<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 3/31/00.
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 1, 2000, the Registrant had outstanding 8,699,942 shares of Common Stock,
par value $0.10 per share, which is the registrant's only class of Common Stock.
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (unaudited) --
Three months ended March 31, 2000 and March 27, 1999 3
Condensed Consolidated Balance Sheets - March 31, 2000
(unaudited) and December 31, 1999 4
Condensed Consolidated Statements of Cash Flows (unaudited) --
Three months ended March 31, 2000 and March 27, 1999 5
Notes to Condensed Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure about
Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
<PAGE>
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
MARCH 31, MARCH 27,
2000 1999
-------------- ---------------
<S> <C> <C>
Net sales $34,017 $33,439
Cost of sales 19,921 19,900
-------------- ---------------
Gross profit 14,096 13,539
Selling, general and administrative expenses 12,301 9,639
-------------- ---------------
Operating income 1,795 3,900
Interest income 63 120
Interest expense (743) (766)
-------------- ---------------
Income before income taxes 1,115 3,254
Income tax provision 457 1,334
-------------- ---------------
Net income $ 658 $ 1,920
============== ===============
Basic and diluted net income per share $ .08 $ .22
============== ===============
</TABLE>
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 31 DECEMBER 31,
2000 1999
--------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,403 $ 565
Accounts receivable, net of allowance of
$2,131 and $4,475 29,325 29,004
Lease receivables 205 509
Inventories 8,254 8,080
Deferred income taxes 7,449 7,449
Prepaid expenses and other 1,534 1,774
----------- -------------
Total current assets 49,170 47,381
Property, plant and equipment, net 22,192 21,907
Lease receivables 156 659
Goodwill, net 29,454 29,713
Deferred income taxes 1,508 1,965
Other assets 3,039 3,153
----------- -------------
$105,519 $104,778
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 4,857 $ 4,622
Accounts payable 9,069 10,163
Accrued expenses 11,493 11,216
Income taxes payable 900 910
----------- -------------
Total current liabilities 26,319 26,911
Long-term debt 32,424 31,742
Accrued warranty obligation and other 2,115 2,121
Total liabilities 60,858 60,774
----------- -------------
Stockholders' Equity:
Common stock, $.10 par value, 20,000,000
shares authorized, 8,916,600 shares issued 892 892
Additional paid-in capital 44,627 44,627
Treasury stock, at cost (216,658 shares) (2,259) (2,259)
Retained earnings 1,401 744
----------- -------------
Total stockholders' equity 44,661 44,004
----------- -------------
$ 105,519 $104,778
=========== =============
</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
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MARCH 31, MARCH 27,
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 658 $ 1,920
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,264 888
Provision for doubtful accounts 157 201
Deferred income taxes 457 1,334
Net change in other operating assets
and liabilities (392) (160)
------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,144 4,183
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INVESTING ACTIVITIES:
Purchases of property and equipment (1,223) (1,774)
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NET CASH USED IN INVESTING ACTIVITIES (1,223) (1,774)
------- -------
FINANCING ACTIVITIES:
Repayment of long-term debt (1,083) (172)
Net borrowings under the revolving loan 2,000 --
------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 917 (172)
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,838 2,237
CASH AND CASH EQUIVALENTS, beginning of period 565 1,899
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CASH AND CASH EQUIVALENTS, end of period $ 2,403 $ 4,136
======= =======
</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 31, 2000, 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, 1999, and its proxy statement dated April
18, 2000.
NOTE 2 -- INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
<TABLE>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
Raw materials $4,722 $5,305
Work in process 1,474 1,297
Finished goods 2,058 1,478
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$8,254 $8,080
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</TABLE>
NOTE 3 -- 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 (the "Revolver"), increased to
$30,000,000 in May 1999, and a $25,000,000 term loan (the "Term loan") that
replaced 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%, which is adjusted based on the
Company's level of compliance with certain financial covenants, as defined.
As of March 31, 2000, $11,000,000 and $21,000,000 were outstanding under the
Revolver and Term loan, respectively. At March 31, 2000, $13,768,000 was
available under the Revolver, net of $5,232,000 in stand-by letters of credit
outstanding.
6
<PAGE>
Borrowings under the credit facility are secured by substantially all of the
assets of the Company with certain exceptions, as defined.
NOTE 4 -- EARNINGS PER SHARE
The table below sets forth a reconciliation of the shares used in the basic and
diluted net income per share computations (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, MARCH 27,
2000 1999
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<S> <C> <C>
Shares used in computing basic earnings per
share 8,689 8,679
Dilutive effect of options 3 --
-------------- --------------
Shares used in computing diluted earnings
per share 8,692 8,679
============== ==============
</TABLE>
For the three months ended March 31, 2000, options to purchase 716,911 shares of
the Company's Common Stock at exercise prices ranging from $4.06 to $11.75 per
share were outstanding but were not included in the calculation of diluted
earnings per share since the result would be anti-dilutive.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
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 below. 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
including this Form 10-Q, the Report on Form 10-K for the year ended December
31, 1999 and the proxy statement dated April 18, 2000.
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.
RESULTS OF OPERATIONS
NET REVENUES
Cybex's net revenues increased $578,000, or 2%, to $34,017,000 for the first
quarter. Sales of strength products increased $651,000, or 4%, to $16,535,000.
Sales of parts and other items increased $380,000, or 30%, to $1,966,000 and
sales of cardiovascular products decreased by $453,000, or 2.8%, to $15,516,000.
The decrease in the sales of cardiovascular products was attributed to a decline
in the sale of hikers and climbers offset partially by an increase in treadmill
sales.
GROSS MARGIN
Gross margin improved from 40.5% in the first quarter last year to 41.4% this
year principally due to reduction in warranty expense.
OPERATING EXPENSES
Operating expenses increased by $2,662,000, or 28% to $12,301,000 in the first
quarter of 2000 compared to the first quarter of 1999. This increase was
primarily attributable to increases in information technology expenses,
sales/marketing/customer service expenses, product development expenses and the
addition of key executive management positions and is expected to continue
throughout the balance of the year.
INTEREST EXPENSES
Interest expense declined by $23,000, or 3% due to lower average debt balances
for the 2000 period.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $2,403,000 at March 31, 2000 compared to $565,000
at March 27, 1999. For the three months ended March 31, 2000 net cash provided
by operating activities was $2,144,000 compared to the net cash provided by
operations of $4,183,000 for the three months ended
8
<PAGE>
March 27, 1999. This decrease of $2,039,000 was primarily the result of lower
earnings before interest, taxes and depreciation (EBITDA) and an increase in
accounts receivable. Cash used in investing activities of $1,223,000 for the
three months ended March 31, 2000 was primarily due to capital expenditures for
production equipment, information technology and the Cybex Institute, which is
the training and education center for the Company.
Net borrowings for the three months ended March 31, 2000 under the Company's
Credit Agreement with several banks were $917,000. At March 31, 2000 $11,000,000
and $21,000,000 were outstanding under the Revolver and Term Loan respectively
and $13,768,000 was available under the revolver, net of $5,232,000 in stand-by
letters of credit. The Credit Agreement contains several financial covenants
which in their present form may be difficult for the Company to meet on an
ongoing basis. A failure of the Company to meet or appropriately amend these
covenants could have a material adverse effect on the Company. The Credit
Agreement was amended to relax one of these covenants for the period ended March
31, 2000, and the Company is in discussions with the banks to adjust these
covenants on a longer term basis. As of March 31, 2000, the Company is in full
compliance with the terms of the Credit Agreement. The Company believes that
the cash flow from its operations and available borrowings under its line 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, 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
lead 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. In
the NIT area, the Company conducted an analysis of its operations to identify
potential problems and implemented 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.
Costs incurred to date related to these replacement programs approximate
$6.5 million. The total cost estimate does not include potential costs related
to any customer or other third party claims.
9
<PAGE>
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, 1999 10-K which is incorporated here
by reference.
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, 1999 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
--------
10(i) Amendment to Distributor Agreement dated March 1, 2000
between Cybex International, Inc, and Forza Fitness
Equipment Ltd.
27 Financial Data Schedule (Filed herewith)
(b) Reports on Form 8-K
-------------------
None
10
<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.
------------------------------------------
By: /s/ Peter C. Haines
------------------------------------------
May 15, 2000 Peter C. Haines
President and Chief Executive Officer
By: /s/ Paul O. Webber III
------------------------------------------
May 15, 2000 Paul O. Webber III
Vice President and Chief Financial Officer
11
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EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
----------- -----------
(a) Exhibits
--------
10(i) Amendment to Distributor Agreement dated March 1, 2000 between
Cybex International, Inc. and Forza Fitness Equipment Ltd.
27 Financial Data Schedule. (Filed herewith)
12
<PAGE>
EXHIBIT 10(i)
AMENDMENT TO DISTRIBUTOR AGREEMENT
This Amendment to Distributor Agreement (the "Amendment") is made as of
March 1, 2000 between (1) CYBEX INTERNATIONAL, INC., a New York corporation
("CYBEX"), (2) FORZA FITNESS EQUIPMENT LTD., a company registered in England
with Number 2836238 (the "Distributor"), and (3) THE FORZA GROUP LIMITED, a
company registered in England with Number 2768509 ("Forza").
PRELIMINARY STATEMENT
---------------------
(A) CYBEX, the Distributor, Forza, and Trotter Inc., a Delaware corporation
("Trotter"), entered into a Distributor Agreement, dated as of June 5, 1997 (the
"Distributor Agreement").
(B) Trotter has subsequently been merged with and into CYBEX.
(C) CYBEX, the Distributor, and Forza now desire to amend the Distributor
Agreement as set forth in this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. Unless otherwise defined in this Amendment, the
-----------
definitions of capitalized terms used in this Amendment shall be the same as
those in the Distributor Agreement.
2. Pricing of Strength Products. Section 7(c)(i) of the Distributor
----------------------------
Agreement is hereby amended in its entirety as follows: "Strength Products -
Cost plus 32% thereof."
3. Pricing of Cardiovascular Products. Section 7(c)(iii) of the
----------------------------------
Distributor Agreement is hereby amended in its entirety as follows:
"Cardiovascular Products and the Reactor - 52.5% off the prevailing domestic
list price published from time to time by CYBEX (which may include price
increases)."
4. Cardiovascular Products Growth Incentive. If the Distributor purchases
----------------------------------------
$4,000,000 or more in Cardiovascular Products in any calendar year of the Term
following the execution of this Amendment, the Distributor will be entitled to
receive from Cybex a payment equal to 2.5% of Cardiovascular Product purchases
for that year. This payment will be made within 60 days after the end of the
applicable calendar year. Any sales of Products by CYBEX directly to Cybex
Direct Accounts within the Territories will not be included in the calculating
the Distributor's purchases of Cardiovascular Products for purposes of this
Section.
<PAGE>
5. Profitability Sharing. Beginning with the calendar year 2000, CYBEX
---------------------
will be entitled to receive from the Distributor within 60 days after the end of
each calendar year of the Term during which the aggregate price of Products sold
by the Distributor exceeds $7,000,000, a payment equal to (i) 3% of the
aggregate price of Products sold by the Distributor during that year for the
first $7,000,000 in sales and (ii) 5% of the aggregate price of Products sold by
the Distributor during that year for sales in excess of $7,000,000. Any sales
of Products by CYBEX directly to Cybex Direct Accounts within the Territories
will not be included in calculating the aggregate price of the Distributor's
sales for purposes of this Section.
6. Information Evaluation. CYBEX will have the right, as part of its
----------------------
Information Evaluation under Section 15(b) of the Distributor Agreement, to
inspect the source of any information relating to the Distributor's performance
against the criteria set forth in Sections 4 and 5 of this Amendment and to
instruct its auditors to produce a report certifying the accuracy of any such
information. If such audit reveals any material inaccuracy in such information
and such material inaccuracy is confirmed by agreement of, or decision binding
on, the parties, the Distributor shall bear the cost of such report. If a
material inaccuracy is not shown by such report and confirmed, CYBEX shall bear
the cost of such report.
7. Marketing Funds. CYBEX will provide $200,000 in marketing funds in
---------------
each calendar year of the Term following the execution of this Amendment, to be
allocated across all Territories pursuant to the marketing plan submitted by
CYBEX under Section 5(i) of the Distributor Agreement. CYBEX's provision of
these marketing funds will satisfy all its obligations with respect to Cybex-
specific marketing programs, including any and all obligations of CYBEX under
Section 5(c) of the Distributor Agreement. CYBEX will pay $50,000 of these
marketing funds each quarter, unless otherwise agreed.
8. Terms of Sale. Notwithstanding Section 7(g) of the Distributor
-------------
Agreement, CYBEX will offer the Distributor the opportunity to purchase up to
$400,000 of Products each calendar quarter during the Term to be paid within 90
days of the invoice date therefore (which shall be the date of shipment of the
Products); however, the Distributor will only have the right to these terms for
as long as the Distributor remains current on all payments due under the
Distributor Agreement and this Amendment.
9. Effect on Distributor Agreement. Except as expressly set forth in this
-------------------------------
Amendment, all other terms and provisions of the Distributor Agreement shall
remain in full force and effect.
2
<PAGE>
AS WITNESS the hands of the duly authorized representatives of the parties
the day and year first above written.
CYBEX INTERNATIONAL, INC.
By:
----------------------------------------
FORZA FITNESS EQUIPMENT LIMITED
By:
----------------------------------------
THE FORZA GROUP LIMITED
By:
----------------------------------------
3
<TABLE> <S> <C>
<PAGE>
<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-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,403
<SECURITIES> 0
<RECEIVABLES> 31,456
<ALLOWANCES> 2,131
<INVENTORY> 8,254
<CURRENT-ASSETS> 49,170
<PP&E> 40,517
<DEPRECIATION> 18,325
<TOTAL-ASSETS> 105,519
<CURRENT-LIABILITIES> 26,319
<BONDS> 37,281
0
0
<COMMON> 892
<OTHER-SE> 43,769
<TOTAL-LIABILITY-AND-EQUITY> 105,519
<SALES> 34,017
<TOTAL-REVENUES> 34,017
<CGS> 19,921
<TOTAL-COSTS> 32,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 680
<INCOME-PRETAX> 1,115
<INCOME-TAX> 457
<INCOME-CONTINUING> 658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 658
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
