be affected by such matters. In addition, there
can be no assurance that the failure to ensure year 2000 capability by a
supplier or another third party would not have a material adverse effect on the
Company.
CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements.
There are a number of risks and uncertainties that could cause actual results to
differ materially from those anticipated by the statements made above. These
include, but are not limited to, competitive factors, technological and product
developments, market demand, and uncertainties relating to the consolidation of
the merged and acquired companies' businesses. Further information on these and
other factors which could affect the Company's financial results can be found in
the Company's Reports filed with the Securities and Exchange Commission on Form
10-K for the year ended December 31, 1998, Form 8-K filed June 2, 1998 and its
proxy statement dated April 16, 1999.
11
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
There have been no material changes in quantitative and qualitative market risk
from the disclosure within the December 31, 1998 10-K which is incorporated here
by reference.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
KIRILA ET AL V. CYBEX INTERNATIONAL, INC. ET AL
-----------------------------------------------
See Part 1 Item 3 of the Company's Report on Form 10-K for the
year ended December 31, 1998 for a description of the proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
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
-------------------
None
13
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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.
-----------------------------------
By: /s/ Peter C. Haines
-----------------------------------
May 11, 1999 Peter C. Haines
President and Chief Executive Officer
By: /s/ William S. Hurley
-----------------------------------
May 11, 1999 William S. Hurley
Vice President and Chief Financial
Officer
14
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EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
(a) Exhibits
--------
27 Financial Data Schedule. (Filed herewith)
<TABLE> <S> <C>
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<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-31-1998
<PERIOD-END> MAR-28-1999
<CASH> 4,136
<SECURITIES> 0
<RECEIVABLES> 31,298
<ALLOWANCES> 3,469
<INVENTORY> 10,005
<CURRENT-ASSETS> 50,528
<PP&E> 36,921
<DEPRECIATION> 17,233
<TOTAL-ASSETS> 109,440
<CURRENT-LIABILITIES> 30,220
<BONDS> 38,754
0
0
<COMMON> 889
<OTHER-SE> 40,959
<TOTAL-LIABILITY-AND-EQUITY> 109,440
<SALES> 33,439
<TOTAL-REVENUES> 33,439
<CGS> 19,900
<TOTAL-COSTS> 29,539
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 766
<INCOME-PRETAX> 3,254
<INCOME-TAX> 1,334
<INCOME-CONTINUING> 1,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,920
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
