Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
---------
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
Commission file number
0-4538
LUMEX, 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
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
------------------- ------------------------
Common Stock, $.10 Par Value American Stock Exchange
- ------------------------------------------ --------------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
- --------------------------------------------------------------------------------
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 1996
Common Stock, $.10 Par Value -- $55,399,427
- --------------------------------------------------------------------------------
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 15, 1996
Common Stock, $.10 Par Value -- 4,426,357 shares
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference from the Registrant's definitive proxy statement for its Annual
Meeting of Shareholders to be held on August 7, 1996 or, if such proxy statement
is not filed with the Commission on or before 120 days after the end of the
Registrant's fiscal year covered by this Report, such information will be
included in an amendment to this Report filed not later than the end of such
120-day period.
PART I
------
ITEM 1. BUSINESS
--------
GENERAL
- -------
Lumex, Inc. (the "Company") designs, develops, manufactures and
sells/distributes testing and rehabilitation, strength training and
cardiovascular equipment used in rehabilitation, sports medicine, and fitness
conditioning. These products are marketed under a number of trademarks leading
with the name "Cybex". The Company operates in one industry segment, the
exercise equipment industry, which includes institutional fitness facilities,
sports teams, research/educational centers, hospitals, private practice physical
therapy clinics and rehabilitation centers.
On April 3, 1996, the Company sold substantially all of the assets of its Lumex
Division business, as more fully described below under the caption
"Restructuring Plan".
In October 1992, the Company formed a wholly owned captive finance subsidiary,
Cybex Financial Corp. ("CFC"), to provide capital equipment financing for Cybex
products primarily to its domestic customer base. CFC is operated as a separate
business unit with separate profit and loss responsibilities.
Founded in 1947, the Company is a New York based corporation. Its executive
offices are currently located at 2100 Smithtown Avenue, Ronkonkoma, New York
11779; the telephone number is (516) 585-9000.
RESTRUCTURING PLAN
- ------------------
In December 1995, the Board of Directors of Lumex, Inc. announced a strategic
plan to restructure the Company's operations which included the decision to sell
the Lumex Division business. The Lumex Division has been engaged in the
healthcare industry for 49 years designing, manufacturing and marketing a wide
range of specialty patient seating, bath safety products, mobility products and
therapeutic support systems for use by patients at home and in health care
facilities such as hospitals and nursing homes.
On March 13, 1996, the Company signed a definitive agreement to sell
substantially all of the net assets of its Lumex Division for $40,750,000 in
cash, subject to a post-closing adjustment for changes in net assets. The
transaction was completed on April 3, 1996. Accordingly, the Company has
reflected the results of operations of the Lumex Division as Discontinued
Operations for financial statement purposes for all years presented, as further
described in Note B to the accompanying consolidated financial statements.
The asset sale agreement contains representations, warranties, covenants and
indemnification provisions of the Company customary for transactions of this
type. The representations, warranties and covenants of all parties to the
agreement generally survive for one year after the date of completion.
In connection with the December 1995 restructuring announcement, the Company
also initiated a plan to restructure its remaining Cybex operations to improve
manufacturing processes, increase
1
productivity and competitiveness and sharply reduce operating expenses. As part
of its efforts to reduce operating costs the Company consolidated its separate
rehabilitation and fitness sales forces into one combined group, phased down
production and servicing of unprofitable product lines and eliminated
approximately 75 sales, administrative and engineering positions. The Company
recorded a fourth quarter charge to earnings of approximately $8.2 million
before taxes including, among other items, severance payments related to
organizational restructuring of the Cybex business and the writedown of
inventories specific to its older rehabilitation products. (See Note C to the
consolidated financial statements.)
The Company has announced that it intends to relocate its executive offices to
the Denver/Colorado Springs area beginning later on in the summer of 1996.
PRODUCTS
- --------
The Company develops, manufactures, distributes and services fitness and
rehabilitation equipment. These products can generally be grouped into three
major categories: strength systems; cardiovascular products; and testing and
rehabilitation products.
STRENGTH SYSTEMS - The Company manufactures variable resistance weight training
machines marketed under the trademark "Cybex Strength Systems" (previously as
"Eagle Fitness Systems by Cybex"). The Company entered the strength training
market in 1983 with its acquisition of Eagle Performance Systems, Inc., and has
expanded the number of variable resistance machines since then from 12 to 29.
Each machine exercises a major muscle group in relative isolation, and features
adjustable seats and pads, utilizes aircraft cable to provide a smooth and quiet
low maintenance operation, weight selection adjustments that are accessible from
the exercise position and design configurations that maximize the use of floor
space.
In 1989, the Company introduced a free-weight product line of 17 benches and
stations. Since then, the free-weight product line has been expanded to 43. The
free-weight line is complemented by a line of barbells and plates.
In 1990, Cybex Strength Systems were expanded to include the Cybex "Modular
Systems". This product line, while inheriting the advanced design and high
performance features of the Cybex variable resistance and free weight strength
systems, introduced a revolutionary concept to the multi-gym field. Each Modular
System may be configured to accommodate up to eight stations, including four
selectorized weight and four body weight stations, from 25 available work
stations all utilizing a fraction of the space that individual weight stations
would require. The Cybex "Tandem System" integrates two Modular Systems in a
back-to-back format to create a circuit or expand a strength training area in a
space- efficient manner.
The Cybex Plate Loaded Series was introduced in 1994. Designed to combine the
controlled resistance profile, convenience and safety of a variable resistance
machine, it preserves the natural feel of free weights for people accustomed to
working out with free weights while providing for low maintenance and a smaller
space commitment
2
for gym owners.
In 1995, the Company introduced its VR2 second generation variable resistance
weight training machines which included the unique patented Dual Axis
Technology. Using this technology the exercise movement is defined by the user,
rather than by the machine. Resistance is applied to the targeted muscle groups
from two directions simultaneously, providing an increased exercise intensity,
while retaining a biomechanically correct arc of movement. The Cybex VR2
equipment offers a more attractive appearance, greater ease of use and
additional safety features, such as the weight stack guard and locking aircraft
pin. Cybex VR2 provides for a natural complement to the original Cybex VR
Classic line.
CARDIOVASCULAR PRODUCTS - In 1992, the Company introduced THE BIKE, a cycle
ergometer. THE BIKE was designed by integrating the most popular features that
were identified by customer focus groups. These features include a
biomechanically contoured design, numerous pre-programmed operating modes and
profiles, as well as a durable structural steel frame and multi-position handle
bars. A year later the Company expanded its offering of cardiovascular products
to include THE SEMI. THE SEMI is a semi-recumbent cycle ergometer that
incorporates the same features as THE BIKE and is designed to complement THE
BIKE in both function and appearance.
In 1995, the Company continued expanding its line of cardiovascular products to
include THE MILL, a treadmill featuring the exclusive Cybex Controlled Impact
System. The Controlled Impact System allows the user to select from nine
different settings the firmness of the deck surface in response to their stride,
weight and level of fitness. Other features include a computerized control
panel, manual or pre-set workout profiles, inclines up to 15% and speeds from
1.0 to 12.0 mph. THE MILL is designed to provide a natural complement to the
Cybex family of cardiovascular products.
TESTING AND REHABILITATION PRODUCTS - The Company's major testing and
rehabilitation products utilize a unique form of resistance to opposing human
force, known as isokinetic resistance. Isokinetic resistance is an automatically
accommodating resistance which varies in opposition to the amount of force
applied against it. The amount of force which muscles can produce varies through
the range of motion of an extremity as a result of the changes in leverage
occurring as the skeletal position changes. Isokinetic resistance permits
muscles to work at their maximum capability at all points through the range of
motion. Conventional modes of resistance (isometric or isotonic) do not have
this ability to vary precisely against the force while in motion. Isokinetic
extremity testing and rehabilitation products utilize the isokinetic principle
to provide accurate and reproducible measurement of dynamic performance and
functional capability. This permits clinicians to assess the neuromuscular
ability or disability of patients, ranging from a highly trained athlete to an
injured person. It also allows for accurate tracking of rehabilitation or
3
conditioning progress during a prescribed program.
In 1992, the Company introduced the TEF Modular component. This system, which
attaches to the NORM (described below), allows the system to treat backs, giving
the customer the flexibility to expand their referral bases and increase revenue
with minimal incremental investment.
In 1994, the Company acquired the exclusive worldwide rights to distribute
FASTEX, a functional activity system for testing and exercise for use in the
rehabilitation and commercial fitness markets. The FASTEX patented
computer-guided, force measuring floor permits clinicians to objectively
identify and quantify a patient's functional weaknesses or limitations. FASTEX
can then be used as an exercise and training system to strengthen and improve
the deficit while documenting the patient's progress through a series of
computer prompted exercises created by the clinician to improve strength,
stability, reaction time and patient confidence.
In June 1995 the Company introduced NORM, its latest generation testing and
rehabilitation system. NORM, which stands for Normative Outcomes for
Rehabilitation Management, provides clinicians with instant access to the
world's largest on-line isokinetic normative database which provides immediate
objective documentation to assess patient needs. As with earlier generations of
Cybex testing and rehabilitation products, NORM provides clinicians with
isokinetic concentric resistance, eccentric loading and continuous passive
motion (CPM). These features, along with its twenty three standard set up
patterns, compact design and windows-based software, enable clinicians to
provide a comprehensive rehabilitation program at lower cost while opening up
new markets through pre-placement screenings, return to work evaluations and
worker compensation assessments.
The Company manufactures other isokinetic devices for extremity rehabilitation
including the Orthotron II, KT1, KT2, Kinetron II Exercise and Training System,
UBE (Upper Body Ergometer) and the Fitron Cycle Ergometer.
PRODUCT DEVELOPMENT
- -------------------
The Company's expenditures for product development increased approximately 24%
in 1995. The increased expenditures resulted from decisions to accelerate the
introduction of new products in each of the Company's major markets.
The Company employed 41 persons as part of its New Product Development Group at
December 31, 1995, to improve existing products and develop new designs. This
group has expertise in mechanical and electrical design, isokinetic technology,
computer applications, software design and development, and application and
integration of sophisticated technology to functional biomechanics.
4
The Company also uses independent health care professionals and works closely
with university researchers to review the Company's designs and test new
products.
The cost of the Company's product development activities, including salaries and
employee benefits, materials used and allocated facility expenses, amounted to
$5,058,111 in 1995, $4,064,868 in 1994, and $3,725,306 in 1993. Product
development costs are expensed as incurred. Product development activities will
continue to be a significant factor in the Company's long-term growth.
MARKETING, SALES AND SERVICES
- -----------------------------
Cybex rehabilitation and institutional fitness products are marketed in the
United States through 19 sales representatives and five independent sales agents
supported by four medical product specialists and both regional and national
sales management. Sales are made directly to users such as orthopedic surgeons,
hospital physical therapy departments, private practice physical therapists,
sports medicine clinics, professional sports teams, university physical
education and physiology departments, medical research laboratories, gym owners,
health clubs and individuals. International markets are served by an in-house
staff of 13 people who coordinate the efforts of 60 worldwide distributors. To
coordinate the efforts of its European distributors, the Company established an
office in Belgium during 1992. Early in 1993 the Company formed a subsidiary,
Cybex Fitness Gerate Vertrieb GmbH, to exclusively handle the German fitness
market, and also opened an office in Japan to address the growing needs of the
Asia-Pacific markets.
Cybex contracts with 10 independent licensed physical therapists who provide
on-site training to customers on equipment use and clinical applications. They
also assist with marketing efforts and provide design and operational feedback
to management as to the actual field performance of new products and
accessories.
Through General Electric Computer Service, a third party service provider, the
Company offers customer installations, emergency service, preventative
maintenance and extended warranty contracts throughout the United States.
Cybex products have frequently been used by university and medical research
facilities for testing and measurement of protocols. Published results of
accredited research, now totaling over 1,000 independent articles, are made
available to customers, attesting to the accuracy, effectiveness, validity and
reproducibility of the results of Cybex products.
The Company's product lines are advertised in trade and professional journals
and are supported by extensive literature, public service booklets and
audio-visual presentations, which are developed and prepared by the Company's
marketing and support staff. Cybex products are also shown at numerous trade
shows,
5
exhibits and seminars.
The Company offers lease financing of selected products to its customers through
CFC, its wholly-owned finance subsidiary. The Company periodically enters into
agreements to sell lease receivables to financial institutions to provide
continuous funding for its leasing programs.
Export sales for the three years ended December 31, 1995, 1994 and 1993, were $
21,584,856, $16,880,398 and $13,389,001, respectively. No single geographic area
outside of the United States was material relative to consolidated sales,
operating profits or identifiable assets. Export sales of the Company are
subject to normal risks, such as protective tariffs and export/import controls.
However, since the majority of these sales are to countries with stable
political environments and payments are made in U.S. dollars, the Company
believes such political and foreign exchange risks are minimal.
MANUFACTURING AND SOURCES OF SUPPLY
- -----------------------------------
The Company's manufacturing techniques make use of metal fabrication, electronic
processes, hardware and software integration. Raw materials and purchased
components are comprised primarily of aluminum and steel tubing, hydraulic and
electronic components, precision parts, milled products and upholstery. These
materials are machined, welded, finished, upholstered and assembled to create
finished products. Circuit boards for computerized controls are also assembled
in-house.
The Company purchases its raw materials from numerous suppliers and has not had
any difficulties in obtaining any components or raw materials. Management
believes alternative sources of supply are readily available for almost all
necessary raw materials. Therefore, the Company has not historically entered
into any long-term contracts with suppliers. While the Company does enter into
volume-based contract arrangements for the supply of certain hardware and
software used in its principal products, management believes alternative sources
could be found for these materials, if necessary.
Generally, the Company does not consider its backlog to be a significant factor
in its operations.
PATENTS AND LICENSES
- --------------------
The Company continuously focuses its efforts towards improving existing products
and developing new designs and technology. As these improvements and designs are
developed, the Company regularly files for exclusive patent applications both
domestically and internationally. When necessary, the Company will protect its
patents and patent rights through legal recourse. Nevertheless, the Company does
not believe that patent protection or the expiration of a patent will have a
significant impact on its
6
operations. The Company believes that its position in the exercise equipment
industry depends on its expertise in designing, engineering, production and
marketing skills achieved through 25 years of experience.
COMPETITION
- -----------
The Company's Strength Systems product line has extensive competition from other
companies selling institutional weight and exercise equipment. However, the
Company continues to be a leading manufacturer of strength systems and has the
resources to continue increasing market share through its emphasis on product
development and marketing.
Cybex Cardiovascular Systems have extensive competition from other companies who
have much larger market share positions than Cybex in this segment and who sell
into both rehabilitation and commercial fitness markets.
The Company, a leading manufacturer of isokinetic products, has experienced
direct competition for its isokinetic measurement and rehabilitation devices
from several companies, and experiences indirect competition from other products
used for similar purposes.
The Company believes its leadership positions and future growth is largely
dependent upon new product innovation, product quality, diversity of features,
customer service and pricing. No single customer accounted for more than 10% of
net sales in 1995, 1994 or 1993.
GOVERNMENTAL REGULATION
- -----------------------
The "Good Manufacturing Practices for Medical Devices" of the Food and Drug
Administration (the "FDA") sets forth standards for the Company's manufacturing
processes, which require the maintenance of certain records and provide for
unscheduled inspections of the Company's facilities. In addition, the Company
has instituted systems and procedures relative to the Medical Device Reporting
(MDR) rule implemented by the FDA in December 1984. This rule requires a device
manufacturer to report to the FDA when it becomes aware that one of its devices
may have caused or contributed to a death or serious injury. State, local and
foreign governments have also adopted regulations relating to the manufacture
and marketing of medical health care products. The Company believes that it is
presently in material compliance with all applicable regulations.
The Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic Act
and regulations issued or proposed thereunder, provide for regulation by the FDA
of the manufacture of medical devices, including most of the Company's products.
These regulations include requirements that owners and operators of
establishments engaged in the manufacture of medical devices must register with
the FDA and furnish lists, updated periodically, of devices manufactured by
them. There are also certain requirements of state,
7
local and foreign governments which must be complied with in the manufacture and
marketing of the Company's products. To date, the Company has not experienced
any significant difficulty in complying with the requirements imposed upon it by
the FDA or other government agencies.
As part of its continuing efforts to improve its quality and service levels at
all facilities the Company is in the process of obtaining ISO 9000
certification. ISO 9000 is a generic term for a series of standards sponsored by
the International Organization for Standardization which specifies the systems
for establishing, documenting and maintaining a system for ensuring the quality
of the output of a process. ISO 9000 certification is a tangible expression of a
company's commitment to quality. Certification is carried out by accredited
organizations basically by reviewing the quality control practices and manuals
to document effective practices. Once certified the Company's facilities would
be audited annually by the outside organization to ensure that it continues to
meet the requirements of the standards. Companies having received ISO 9000
certification find greater acceptance of their products throughout the
international markets. The Company believes it currently meets the standards and
expects to be certified in 1997.
The Company's operations are subject to federal, state and local laws and
regulations relating to the environment. The Company regularly monitors and
reviews its operations and practices for compliance with these laws and
regulations, and the Company was in material compliance with such environmental
laws and regulations. Despite these compliance efforts, some risk of liability
is inherent in the operation of the business of the Company, as it is with other
companies engaged in similar businesses. There can be no assurance that the
Company will not incur significant costs in the future for environmental
compliance.
ASSOCIATES
- ----------
The Company employed 706 associates as of March 31, 1996, of whom 517 are
engaged in various manufacturing, quality control, engineering, research and
development, shipping and warehousing operations. There are 189 associates
engaged in administration, marketing and sales. Approximately 64 of the
associates who are directly engaged in manufacturing and other production at the
Company's Ronkonkoma facility are covered by collective bargaining agreements
which expire in 1996.
8
ITEM 2. PROPERTIES
----------
The following table describes the Company's major facilities:
Approximate
Area
Location (sq. ft) Use
- ------------------------ -------- ------------------------------------
Owned Facilities:
Ronkonkoma, New York 110,000 Executive offices, manufacturing
and warehouse facility
Owatonna, Minnesota 210,000 Offices, manufacturing
and warehouse facility
Leased Facilities:
Woodinville, Washington 30,270 Offices, manufacturing
and warehouse facility
Colorado Springs, 3,700 Research and development
Colorado
Limburgerhof, Germany 6,100 Sales and administration
All the facilities are well maintained and kept in good repair.
Additional information concerning the financing of the Company's owned
facilities is described in Note E to the Company's consolidated financial
statements.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is not presently involved in any legal proceedings which in its
opinion are material to its financial condition.
As a manufacturer of fitness and rehabilitation products, the Company is
inherently subject to the hazards of product liability litigation; however, the
Company has maintained, and expects to continue to maintain insurance coverage
which the Company believes is adequate to protect against these risks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of 1995.
9
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Company's common shares are traded on the American Stock Exchange (Amex).
The Company's Amex symbol is LUM.
The following table shows the high and low market prices as reported by the
Amex:
1995 1994
---- ----
Calendar High Low High Low
-------- ---- --- ---- ---
First Quarter $15.13 $11.25 $14.38 $ 9.25
Second Quarter 13.75 10.50 12.13 9.00
Third Quarter 12.13 9.50 13.38 10.00
Fourth Quarter 11.75 8.63 13.88 11.75
As of March 1, 1996 there were approximately 644 common shareholders of record.
This figure does not include stockholders with shares held under beneficial
ownership in nominee name.
The Company has not paid any dividends since August 1990. The Company's ability
to pay dividends is limited to 20% of its net income by the terms of its
financing arrangements with the Town of Islip Industrial Development Agency and
its bank term loans (See Note E to the Company's consolidated financial
statements.)
10
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following information has been extracted from the Company's consolidated
financial statements for the five years ended December 31, 1995. This selected
financial data should be read in conjunction with the consolidated financial
statements of the Company and the related notes included in Item 8 of this
report. Income statement data has been restated to reflect only the results from
continuing operations. (See Note B to the consolidated financial statements.)
Year Ended December 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands, except per share data)
INCOME STATEMENT DATA:
Net Sales $ 75,448 $ 70,420 $ 54,780 $ 53,849 $54,494
Costs and expenses:
Cost of sales 45,624 41,757 32,225 28,891 29,371
Selling and administrative 39,767 24,373 22,526 18,952 18,710
Product development 5,058 4,065 3,725 3,453 3,304
Interest 1,723 1,143 367 245 399
Other (income) (2,264) (2,046) (1,425) (765) (677)
-------- -------- ------- ------- -------
89,908 69,292 57,418 50,776 51,107
-------- -------- ------- ------- -------
(Loss) income from continuing
operations before taxes (14,460) 1,128 (2,638) 3,073 3,387
Income tax (benefit)
provision (3,344) 135 (1,333) 854 (1,093)
-------- -------- ------- ------- -------
(Loss) income from
continuing operations $(11,116) $ 993 $(1,305) $ 2,219 $ 2,294
======== ======== ======= ======= =======
(Loss) income per share of Common Stock:
Continuing operations $ (2.55) $ .23 $ (.31) $ .51 $ .53
======== ======== ======= ======= =======
Weighted Average Number of
Common Shares 4,351 4,315 4,201 4,325 4,318
BALANCE SHEET DATA:
Working capital $ 27,692 $ 37,158 $31,702 $30,863 $28,279
Net assets of discontinued
operations 37,214 - - - -
Total assets 98,918 94,168 85,766 69,037 66,665
Long-term debt (net of
current maturities) 2,716 12,771 12,076 5,131 5,936
Stockholders' equity 40,634 52,637 48,736 47,970 43,902
11
ITEM 7. 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 and loss on disposal of the Lumex Division have been reclassified as
discontinued operations.
The following discussion, including statistics presented, refers solely to
continuing operations unless otherwise stated.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, income statement data
from the Selected Financial Data in Item 6 of this Report, presented both as a
percentage of net sales and as a percentage change from the prior year:
%Inc(Dec)
---------------
Year Ended 1995 1994
December 31, vs vs
------------------------
1995 1994 1993 1994 1993
---- ---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 7.1% 28.6%
Costs and expenses:
Cost of sales 60.5 59.3 58.8 9.3 29.6
Selling and administrative 52.7 34.6 41.1 63.2 8.2
Product development 6.7 5.8 6.8 24.4 9.1
Interest 2.3 1.6 .7 50.8 211.7
Other (income) (3.0) (2.9) (2.6) 10.7 43.6
----- ----- -----
119.2 98.4 104.8 29.8% 20.7%
----- ----- -----
(Loss) income from continuing
operations before income
tax (benefit) provision (19.2) 1.6 (4.8)
Income tax (benefit) provision (4.4) .2 (2.4)
----- ----- -----
(Loss) income from continuing
operations (14.8)% 1.4% (2.4)%
===== ===== =====
1995 VS 1994:
- -------------
Continuing operations in 1995 resulted in a net loss of $11,116,233, compared to
net income in the prior year of $992,673. The loss is attributable primarily to
non-recurring charges in 1995, which have been reflected in selling and
administrative expense.
Net sales increased 7.1%, to $75,448,000 in 1995, as compared to $70,420,000 in
1994. Sales to the domestic institutional fitness market grew more than 11% in
1995 as compared to 1994, fueled by the introduction of VR2, its second
generation variable resistance weight training machines, and continued strong
growth of the Cybex Plate Loaded Series, introduced in 1994. Sales of
cardiovascular products were lower in 1995 as severe competitive pricing
practices impacted shipments of THE BIKE and THE SEMI, more than offsetting
sales of the new Q45 institutional treadmill.
Sales to the domestic rehabilitation market were 17% lower in 1995 as the market
continued to constrict, the impact of national healthcare
12
reimbursement issues and the continued emphasis on managed care. During 1995,
the Company introduced NORM, its lower-priced, latest generation extremity
testing and rehabilitation system designed to provide clinicians a comprehensive
rehabilitation program with instant access to one of the world's largest on-line
isokinetic normative databases.
International sales grew 28% as product shipments increased significantly into
both the rehabilitation and institutional fitness market segments.
Cost of sales increased to 60.5% of sales in 1995 from 59.3% of sales in 1994 as
the benefits of increased production volume and product mix were more than
offset by start up manufacturing costs for new products, higher raw material
costs and a larger proportion of shipments being made to the international
market where product pricing is lower.
Selling and administrative costs rose 63.2%, to $39,767,000 in 1995 as compared
to $24,373,000 in 1994, due in large part to the non-recurring charges recorded
in the fourth quarter of 1995 of approximately $8,200,000 and additional
one-time charges of approximately $2.0 million recorded earlier in the year.
Included as part of the non-recurring charges recorded in the fourth quarter
were the following:
- $2.3 million of costs related to the consolidation of the Company's sales
forces and elimination of approximately 75 sales, administrative and
engineering positions;
- $3.0 million of expenses for phasing down of production and
servicing of unprofitable or older product lines;
- $1.3 million of costs related to contractual obligations and
settlements;
- $1.6 million of other expenses related to realignment of the
Cybex business.
One-time charges incurred earlier in 1995 included a $750,000 settlement to a
contractual dispute, approximately $700,000 in severance and paid recruitment
costs for senior executive management changes, and professional fees for
corporate services provided exceeding $550,000.
Selling and administrative costs in 1995 also included increased costs in the
expansion of international markets, the amortization of rights and licenses
acquired in 1995, higher shipping costs and were further impacted by favorable
experience in self-insurance reserves in 1994 not repeated in 1995.
Product development expenses increased 24.4%, to $5,058,000 in 1995 due to
planned increases in spending to accelerate the development and introduction
during 1995 of major new products including the VR2 product line, NORM and the
Q45 institutional treadmill.
Interest expense rose to $1,723,000 in 1995 compared to $1,143,000 in 1994
principally due to increased borrowings.
Interest income was 22.8% lower in 1995 than 1994 due to lower average balances
held in the Company's lease portfolio as the Company regularly sold portions of
its portfolio to provide continued funding for its leasing activities.
13
The effective tax benefit rate for continuing operations in 1995 was 23.1%, the
result of a deferred tax valuation allowance of $2,698,036.
1994 VS. 1993
- -------------
Net sales increased 28.6%, to $70,420,000 in 1994 as compared to $54,780,000 in
1993. Sales to the domestic institutional fitness market were 30% higher in
1994, reflecting strong sales growth of variable resistance, modular and
cardiovascular product lines. New product introductions in 1994, including the
plate loaded free weight stations and consumer treadmills, were both well
received and provided additional sales growth in the second half of the year.
Shipments into the domestic rehabilitation market in 1994 were flat compared
with 1993 levels.
International shipments, largely to Europe and Asia-Pacific, were up nearly 26%
with significant increases in both the rehabilitation and institutional fitness
product lines.
Gross margins were slightly lower in 1994 than in 1993, resulting from higher
material costs, increased shipments of lower margin cardiovascular and consumer
fitness equipment and a larger proportion of sales to the international market,
offsetting the benefit derived from manufacturing overhead absorption.
Selling and administrative costs rose 8.2% in 1994, however, as a percentage of
sales, expenses declined to 34.6% in 1994 from 41.1% a year earlier. Significant
improvements in experience regarding medical insurance reserves partially offset
increased spending in sales and marketing for institutional and consumer fitness
products as well as increases in the international market.
Product development expenses rose 9.1% during 1994, the result of planned
increases in fourth quarter spending designed to accelerate new product
introductions for the worldwide rehabilitation, institutional fitness and
consumer fitness markets in the upcoming year.
The increase in other income, principally interest income, of $621,000 (43.6%)
was largely the result of interest earned on the increased lease volume through
the Company's captive leasing programs and included a $122,000 gain resulting
from the sale of lease receivables.
The increase in interest expense to $1,143,000 results from having a full year
of interest expense for the $10 million in term loans borrowed in the second
half of 1993 and $5 million term loan borrowing obtained in 1994, all to support
the growth in lease volume.
The effective tax rate in 1994 was 12.0%. The effective tax rate was
significantly lower than the statutory tax rate due to the proportional share of
income derived from tax exempt investments and the benefit obtained from
shipments through the Company's foreign sales corporation. No valuation
allowance has been provided as there are sufficient sources of taxable income in
prior carryback and future years to realize the deferred tax assets of the
Company.
In May 1993, the Financial Accounting Standards Board issued Statement
No. 115, Accounting for Certain Debt and Equity Investments (SFAS 115).
14
The Company adopted the provisions of the standard in the first quarter 1994.
The cumulative effect of adopting SFAS 115 as of January 1, 1994 was not
material to the Company's financial condition or results of operations. In
accordance with SFAS 115 prior period financial statements have not been
restated to reflect the change in accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1995, the Company's working capital was approximately $27.7
million, including cash and investments of $4.2 million, its current ratio was
1.5 to 1 and total short-term and long-term borrowings were approximately $32.3
million. As a result of the sale of the Lumex Division, completed on April 3,
1996 for $40.75 million in cash, the Company's financial condition was
considerably improved as the Company repaid all of its borrowings other than
approximately $3.3 million. The remaining debt structures are industrial bond
financings on two of the Company's properties at rates well below the bank prime
rate.
In prior years the Company's manufacturing operations had generated sufficient
cash flow through earnings and asset management to meet its operating needs,
including capital expenditures. The Company's leasing subsidiary, Cybex
Financial Corp., utilized a combination of long and short term borrowings and,
beginning in 1994, began selling portions of its lease portfolio under limited
recourse agreements as a means to fund leasing activities. During 1995 the
Company significantly increased capital expenditures, including a re-layout of
the Lumex Division's Bay Shore manufacturing facility, and experienced
significant growth in leasing activities for Lumex Division's Therapeutic
Support Systems, which, combined with larger than expected operating losses,
resulted in significant expansion of corporate borrowings. During 1995, and into
1996, the Company continued to fund its Cybex leasing activities through
periodic sales of its lease portfolio to various financial institutions.
Cash used in operating activities from continuing operations was $18.0 million
in 1995 and $14.4 million in 1994. Net operating accounts grew $14.0 million in
1995 principally the result of increases in trade receivables of $5.3 million,
largely due to the strong fourth quarter shipments, $9.2 million in lease
receivables and $2.6 million in inventories resulting from new products
introduced in 1995.
Cash used in investing activities from continuing operations was $2.0 million in
1995 compared to cash provided of $5.8 million in 1994. Cash used in 1995 was
the result of capital expenditures to improve both capacity and productivity and
for the purchase of certain licenses and rights related to the FASTEX product.
Cash provided by financing activities in 1995 was $24 million compared to $18.7
million in 1994. The increase in 1995 is principally due to $15.3 million of net
borrowings under long and short term credit facilities and sales of $8.3 million
of lease receivables to various financial institutions. The Company sells
portions of its lease portfolio under several different limited or full recourse
programs. Generally, recourse is limited to less than 20% of the lease stream
sold
15
and may be reduced annually. Leases are secured by the equipment sold as well as
personal guarantees and often require cash downpayments. These provisions,
combined with the Company's ability to refurbish and remarket equipment
returned, have effectively limited the Company's exposure to losses due to
default. Losses under these programs were not significant during the past three
years.
With the close of the sale of its Lumex Division and the concurrent paydown of
short and long-term borrowings the Company's capital structure is conservative
with total bank debt representing 8.2% of total stockholders' equity. The
Company has a $10 million bank line of credit under which, subsequent to the
sale of the Lumex Division, there were no outstanding borrowings. Management
expects the cash flow generated from its manufacturing operations plus the net
proceeds from the sale of the Lumex Division will be sufficient to meet its
general working capital and capital expenditure requirements, including those
related to the restructuring of its continuing operations. The Company's finance
subsidiary is expected to support its continued growth through periodic sales of
its lease portfolios.
16
F-1
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
LUMEX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Auditors . . . . . . . . . . . . . . . . . . F-2
Financial Statements:
Consolidated Balance Sheets--December 31, 1995 and 1994 . . . . F-3
Consolidated Statements of Operations--Years ended December 31,
1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows--Years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . F-7
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission that are not required under
the related instructions or are inapplicable have been omitted.
ERNST & YOUNG LLP 395 North Service Road
Melville, New York 11747
Phone (516) 752-6100
F-2
Report of Independent Auditors
Board of Directors and Stockholders
Lumex, Inc.
We have audited the accompanying consolidated balance sheets of Lumex, Inc. as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Lumex,
Inc. at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Melville, New York
February 13, 1996, except for
Notes B and E, as to which
the date is April 4, 1996
Ernst & Young is a member of Ernst & Young International, Ltd.
F-3
LUMEX, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
ASSETS 1995 1994
------------------------
CURRENT ASSETS
Cash and cash equivalents $ 1,797,976 $ 9,745,498
Investments 2,476,197 4,768,220
Accounts receivable 22,482,088 28,853,848
Inventories 12,023,530 14,962,039
Lease receivables 573,889 1,801,428
Net assets of discontinued operations 37,214,300 -0-
Other current assets 5,466,295 3,566,345
------------ ------------
Total current assets 82,034,275 63,697,378
PROPERTY, PLANT AND EQUIPMENT
Land 585,939 894,533
Buildings and improvements 9,033,680 15,889,987
Machinery and equipment 17,480,733 25,819,826
------------ ------------
27,100,352 42,604,346
Less accumulated depreciation (13,809,511) (22,536,899)
------------ ------------
13,290,841 20,067,447
Lease receivables 1,401,791 7,233,534
Intangible assets 1,686,873 2,577,079
Other assets 504,409 592,747
------------ ------------
$98,918,189 $94,168,185
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $15,250,000 $ -0-
Accounts payable 10,874,188 11,378,660
Current portion of long-term debt 14,330,000 3,805,000
Accrued liabilities 13,887,831 11,355,531
----------- -----------
Total current liabilities 54,342,019 26,539,191
DEFERRED INCOME TAXES 1,226,721 2,221,054
LONG-TERM DEBT 2,715,537 12,770,537
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10 per share,
authorized 15,000,000 shares, issued
4,458,354 shares in 1995 and 4,360,848
shares in 1994 445,835 436,085
Capital surplus 17,128,028 16,166,623
Retained earnings 24,100,526 37,004,510
Unrealized losses on investments,net -0- (224,787)
Treasury stock, at cost (54,897
shares-1995; 66,048 shares-1994) (628,706) (745,028)
Unearned compensation expense (411,771) -0-
----------- -----------
Total stockholders' equity 40,633,912 52,637,403
----------- -----------
$98,918,189 $94,168,185
=========== ===========
See notes to consolidated financial statements.
F-4
LUMEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------
Year Ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
Net Sales $ 75,447,765 $ 70,420,352 $ 54,780,528
Costs and Expenses:
Cost of sales 45,623,854 41,756,744 32,225,043
Selling and administrative 39,767,247 24,373,589 22,526,000
Product development 5,058,111 4,064,868 3,725,306
Interest 1,723,035 1,142,717 366,561
Other income (principally
interest income) (2,264,352) (2,045,752) (1,424,569)
------------ ------------ ------------
89,907,895 69,292,166 57,418,341
------------ ------------ ------------
(Loss) income from continuing
operations before income
tax (benefit) provision (14,460,130) 1,128,186 (2,637,813)
Income tax (benefit) provision (3,343,897) 135,513 (1,333,211)
------------ ------------ ------------
(LOSS) INCOME FROM CONTINUING
OPERATIONS (11,116,233) 992,673 (1,304,602)
Discontinued Operations (Note B):
Income from discontinued
operations (net of income tax
provision of $791,529,
$1,436,891 and $580,011,
respectively) 1,350,553 2,489,520 1,224,991
Loss on disposal, net of
income tax benefit of
$199,001 (3,138,304) -0- -0-
------------ ------------ ------------
NET (LOSS) INCOME $(12,903,984) $ 3,482,193 $ (79,611)
============ ============ ============
(LOSS) INCOME PER SHARE
OF COMMON STOCK:
Continuing operations $(2.55) $.23 $(.31)
Discontinued operations (.41) .58 .29
------ ---- -----
NET (LOSS) INCOME $(2.96) $.81 $(.02)
====== ==== =====
See notes to consolidated financial statements.
F-5
LUMEX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------
Common Stock Capital Retained
Shares Par Value Surplus Earnings
------ --------- ------- --------
Balance at December 31, 1992 4,226,411 $ 422,641 $ 15,196,950 $ 33,601,928
Net Loss (79,611)
Stock allocated under ESOP
Loans to repurchase ESOP shares distributed
Exercise of stock options 78,400 7,840 388,098
Purchase of common shares
Tax benefit derived from stock option plan 243,462
------------ ------------ ------------ ------------
Balance at December 31, 1993 4,304,811 430,481 15,828,510 33,522,317
Net income 3,482,193
Stock allocated under ESOP
Loan to repurchase ESOP shares distributed
Loan to repurchase 6,554 shares from
Treasury 13,246
Exercise of stock options 65,900 6,590 324,990
Purchase of common shares
Retirement of common shares (9,863) (986) (119,544)
Unrealized loss on investments
Tax benefit derived from stock option plan 119,421
------------ ------------ ------------ ------------
Balance at December 31, 1994 4,360,848 436,085 16,166,623 37,004,510
Net loss (12,903,984)
Stock allocated under ESOP
Loan to repurchase ESOP shares distributed
Loan to repurchase shares from Treasury (31,815)
Exercise of stock options 15,050 1,505 75,084
Retirement of common shares (145) (15) (2,106)
Unrealized gain on investments
Restricted stock issued 65,062 6,506 673,185
Restricted stock cancelled
Common stock issued under stock
retainer plan 6,223 622 63,918
Common stock issued as compensation 11,316 1,132 151,634
Tax benefit derived from stock option plan 31,505
Amortization of unearned compensation
------------ ------------ ------------ ------------
Balance at December 31, 1995 4,458,354 $ 445,835 $ 17,128,028 $ 24,100,526
============ ============ ============ ============
See notes to consolidated financial statements
[TABLE RESTUBBED FROM ABOVE]
Unrealized Unearned
Gains/Losses Treasury Compensation ESOP Loan
on Investments Stock Expense Receivable
-------------- ----- ------- ----------
Balance at December 31, 1992 ($ 827,390) ($ 423,800)
Net Loss
Stock allocated under ESOP 310,800
Loans to repurchase ESOP shares distributed (52,453)
Exercise of stock options
Purchase of common shares (52,031)
Tax benefit derived from stock option plan
------------ ------------
Balance at December 31, 1993 (879,421) (165,453)
Net income
Stock allocated under ESOP 310,800
Loan to repurchase ESOP shares distributed (60,145)
Loan to repurchase 6,554 shares from
Treasury 71,956 (85,202)
Exercise of stock options
Purchase of common shares (56,770)
Retirement of common shares 119,207
Unrealized loss on investments ($ 224,787)
Tax benefit derived from stock option plan
------------ ------------ ------------
Balance at December 31, 1994 (224,787) (745,028) 0
Net loss
Stock allocated under ESOP 291,347
Loan to repurchase ESOP shares distributed (158,470)
Loan to repurchase shares from Treasury 164,692 (132,877)
Exercise of stock options
Retirement of common shares
Unrealized gain on investments 224,787
Restricted stock issued (673,185)
Restricted stock cancelled (62,120) 55,614
Common stock issued under stock
retainer plan 13,750
Common stock issued as compensation
Tax benefit derived from stock option plan
Amortization of unearned compensation 205,800
------------ ------------ ------------ ------------
Balance at December 31, 1995 $ 0 ($ 628,706) ($ 411,771) $ 0
============ ============ ============ ============
See notes to consolidated financial statements
F-6
LUMEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
------------- ---------- -----------
OPERATING ACTIVITIES
Net (loss) income $(12,903,984) $3,482,193 $ (79,611)
Noncash items included in net
(loss) income:
Depreciation and amortization 5,230,652 3,223,862 2,827,609
Contribution of Common Stock
to ESOP 291,347 310,800 310,800
Deferred income taxes 550,885 648,441 (1,473,362)
Discontinued operations 2,690,025 -0- -0-
Changes in operating assets and
liabilities:
Accounts receivable (5,909,802) (8,009,454) (575,881)
Inventories (5,372,520) (373,193) (886)
Other current assets (3,862,434) 355,316 (1,082,509)
Lease receivables (14,527,237) (15,604,535) (9,007,636)
Accounts payable 7,773,032 2,792,807 2,274,137
Accrued liabilities 7,503,425 371,021 4,405,120
------------- --------- ----------
NET CASH USED IN
OPERATING ACTIVITIES (18,536,611) (12,802,742) (2,402,219)
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (9,592,621) (3,613,849) (3,263,384)
Purchases of investments -0- (1,002,500) (20,939,769)
Proceeds from sales and maturities
of investments 2,632,706 7,104,658 17,998,682
Decrease (increase) in other assets (347,951) 1,880,696 (395,062)
Increase in intangible assets (6,082,954) (791,769) (176,167)
---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (13,390,820) 3,577,236 (6,775,700)
FINANCING ACTIVITIES
Proceeds from short-term debt 15,250,000 -0- -0-
Proceeds from sales of leases 8,344,011 16,802,967 -0-
Proceeds from long-term debt 4,500,000 5,000,000 10,000,000
Principal payments of long-term debt (4,030,000) (3,305,000) (1,055,000)
Common shares reacquired -0- (56,770) (52,031)
Other (84,102) 270,111 343,484
---------- ---------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 23,979,909 18,711,308 9,236,453
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (7,947,522) 9,485,802 58,534
CASH AND CASH EQUIVALENTS-January 1 9,745,498 259,696 201,162
---------- ---------- ----------
CASH AND CASH EQUIVALENTS-December 31 $1,797,976 $9,745,498 $ 259,696
========== ========== ==========
See notes to consolidated financial statements.
F-7
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
DECEMBER 31, 1995
- -----------------
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements include the
- ---------------------------
accounts of Lumex, Inc. and its subsidiaries (the "Company") after elimination
of all significant intercompany accounts and transactions.
Prior year financial statements have been restated to reflect the results of
operations of the Lumex Division, which was sold in April 1996, as discontinued
operations - see Note B. All amounts included in these Notes to Consolidated
Financial Statements pertain to continuing operations unless otherwise stated.
Business: The Company operates in one industry, the exercise equipment industry,
- --------
where it designs, manufactures and markets a wide variety of exercise equipment
for the fitness, rehabilitation and sports medicine markets.
Cash and cash equivalents: The Company considers all highly liquid investments
- -------------------------
with an original maturity of three months or less when purchased to be cash
equivalents.
Investments: In May 1993, the Financial Accounting Standards Board issued
- -----------
Statement No. 115, Accounting for Certain Debt and Equity Securities (SFAS 115).
The Company adopted the provisions of the new standard for investments held as
of or acquired after January 1, 1994. SFAS 115 requires the Company to evaluate
its investment policies and classify individual securities held for investment
as either held to maturity, trading or available-for-sale. Management has
determined that all of the Company's investments (consisting of various debt
securities) are available-for-sale. Available-for-sale securities are stated at
fair value, with unrealized gains and losses, net of income tax, reported as a
separate component of stockholders' equity. In accordance with SFAS 115 prior
period financial statements have not been restated to reflect the change in
accounting principle. The cumulative effect as of January 1, 1994, of adopting
SFAS 115, was not material to the Company's financial condition or results of
operations.
Inventories: Inventories are stated at the lower of cost or market. Inventory
- -----------
costs have been determined by the last-in first-out (LIFO) method for
approximately 33% and 71% of inventories at December 31, 1995 and 1994,
respectively. Costs for the remaining inventories have been determined using the
first-in first-out (FIFO) method.
Property, plant and equipment: Property, plant and equipment, including
- -----------------------------
expenditures for renewals and betterments, are recorded at cost. Depreciation of
plant and equipment is computed using the straight-line method over their
related estimated useful lives (buildings, 40 years; building improvements, 15
years; machinery and equipment, 3 to 10 years).
F-8
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangibles: Intangibles consist principally of an exclusive license and patent
- -----------
rights recorded at cost and amortized over their estimated useful lives by the
straight-line method for periods ranging from 3 to 30 years. Accumulated
amortization at December 31, 1995 and 1994 was $756,048 and $2,097,589,
respectively.
Fair value of financial instruments: To meet the reporting requirements of FASB
- -----------------------------------
Statement 107, "Disclosures about Fair Value of Financial Instruments", the
Company calculates the fair value of financial instruments and includes this
additional information in the notes to the financial statements when the fair
value is different than the carrying value of those financial instruments. When
the fair value is equal to the carrying value no additional disclosure is made.
The Company uses quoted market prices whenever available to calculate these fair
values.
Income taxes: The Company adopted the provisions of the Financial Accounting
- ------------
Standards Board Statement No. 109, Accounting for Income Taxes (SFAS 109) as of
January 1, 1993. Under SFAS 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities using tax rates and laws that will be in effect when the
differences are expected to reverse.
Use of estimates: The preparation of financial statements in conformity with
- ----------------
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Net (loss) income per common share: Net (loss) income per share of Common Stock
- ----------------------------------
is computed by dividing net (loss) income by the weighted average number of
common shares and common share equivalents (dilutive stock options) outstanding
during each year (4,350,994 in 1995, 4,315,376 in 1994 and 4,201,344 in 1993).
NOTE B--DISCONTINUED OPERATIONS
In October 1995, the Company adopted a plan to sell its Lumex Division, a
manufacturer of a wide variety of health care products used in hospitals,
long-term care facilities and in the home. On March 13, 1996, the Company signed
a definitive agreement to sell substantially all the assets of the Lumex
Division for $40,750,000 in cash. The transaction was completed on April 3,
1996.
Accordingly, the Company has reclassified its consolidated financial statements
to reflect the net assets as of December 31, 1995 and operating results for all
years presented of the Lumex Division as discontinued
F-9
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE B--DISCONTINUED OPERATIONS (CONTINUED)
operations. Net sales for the Lumex Division were $63,295,000, $60,777,000 and
$54,189,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The net losses from discontinued operations for the period between the
measurement date (October 1, 1995) and December 31, 1995 of $1,247,280 and for
the period from January 1, 1996 to April 3, 1996 of approximately $984,000 has
been included in the loss on disposal, of $3,138,304 as shown in the
Consolidated Statements of Operations. The net assets of discontinued operations
at December 31, 1995 are summarized as follows:
Current assets $ 20,782,197
Property, plant and equipment 12,758,531
Lease receivables 13,592,610
Other assets 5,995,298
Current liabilities (13,224,311)
Accrued loss on disposal (2,690,025)
------------
Net assets $ 37,214,300
============
NOTE C--NON-RECURRING CHARGES
In the fourth quarter of 1995 the Company recorded pre-tax non-recurring charges
totaling $8.2 million which has been reflected in selling and administrative
expense. Included in these charges are the estimated costs associated with a
restructuring plan, initiated in December 1995, designed to enhance overall
competitiveness of the Company's operations through improved manufacturing
processes, increased productivity and reduced operating expenses. Under the
plan, the Company consolidated its sales forces, phased down the production and
servicing of unprofitable product lines and eliminated approximately 75 sales,
administrative and engineering positions. Included in the non-recurring charges
are costs related to, among other things, severance payments and related
personnel costs of $2.3 million, phasing down of production and servicing of
unprofitable or older product lines of $3.0 million, contractual obligations of
$1.3 million and other expenses totaling $1.6 million related to the
restructuring of its Cybex business. The Company expects the restructuring to be
substantially completed by the end of 1996.
NOTE D--INVESTMENTS
The Company has determined that all of its investment securities are classified
as available-for-sale. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses
and declines in value judged to be other than temporary on available-for-sale
securities are included in other income. The cost of securities sold is based on
the specific identification method. Interest and dividends are included in other
income.
F-10
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE D--INVESTMENTS (CONTINUED)
The following is a summary of available for sale securities held by the Company,
which are comprised of obligations of states and other political subdivisions:
DECEMBER 31,
----------------------------
1995 1994
---- ----
Cost $2,476,197 $5,108,807
Gross Unrealized Gains -0- -0-
Gross Unrealized Losses -0- 340,587
---------- ----------
Estimated Fair Value $2,476,197 $4,768,220
========== ==========
Net unrealized losses, less deferred taxes, of $224,787 in 1994 have been
included as a separate component of stockholders' equity.
Proceeds received from sales of securities available for sale were $2,632,706 in
1995 and $7,104,658 in 1994. Gross gains and gross losses on such sales were not
significant.
NOTE E--LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
Long-term debt consists of the following:
December 31,
---------------------------
1995 1994
---- ----
Bank term loans $13,525,000 $12,250,000
Industrial development revenue bond 1,245,537 1,875,537
Industrial development revenue note 2,275,000 2,450,000
----------- -----------
17,045,537 16,575,537
Less current portion 14,330,000 3,805,000
----------- -----------
$ 2,715,537 $12,770,537
=========== ===========
The Company has reclassified all of its long term debt under term loans with two
banks to current because it was not in compliance with certain loan covenants at
December 31, 1995. The Company repaid these bank term loans on April 3, 1996
from the proceeds received from the sale of its Lumex Division.
The industrial development revenue bond provided the funds to construct and
equip the manufacturing facility in Ronkonkoma, New York. The bond is
collateralized by land, building and equipment with a net book value of
$5,154,801 at December 31, 1995, bears interest at 60% of the bank's prime rate
and has one installment of $630,000 due at June 30, 1996 with a final payment of
$615,537 due on June 30, 1997. Under the terms of the bond agreement, the
Company is subject to certain restrictive covenants including limitations on
additional borrowings, limitation on the payment of cash dividends to 20% of net
income and compliance with certain financial ratios. The Company was not in full
compliance with certain of these financial covenants at December 31, 1995 and
has received the appropriate waivers from the bank.
F-11
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE E--LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS (CONTINUED)
The industrial development revenue note was used to construct and equip the
manufacturing facility in Owatonna, Minnesota. The note is collateralized by
land, building and equipment with a net book value of $7,610,707 at December 31,
1995, bears interest at 62.5% of the bank's prime rate and requires annual
principal payments of $175,000 on each January 1 through 2003 with a final
payment of $875,000 on January 1, 2004. The note agreement requires compliance
with certain financial ratios. The Company was not in compliance with certain of
these financial covenants at December 31, 1995 and has received the appropriate
waivers from the bank.
Maturities of long-term debt are as follows:
1996 $14,330,000
1997 790,537
1998 175,000
1999 175,000
2000 175,000
Thereafter 1,400,000
-----------
$17,045,537
===========
During 1995, the Company had $15 million in unsecured bank lines of credit for
general corporate purposes and the Company's finance subsidiary had an
additional $10 million unsecured bank line of credit principally to provide
interim funding for its lease portfolio. Both lines of credit permitted
borrowings at interest rates generally not to exceed the bank prime rate.
Borrowings under these short-term bank lines of credit totaled $15,250,000 at
December 31, 1995 and were repaid in full from the proceeds received from the
sale of the Company's Lumex Division. The Company continues to maintain a $10
million unsecured bank line of credit.
Selected data on the Company's short-term borrowings are as follows:
1995 1994
---- ----
Balance at December 31 $15,250,000 -0-
Weighted average interest
rate at December 31 7.42% 0.00%
Maximum amount outstanding
at any month end $15,250,000 $5,000,000
Average amount outstanding $ 8,812,500 $2,365,000
Weighted average interest
rate for the year 7.50% 7.23%
There were no short-term borrowings during the year ended December 31, 1993.
Cash paid for interest was $1,729,514, $1,103,174 and $281,672 for the years
ended December 31, 1995, 1994 and 1993, respectively.
F-12
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE F--STOCKHOLDERS' EQUITY
Omnibus Incentive Plan: In June 1995, shareholders approved the 1995 Omnibus
- ----------------------
Incentive Plan ("Omnibus Plan"), designed to provide incentives which will
attract and retain individuals key to the success of the Company through direct
or indirect ownership of the Company's Common Stock. Benefits under the Omnibus
Plan may be granted in any one or a combination of stock options, stock
appreciation rights, stock awards, performance awards and bonus stock purchase
awards. The Ominibus Plan has 250,000 shares of Common Stock reserved for
issuance and provides that the terms and conditions of each award are to be
determined by a committee of the Board of Directors charged with administering
the Omnibus Plan. Under the Omnibus Plan, the committee may grant either
incentive or nonqualified stock options with a term not to exceed ten years from
the grant date and at an exercise price per share that the committee may
determine (which in the case of incentive stock options may not be less than the
fair market value of a share of Common Stock on the date of grant). The
committee may also grant stock appreciation rights either in tandem with, or
independently of, an award of stock options. Under the Omnibus Plan, the
committee is authorized to permit key employees selected by the committee to
elect to convert up to a maximum percentage, as determined by the committee, of
their annual cash bonus incentive into Common Stock of the Company at a price
per share fixed by the committee, which will not be less than 85% of the fair
market value of the Common Stock on the regular bonus payment date. Options
granted under the Omnibus Plan during 1995 were made at fair market value on the
date of grant, expire within ten years and are exercisable within one to four
years after date of grant.
During 1995, the Company granted 65,062 shares of its Common Stock to certain
eligible employees for restricted stock awards subject to certain conditions as
provided in the Omnibus Plan and in their grant letters. Restricted stock awards
vest in one to five years from the date of grant. At December 31, 1995, there
were 59,991 shares outstanding under the restricted awards after 5,071 shares
had been canceled and transferred to treasury. Upon the issuance of restricted
stock, unearned compensation equal to fair market value at the date of grant is
charged to stockholders' equity and amortized to expense over the period in
which the restrictions lapse. Amortization expense of $205,800 was charged to
operations in 1995.
1987 Stock Option Plan: The Company also has shares available for the granting
- ----------------------
of options under the 1987 Stock Option Plan. Under this plan, a committee of the
Board of Directors charged with administering the plan may grant either
incentive or nonqualified stock options with a term not to exceed ten years from
the grant date, at an exercise price per share that the committee may determine
(which in the case of incentive stock options may not be less than the fair
market value of a share of Common Stock on the date of grant), and with such
other conditions as the committee determines. The committee may also grant stock
appreciation rights either in tandem with, or independently of, an award of
stock
F-13
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)
options under the plan.
Options granted under this plan during 1995 were made at fair market value on
the date of grant, expire within five to ten years and are exercisable within
two to five years after date of grant.
The following is a summary of activity in the 1995 Omnibus Incentive Plan and
1987 Stock Option Plan:
1995 1987
Omnibus Stock
Incentive Option Option Option
Plan Price Plan Price
---- ----- ---- -----
Outstanding at January 1, 1994 246,950 $ 5 - $19
Granted 144,600 $10 - $11
Exercised (65,900) $ 5
Canceled or expired (48,800) $10 - $14
--------
Outstanding at December 31, 1994 -0- 276,850 $ 5 - $19
Granted 40,000 $10 70,100 $11
Exercised -0- (15,050) $ 5
Canceled or expired -0- (70,625) $10 - $14
-------- --------
Outstanding at December 31, 1995 40,000 $10 261,275 $ 5 - $19
======== ========
Exercisable at December 31:
1995 -0- 119,681
1994 -0- 99,800
Shares available for future
issuance at December 31:
1995 150,009 57,325
1994 -0- 56,800
Through December 31, 1995, the Company has not granted any stock appreciation
rights.
Stock Retainer Plan for Nonemployee Directors: In June 1995, the shareholders
- ---------------------------------------------
approved the Stock Retainer Plan for Nonemployee Directors ("Retainer Plan"),
which provides that each nonemployee director will receive 70% of their annual
retainer or, in the case of the Chairman of the Board of Directors, shall
receive 50% of his annual retainer, in shares of Common Stock of the Company.
The number of shares to be issued will be computed by dividing the applicable
amount of the annual retainer to be paid in stock by the fair market value of a
common share on January 1 of each calendar year. Up to 35,000 shares of Common
Stock may be issued pursuant to the Retainer Plan. The issuance of shares in
payment of annual retainers will result in compensation expense based on the
fair market value of such shares. At December 31, 1995, the Company had issued
6,223 shares under the Retainer Plan representing $64,540 for director fees paid
in 1995. The Company also reissued 1,250 shares from Treasury representing
$13,750 in director fees in 1995 which were not part of the Retainer Plan.
F-14
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE F--STOCKHOLDERS' EQUITY (CONTINUED)
Leveraged Employee Stock Ownership Plan: The Company maintains a leveraged
- ---------------------------------------
Employee Stock Ownership Plan (ESOP) which is a noncontributory plan covering
substantially all employees meeting a one year length of service requirement.
The plan is designed to give employees a proprietary interest in the Company
through Common Stock ownership.
In 1989, the ESOP borrowed $1,297,200 from the Company to acquire 108,100 shares
previously held in treasury. Each year the Company contributes amounts to the
ESOP sufficient for the ESOP to reduce its loan balance and release a portion of
its unallocated shares to eligible employees. In addition the ESOP has made
periodic borrowings from the Company to repurchase shares distributed to former
participants. Contributions by the Company to the ESOP are charged to expense.
During 1994 the remaining unallocated shares held by the ESOP were allocated to
eligible employees and the remaining loan balance was eliminated. During 1995,
14,972 shares of the Company's Common Stock were transferred from treasury stock
to the ESOP. In 1995, 1994, and 1993, 25,900 shares were allocated to eligible
employees and $291,347, $310,800 and $310,800, respectively, charged to expense
by the Company.
For financial statement purposes the Company's loan receivable had been
reflected as a reduction in stockholders' equity.
Shareholders' Rights Plan: In May 1988, as further amended by the Board of
- -------------------------
Directors in March 1989, a Shareholders Rights Plan (the "Rights Plan") was
adopted to insure that any acquisition of the Company would be on terms that are
fair to and in the best interest of all shareholders. Under the Rights Plan,
holders of Common Stock are entitled to receive one right for each share of
Common Stock held. Separate rights certificates would be issued and become
exercisable in the event an acquiring party accumulates 15% or more of the
Company's Common Stock or announces an offer to acquire 30% or more of the
Common Stock.
Each right will entitle a holder, except a 15% or more holder, to buy one
one-hundredth share of a newly authorized Series A Preferred Stock at an
exercise price of $60.00. Each one one-hundredth share of such preferred stock
is essentially equivalent to one share of the Company's Common Stock. However,
if an acquiring party accumulates 15% or more of the Company's Common Stock or
certain other events occur, each right entitles the holder (other than a 15%
holder) to purchase for $60 either $120 worth of Series A Preferred Stock or
$120 worth of common stock in the entity acquiring the Company. The purchase
price per share would be the market price of the Company's Common Stock or the
common stock of such acquiring entity.
The rights expire in May 1998 and may be redeemed by the Company at a price of
$.05 per right at any time up to ten days after they become exercisable (subject
to extension in certain circumstances) or in connection with a transaction
approved by Independent Directors (as defined in the Rights Plan).
F-15
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE G--INCOME TAXES
The (benefit) provision for income taxes on continuing operations included in
the accompanying Consolidated Statements of Operations is summarized as follows:
1995 1994 1993
----------- ----------- -----------
Current Payable:
Federal $(2,815,975) $ (33,252) $ (513,393)
State and local 22,963 60,683 (37,634)
----------- ----------- -----------
(2,793,012) 27,431 (551,027)
Deferred (550,885) 108,082 (782,184)
----------- ----------- -----------
$(3,343,897) $ 135,513 $(1,333,211)
=========== =========== ===========
As of December 31, 1995 and 1994, the significant components of the Company's
deferred tax liabilities and assets are as follows:
1995 1994
---------- ----------
Deferred tax liabilities:
Accelerated depreciation $1,021,888 $1,761,229
Other - net 204,833 459,825
---------- ----------
Total deferred tax liabilities 1,226,721 2,221,054
Deferred tax assets (included in
other current assets):
Non-recurring charge 1,797,771 785,194
Discontinued operations 772,600 -
Warranty reserves 815,776 285,648
Insurance obligations 276,584 258,218
Bad debt reserves 239,964 148,393
LIFO reserves 82,159 190,420
Inventory cost capitalization 86,617 88,016
Unrealized losses
on investments -0- 115,800
Other - net 81,900 27,094
---------- ----------
Total deferred tax assets 4,153,371 1,898,783
Valuation allowance (2,698,036) -0-
---------- ----------
Net deferred tax asset/
(liability) $ 228,614 $ (322,271)
========== ==========
The Company has recognized a benefit equal to taxes recoverable from the
utilization of net operating loss carrybacks and has recorded a valuation
allowance of $2,698,036.
F-16
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE G--INCOME TAXES (CONTINUED)
The reconciliation of tax computed on the results from continuing operations at
the federal statutory rate to the (benefit) provision for income taxes is as
follows:
1995 1994 1993
----------- ----------- -------------
Tax computed at statutory rate $(4,916,444) $ 383,582 $ (896,856)
Tax free interest earned on
investments (67,464) (107,180) (126,918)
Foreign Sales Corporation
exempt income (104,500) (100,348) (136,000)
State income taxes 15,156 40,051 (24,853)
Research and development tax
credit -0- (57,381) (62,221)
Valuation allowance 1,707,061 -0- -0-
Other, net 22,294 (23,211) (86,363)
----------- ----------- -----------
$(3,343,897) $ 135,513 $(1,333,211)
=========== =========== ===========
The Company received a tax benefit from the exercise of non-qualified stock
options of $31,505 and $119,421 credited directly to capital surplus during the
years ended December 31, 1995 and 1994, respectively.
Cash paid for income taxes was $156,616, $843,850 and $1,585,014 for the years
ended December 31, 1995, 1994 and 1993, respectively.
NOTE H--BENEFIT PLANS
The Company has a noncontributory defined contribution retirement plan
("Retirement Plan") covering substantially all employees. Contributions to the
Retirement Plan are based upon annual compensation for those persons employed
(as defined) at December 31 and are funded annually. Retirement Plan expense was
$360,355, $266,534 and $294,585 in 1995, 1994 and 1993, respectively.
NOTE I--LEASES
As Lessor
- ---------
The Company offers lease financing of selected products to its customers under
sales-type leases. Leases are generally for three to five years at which time
title transfers to the lessee. Leases are secured by the equipment financed,
often with additional security in the form of other equipment liens, letters of
credit, cash down payments and personal guarantees.
F-17
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE I--LEASES (CONTINUED)
Lease receivables at December 31, 1995 and 1994 were comprised of the following:
1995 1994
----------- -----------
Minimum lease payments receivable $ 2,467,434 $12,171,565
Less unearned interest income (430,005) (2,809,603)
Less allowance for uncollectible accounts (61,749) (327,000)
----------- -----------
Lease receivables 1,975,680 9,034,962
Current portion 573,889 1,801,428
----------- -----------
Non current portion $ 1,401,791 $ 7,233,534
=========== ===========
Minimum lease payments receivable as of December 31, 1995 were as follows:
1996 $ 782,661
1997 789,105
1998 607,000
1999 182,959
2000 102,885
Thereafter 2,824
-----------
$ 2,467,434
The Company financed $10.8 million and $13.7 million of its equipment sales for
the years ended December 31, 1995 and 1994, respectively. Income from leasing
activities for the years ended December 31, 1995, 1994 and 1993 was $566,800,
$516,700 and $380,030, respectively.
The Company periodically enters into agreements, generally subject to limited
recourse, to sell lease receivables to financial institutions to provide
continuous funding for its leasing programs. The Company sold $8.3 million and
$16.8 million of lease receivables in 1995 and 1994, respectively. Under the
terms of these agreements the Company will continue to bill and collect the
monthly lease payments which are then remitted to respective lenders each month.
The Company is subject to recourse provisions which may require it to repurchase
or replace leases in default. In return, the Company receives the collateralized
lease equipment. The recourse provisions, generally limited to 17% of the
outstanding net lease receivables, may be reduced annually based upon the
remaining outstanding lease stream. At December 31, 1995 the maximum contingent
liability under these recourse provisions was $5.2 million. Estimated credit
losses of $588,000 under the limited recourse provisions have been accrued
consistent with management's expectations based upon historical and industry
experience and included in accrued liabilities in the accompanying Consolidated
Balance Sheet.
F-18
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
NOTE I--LEASES (CONTINUED)
As Lessee
- ---------
The Company has lease commitments expiring at various dates through 2000,
principally for facilities and data processing equipment under noncancelable
operating leases. Future minimum payments under these leases at December 31 are
as follows:
1996 $480,283
1997 210,526
1998 66,876
1999 23,831
2000 905
--------
$782,421
Rent expense under operating leases for 1995, 1994 and 1993 was $591,179,
$435,139 and $254,367, respectively.
NOTE J--OTHER INFORMATION
Receivables: Trade accounts receivable are stated net of allowances for doubtful
- -----------
accounts of $943,055 in 1995 and $436,448 in 1994. The provision for bad debts
for the years ended December 31, 1995, 1994 and 1993 was $632,983, $67,217 and
$68,059, respectively.
Inventories: Inventories were as follows:
- -----------
1995 1994
----------- ------------
Finished goods $ 4,160,126 $ 6,023,716
Work in process 3,827,991 3,664,050
Raw materials 4,035,413 5,274,273
----------- -----------
$12,023,530 $14,962,039
=========== ===========
Year-end inventories valued under the LIFO method were $2,951,554 in 1995 and
$7,507,579 in 1994. The replacement cost of LIFO inventories exceeds stated LIFO
costs by approximately $1,500,972 and $4,497,763 at December 31, 1995 and 1994,
respectively.
Intangible Assets: In February 1995, the Company exercised an option, under an
- -----------------
existing distributorship agreement with Impulse Technologies, Inc. (Impulse) to
acquire the exclusive license and patent rights to certain products developed by
Impulse, including a functional activity system for testing and exercise
(FASTEX) for $1.5 million plus a royalty of 8% of net sales until expiration of
the patent rights.
F-19
LUMEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J--OTHER INFORMATION (CONTINUED)
Accrued Liabilities: Accrued liabilities consisted of the following:
- -------------------
1995 1994
----------- -----------
Salaries, bonuses and
commissions $ 1,237,449 $ 1,433,665
Accrued vacation 549,383 971,093
Customer deposits 1,213,968 993,135
Warranty reserves 1,832,440 840,172
Self insurance
obligations 947,941 1,598,700
Non-recurring charges 3,905,942 2,194,000
Other 4,200,708 3,324,766
----------- -----------
$13,887,831 $11,355,531
=========== ===========
Export Sales: Sales to foreign customers for the years ended December 31,
- ------------
1995, 1994 and 1993 were $21,584,856, $16,880,398 and $13,389,001,
respectively.
NOTE K--UNAUDITED QUARTERLY FINANCIAL SUMMARY
For the Three Months Ended
3/31/95 6/30/95 9/30/95 12/31/95
------- ------- ------- --------
Net sales $18,243,119 $15,457,314 $17,038,970 $24,708,362
Gross profit 7,581,676 6,396,316 6,553,363 9,292,556
Loss from continuing
operations before tax (203,422) (2,827,938) (2,283,825) (9,144,945)
Loss from continuing
operations (130,625) (1,815,920) (1,466,526) (7,703,162)
Loss from continuing
operations per share (.03) (.42) (.34) (1.76)
For the Three Months Ended
3/31/94 6/30/94 9/30/94 12/31/94
------- ------- ------- --------
Net sales $15,475,644 $16,978,342 $17,427,513 $20,538,853
Gross profit 6,678,416 7,306,403 7,600,704 7,078,085
Income (loss) from
continuing operations
before tax 307,917 395,185 458,958 (33,874)
Income (loss) from
continuing operations 270,931 347,717 403,830 (29,805)
Income (loss) from
continuing operations
per share .06 .08 .09 (.01)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
------------------------
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required to be furnished pursuant to this item with respect to
Directors and Executive Officers of the Company will be set forth under the
caption "Election of Directors" in the Company's definitive proxy statement (the
"Proxy Statement") to be filed with the Commission pursuant to Regulation 14A in
connection with the solicitation of proxies by the Company's Board of Directors
for use at the Annual Meeting of Shareholders of the Company to be held on
August 7, 1996, and is incorporated herein by reference, or if such Proxy
Statement is not filed with the Commission on or before 120 days after the end
of the Company's fiscal year covered by this Report, such information will be
included in an amendment to this Report filed not later than the end of such
120-day period.
The information required to be furnished pursuant to this item with respect to
compliance with Section 16(a) of the Securities Exchange Act of 1934 will be set
forth under the caption "Additional Information - Compliance with Section 16(a)
of the Securities Exchange Act of 1934" in the Proxy Statement, and is
incorporated herein by reference, or if such Proxy Statement is not filed with
the Commission on or before 120 days after the end of the Company's fiscal year
covered by this Report, such information will be included in an amendment to
this Report filed not later than the end of such 120-day period.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required to be furnished pursuant to this item will be set forth
under the captions "Compensation Committee Interlocks and Insider Participation"
and "Executive Compensation" in the Proxy Statement, and is incorporated herein
by reference, or if such Proxy Statement is not filed with the Commission on or
before 120 days after the end of the Company's fiscal year covered by this
Report, such information will be included in an amendment to this Report filed
not later than the end of such 120-day period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
AND MANAGEMENT
--------------
The information required to be furnished pursuant to this item will be set forth
under the captions "Voting Rights" and " Security Ownership by Management" in
the Proxy Statement, and is incorporated herein by reference, or if such Proxy
Statement is not filed with the Commission on or before 120 days after the end
of the Company's fiscal year covered by this Report, such information will be
included in an amendment to this Report filed not later than the end of such
120-day period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required to be furnished pursuant to this item will be set forth
under the caption "Additional Information - Certain Relationships and Related
Transactions" in the Proxy Statement, and is incorporated herein by reference,
or if such Proxy Statement is not filed with the Commission on or before 120
days after the end of the Company's fiscal year covered by this Report, such
information will be included in an amendment to this Report filed not later than
the end of such 120-day period.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------
(a) The following documents are filed or incorporated by reference
as a part of this report:
(1)(2) Financial Statements and Schedules
----------------------------------
See Index to Consolidated Financial Statements and Schedules
(Part II - Item 8).
(3) Exhibits
3(a).......Restated Certificate of Incorporation of the Company, as
amended, incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K, dated June 7, 1988 (the "June 1988 8-K").
3(b).......By-Laws of the Company, as amended, incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987.
4(i)(a)....Rights Agreement dated as of May 23, 1988 between the Company
and Registrar & Transfer Company, incorporated reference to Exhibit 4.1
to the Company's Current Report on Form 8-K dated May 18, 1988 (the "May
1988 8-K").
4(i)(b)....Amendment to Rights Agreement dated as of March 15, 1989
between the Company and Registrar & Transfer Company, incorporated by
reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
dated March 15, 1989.
4(ii)(a)...Guaranty dated as of June 1, 1982 by the Company in favor of
Citibank, N.A., incorporated by reference to Exhibit 4(ii)(a) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1982 (the "1982 10-K").
4(ii)(b)...Bond Purchase Agreement dated as of June 1, 1982 by and among
the Town of Islip Industrial Development Agency, the Company and
Citibank, N.A., incorporated by reference to Exhibit 4(ii)(b) to the
1982 10-K.
4(ii)(c)...Lease Agreement dated as of June 1, 1982 between the Town of
Islip Industrial Development Agency and the Company, incorporated by
reference to Exhibit 4(ii)(c) to the 1982 10-K.
4(ii)(d)...Pledge and Assignment with Acknowledgement thereof by the
Company, dated as of June 1, 1982 from the Town of Islip Industrial
Development Agency to Citibank, N.A., incorporated by reference to
Exhibit 4(ii)(d) to the 1982 10-K.
10(i)(a)...Loan Agreement dated December 28, 1983 between City of
Owatonna, Minnesota and the Company, incorporated by reference to
Exhibit 10(i)(b) to the 1983 10-K.
10(i)(b)...Combination Mortgage, Security Agreement and Fixture
Financing Statement dated December 28, 1983 between the Company,
Mortgagor, and Norwest Bank Owatonna, National Association, Mortgagee,
incorporated by reference to Exhibit 10(i)(c) to the 1983 10-K.
10(i)(c)...Construction Loan Agreement dated December 28, 1983 by and
between the Company and Norwest Bank, National Association, and the City
of Owatonna, incorporated by reference to Exhibit 10(i)(d) to the 1983
10-K.
10(i)(d)...Assignment of Rents and Leases dated December 28, 1983
between the Company and Norwest Bank Owatonna, National Association,
incorporated by reference to Exhibit 10(i)(e) to the 1983 10-K.
10(i)(e)...Form of City of Owatonna Industrial Development Revenue Note
in the principal amount of $3,500,000 dated December 1983, incorporated
by reference to Exhibit 10(i)(f) to the 1983 10-K.
10(ii).....Lumex, Inc. Amended and Restated 1987 Stock Option Plan,
incorporated by reference to Exhibit 28 to the Company's Registration
Statement on Form S-8 (No. 33-48124), filed May 26, 1992.*
10(iii)(a).Form of Severance Agreement for certain senior executives of
the Company, incorporated by reference to Exhibit 10.1 to the June 1988
8-K.*
10(iii)(b).Form of Severance Agreement for certain employees of the
Company, incorporated by reference to Exhibit 10.2 to the June 1988
8-K.*
10(iv).....Lumex, Inc. Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(v) to the Annual Report on Form 10-K for the
year ended December 31, 1993 (the "1993 10-K").*
10(v)......Loan Agreement, dated as of July 30, 1993, among the Company,
Cybex Financial Corp., and Chemical Bank, incorporated by reference to
Exhibit 10(vi) to the 1993 10-K.
10(vi).....First Amendment to Loan Agreement, dated as of November 26,
1993, among the Company, Cybex Financial Corp., and Chemical Bank,
incorporated by reference to Exhibit 10(vii) to the 1993 10-K.
10(vii)....Consulting Agreement, dated May 5, 1994, between L. Cohen
and the Company, incorporated by reference to Exhibit 10(viii) to the
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.*
10(viii)...Loan Agreement, dated as of May 18, 1994, among the Company,
Cybex Financial Corp. and European American Bank, incorporated by
reference to Exhibit 10(ix) to the Annual Report on Form 10-K for the
year ended December 31, 1994 (the "1994 10-K").
10(ix).....Ultimate Net Loss Vendor Agreement with Portfolio Purchase,
dated December 30, 1994, among the Company, Cybex Financial Corp. and
C.I.T., incorporated by reference to Exhibit 10(x) to the 1994 10-K.
10(x)......Portfolio Purchase Agreement, dated December 30, 1994, among
the Company, Cybex Financial Corp. and European American Bank,
incorporated by reference to Exhibit 10(xi) to the 1994 10-K.
10(xi).... Consulting Agreement, dated January 27, 1994, between JDX
Limited and the Company, incorporated by reference to Exhibit 10(xii) to
the 1994 10-K.*
10(xii)...Lumex, Inc. 1995 Omnibus Incentive Plan, incorporated by
reference to the Company's definitive proxy statement, dated May 1,
1995, for its Annual Meeting of Shareholders held on June 5, 1995 (the
"1995 Proxy").*
10(xiii)..Lumex, Inc. 1995 Stock Retainer Plan for Nonemployee
Directors, incorporated by reference to the 1995 Proxy.*
10(xiv)...Employment Agreement, dated August 9, 1995, between J. Raymond
Elliott and the Company, incorporated by reference to Exhibit 10(xv) to
Amendment No. 1 to the Quarterly Report on Form 10-Q/A for the quarter
ended September 30, 1995 (the "September 1995 10-Q").*
10(xv)....Employment Agreement, dated August 17, 1995, between John R.
Cowin and the Company, incorporated by reference to Exhibit 10(xvi) to
the September 1995 10-Q.*
10(xvi)...Employment Agreement, dated October 16, 1995, between Robert
McNally and the Company. (filed herewith)*
21.........Subsidiaries of the Registrant. (filed herewith)
23.........Consent of Ernst & Young LLP. (filed herewith)
27.........Financial Data Schedule. (filed herewith)
- ----------------------------------------------------------
* Executive Compensation Plans and Arrangements
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter ended December
31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Lumex, Inc.
----------------------------------
(Registrant)
April 15, 1996 By: /s/ Robert McNally
- -------------- ------------------------------
(Date) Robert McNally, on behalf of the
Registrant and as Chief Financial
Officer and Sr. Vice President
of Finance.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
April 15, 1996 By: /s/ J. Raymond Elliott
- -------------- --------------------------------------
J. Raymond Elliott, President and
Chief Executive Officer and Director
By:
- -------------- --------------------------------------
Thomas W. Kahle, Director
April 15, 1996 By: /s/ Robert R. McMillan
- -------------- --------------------------------------
Robert R. McMillan, Director
April 12, 1996 By: /s/ Carol G. Nelson
- -------------- --------------------------------------
Carol G. Nelson, Director
April 12, 1996 By: /s/ Jack C. Spratt
- -------------- --------------------------------------
John C. Spratt, Director
April 13, 1996 By: /s/ Alan H. Weingarten
- -------------- --------------------------------------
Alan H. Weingarten, Director
By:
- -------------- --------------------------------------
Kay Knight Clarke, Director
EXHIBIT INDEX
-------------
EXHIBIT NO. PAGE
- ----------- ----
3(a)....... Restated Certificate of Incorporation of the
Company, as amended, incorporated by reference
to Exhibit 3.1 to the Company's Current Report
on Form 8-K, dated June 7, 1988 (the "June 1988
8-K").
3(b)....... By-Laws of the Company, as amended, incorporated
by reference to Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1987.
4(i)(a).... Rights Agreement dated as of May 23, 1988 between
the Company and Registrar & Transfer Company,
incorporated reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated May 18,
1988 (the "May 1988 8-K").
4(i)(b).... Amendment to Rights Agreement dated as of March
15, 1989 between the Company and Registrar &
Transfer Company, incorporated by reference to
Exhibit 4.1 to the Company's Current Report on
Form 8-K dated March 15, 1989.
4(ii)(a)... Guaranty dated as of June 1, 1982 by the Company
in favor of Citibank, N.A., incorporated by
reference to Exhibit 4(ii)(a) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1982 (the "1982 10-K").
4(ii)(b)... Bond Purchase Agreement dated as of June 1, 1982
by and among the Town of Islip Industrial
Development Agency, the Company and Citibank,
N.A., incorporated by reference to Exhibit
4(ii)(b) to the 1982 10-K.
4(ii)(c)... Lease Agreement dated as of June 1, 1982 between
the Town of Islip Industrial Development Agency
and the Company, incorporated by reference to
Exhibit 4(ii)(c) to the 1982 10-K.
4(ii)(d)... Pledge and Assignment with Acknowledgement thereof
by the Company, dated as of June 1, 1982 from the
Town of Islip Industrial Development Agency to
Citibank, N.A., incorporated by reference to
Exhibit 4(ii)(d) to the 1982 10-K.
10(i)(a)... Loan Agreement dated December 28, 1983 between
City of Owatonna, Minnesota and the Company,
incorporated by reference to Exhibit 10(i)(b) to
the 1983 10-K.
EXHIBIT NO. PAGE
- ----------- ----
10(i)(b)... Combination Mortgage, Security Agreement and
Fixture Financing Statement dated December 28,
1983 between the Company, Mortgagor, and Norwest
Bank Owatonna, National Association, Mortgagee,
incorporated by reference to Exhibit 10(i)(c) to
the 1983 10-K.
10(i)(c)... Construction Loan Agreement dated December 28,
1983 by and between the Company and Norwest Bank,
National Association, and the City of Owatonna,
incorporated by reference to Exhibit 10(i)(d) to
the 1983 10-K.
10(i)(d)... Assignment of Rents and Leases dated December 28,
1983 between the Company and Norwest Bank
Owatonna, National Association, incorporated by
reference to Exhibit 10(i)(e) to the 1983 10-K.
10(i)(e)... Form of City of Owatonna Industrial Development
Revenue Note in the principal amount of $3,500,000
dated December 1983, incorporated by reference to
Exhibit 10(i)(f) to the 1983 10-K.
10(ii)..... Lumex, Inc. Amended and Restated 1987 Stock Option
Plan, incorporated by reference to Exhibit 28 to
the Company's Registration Statement on Form S-8
(No. 33-48124), filed May 26, 1992.
10(iii)(a).. Form of Severance Agreement for certain senior
executives of the Company, incorporated by reference
to Exhibit 10.1 to the June 1988 8-K.
10(iii)(b).. Form of Severance Agreement for certain employees of
the Company, incorporated by reference to Exhibit
10.2 to the June 1988 8-K.
10(iv)...... Lumex, Inc. Long-Term Incentive Plan,
incorporated by reference to Exhibit 10(v) to
the Annual Report on Form 10-K for the year
ended December 31, 1993. (the "1993 10-K").
10(v)...... Loan Agreement, dated as of July 30, 1993, among
the Company, Cybex Financial Corp., and Chemical
Bank, incorporated by reference to Exhibit 10(vi)
to the 1993 10-K.
10(vi)...... First Amendment to Loan Agreement, dated as
of November 26, 1993, among the Company,
Cybex Financial Corp., and Chemical Bank,
incorporated by reference to Exhibit 10(vii)
to the 1993 10-K.
EXHIBIT NO. PAGE
- ----------- ----
10(vii).....Consulting Agreement, dated May 5, 1994, between L.
Cohen and the Company, incorporated by reference to Exhibit
10(viii) to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994.
10(viii)....Loan Agreement, dated as of May 18, 1994, among the
Company, Cybex Financial Corp. and European American Bank,
incorporated by reference to Exhibit 10(ix) to the Annual
Report on Form 10-K for the year ended December 31, 1994
(the "1994 10-K").
10(ix)......Ultimate Net Loss Vendor Agreement with Portfolio
Purchase, dated December 30, 1994, among the Company, Cybex
Financial Corp. and C.I.T., incorporated by reference to
Exhibit 10(x) to the 1994 10-K.
10(x).......Portfolio Purchase Agreement, dated December 30,
1994, among the Company, Cybex Financial Corp. and European
American Bank, incorporated by reference to Exhibit 10(xi)
to the 1994 10-K.
10(xi)......Consulting Agreement, dated January 27, 1994, between
JDX Limited and the Company, incorporated by reference to
Exhibit 10(xii) to the 1994 10-K.
10(xii).....Lumex,Inc. 1995 Omnibus Incentive Plan, incorporated
by reference to the Company's definitive proxy statement
dated May 1, 1995, for its Annual Meeting of shareholders
held on June 5, 1995 (the "1995 Proxy").
10(xiii)....Lumex, Inc. 1995 Stock Retainer Plan for Nonemployee
Directors, incorporated by reference to the 1995 Proxy.
10(xiv).....Employment Agreement, dated August 9, 1995, between
J. Raymond Elliott and the Company, incorporated by
reference to Exhibit 10(xv) to Amendment No. 1 to the
Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 1995 (the September 1995 10-Q").
10(xv)......Employment Agreement, dated August 17, 1995, between
John R. Cowin and the Company, incorporated by reference to
Exhibit 10(xvi) to the September 1995 10-Q.
10(xvi).....Employment Agreement, dated October 16, 1995, between
Robert McNally and the Company. (filed herewith)
21..........Subsidiaries of the Registrant. (filed herewith)
23..........Consent of Ernst & Young LLP. (filed herewith)
27..........Financial Data Schedule. (filed herewith)