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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended September 28, 2002.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from ______ to ______.
Commission file number 0-4538
Cybex International, Inc.
-------------------------
(Exact name of registrant as specified in its charter)
New York 11-1731581
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Trotter Drive, Medway, Massachusetts 02053
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (508) 533-4300
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
On November 6, 2002, the Registrant had outstanding 8,803,232 shares of Common
Stock, par value $0.10 per share, which is the Registrant's only class of Common
Stock.
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations (unaudited) -
Three and nine months ended September 28, 2002 and September 29, 2001 3
Condensed Consolidated Balance Sheets - September 28, 2002
(unaudited) and December 31, 2001 4
Condensed Consolidated Statements of Cash Flows (unaudited) -- Nine
months ended September 28, 2002 and September 29, 2001 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
Item 3. Quantitative and Qualitative Disclosure about Market Risk 19
Item 4. Controls and Procedures 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 22
Certifications 23
2
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
------------------------------------- -------------------------------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
----------------- ------------------ ------------------ ------------------
Net sales $ 19,898 $ 19,378 $ 56,816 $ 62,841
Cost of sales 13,042 12,004 36,467 40,649
----------------- ------------------ ------------------ ------------------
Gross profit 6,856 7,374 20,349 22,192
Selling, general and administrative expenses
6,353 5,828 19,866 18,236
----------------- ------------------ ------------------ ------------------
Operating income 503 1,546 483 3,956
Interest income 8 4 17 122
Interest expense (908) (938) (2,479) (2,750)
Other income (expense) 23 (314) 107 (338)
----------------- ------------------ ------------------ ------------------
Income (loss) before income taxes (374) 298 (1,872) 990
Income taxes 14 125 20,700 416
----------------- ------------------ ------------------ ------------------
Net income (loss) $ (388) $ 173 $ (22,572) $ 574
================= ================== ================== ==================
Basic and diluted net income (loss) per share
$ (.04) $ .02 $ (2.56) $ .07
================= ================== ================== ==================
See notes to the condensed consolidated financial statements.
3
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 28, December 31,
2002 2001
------------------- -------------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 691 $ 1,315
Accounts receivable, net of allowance of $1,873 and $2,196 11,703 13,839
Inventories 8,166 7,907
Deferred income taxes, net - 5,269
Prepaid expenses and other 1,257 1,325
------------------- -------------------
Total current assets 21,817 29,655
Property, plant and equipment, net 17,330 19,145
Goodwill, net 11,247 11,247
Deferred income taxes, net - 15,895
Other assets 1,788 1,635
------------------- -------------------
$ 52,182 $ 77,577
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 11,955 $ 12,868
Accounts payable 9,375 7,146
Accrued expenses 9,804 13,376
------------------- -------------------
Total current liabilities 31,134 33,390
Long-term debt 17,112 17,622
Accrued warranty obligation 520 843
Other liabilities 2,649 2,678
------------------- -------------------
Total liabilities 51,415 54,533
------------------- -------------------
Contingencies (Note 7)
Stockholders' Equity:
Common stock, $.10 par value, 20,000 shares authorized, 9,022 shares
issued 902 902
Additional paid-in capital 45,291 44,990
Treasury stock, at cost (218 and 213 shares) (2,264) (2,258)
Accumulated deficit (43,081) (20,509)
Accumulated other comprehensive loss (81) (81)
------------------- -------------------
Total stockholders' equity 767 23,044
------------------- -------------------
$ 52,182 $ 77,577
=================== ===================
See notes to condensed consolidated financial statements.
4
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
-------------------------------------------
September 28, September 29,
2002 2001
------------------- -------------------
OPERATING ACTIVITIES:
Net income (loss) $ (22,572) $ 574
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 3,403 3,740
Provision for doubtful accounts 232 (27)
Deferred income taxes 20,700 416
Net change in other operating assets and liabilities 212 699
------------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,975 5,402
------------------- -------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (1,124) (1,523)
------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (1,124) (1,523)
------------------- -------------------
FINANCING ACTIVITIES:
Payments of long-term debt (2,354) (2,577)
Borrowings from stockholder 1,000 -
Net payments under the revolving loan (69) (3,073)
Deferred refinancing costs (46) (271)
Purchase of treasury stock (6) (7)
------------------- -------------------
NET CASH USED IN FINANCING ACTIVITIES (1,475) (5,928)
------------------- -------------------
DECREASE IN CASH AND CASH EQUIVALENTS (624) (2,049)
CASH AND CASH EQUIVALENTS, beginning of period 1,315 3,354
------------------- -------------------
CASH AND CASH EQUIVALENTS, end of period $ 691 $ 1,305
=================== ===================
See notes to condensed consolidated financial statements.
5
CYBEX INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 -- BASIS OF PRESENTATION
Cybex International, Inc. (the "Company" or "Cybex"), a New York corporation, is
a leading manufacturer of exercise equipment and develops, manufactures and
markets premium performance, professional quality, strength and cardiovascular
fitness equipment products for the commercial and consumer markets.
The accompanying condensed consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and changes in cash flows in conformity with
accounting principles generally accepted in the United States. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 28, 2002 are not
necessarily indicative of the results that may be expected for the entire year.
It is suggested that these condensed consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's reports filed with the Securities and Exchange Commission,
including its Report on Form 10-K for the year ended December 31, 2001, this
Report on Form 10-Q, its Current Reports on Form 8-K, and its proxy statement
dated April 9, 2002.
NOTE 2 -- RECENT ACCOUNTING PRONOUNCEMENTS
Derivatives
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and SFAS No.
138, "Accounting for Certain Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133," on January 1, 2001. SFAS No. 133 required
the transition adjustment resulting from adopting these statements to be
reported in net income or other comprehensive income, as appropriate, as the
cumulative effect of a change in accounting principle.
The amount of the transition adjustment recorded in accumulated other
comprehensive income (loss) as a result of recognizing all derivatives that were
designated as cash flow hedging instruments at fair value amounted to an
unrealized gain of $212,000 at January 1, 2001.
The Company recognizes derivatives on the balance sheet at fair value. At
September 28, 2002 and December 31, 2001, derivative instruments consist solely
of an interest rate swap, which is used to reduce the Company's exposure to
interest rate fluctuations on its variable rate term debt (see Note 4). The
interest rate swap has been designated as a cash flow hedge. Changes in the fair
value of the derivative were initially recorded in accumulated other
comprehensive income (loss) and reclassified into earnings as the underlying
hedged item affected earnings.
Effective April 12, 2001, the Company discontinued hedge accounting,
prospectively, as a result of the change in the interest rate on its term debt
from a LIBOR-based rate to a Base Rate and the change in the forecasted
principal repayment dates (see Note 4). For the three months ended March 31,
2001, the Company recorded an unrealized loss of $293,000 in accumulated other
comprehensive loss for the change in the fair value of the interest rate swap.
For the three and nine months ended September 29,
6
2001, the Company recorded a charge of $314,000 and $338,000, respectively,
within other income (expense) for the change in fair value of the interest rate
swap. For the three and nine months ended September 28, 2002, the Company
recorded a gain of $23,000 and $107,000, respectively, within other income
(expense) for the change in the fair value of the interest rate swap during the
period.
Business Combinations
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and other
Intangible Assets." SFAS No. 141 requires that all business combinations
consummated after June 30, 2001 be accounted for under the purchase method of
accounting. SFAS No. 142 provided for the discontinuance of amortization of
goodwill effective January 1, 2002 and established methodologies for determining
the impairment of the carrying value of goodwill.
All of the Company's previous business combinations were accounted for using
purchase accounting and all of the excess purchase price from these transactions
was allocated to goodwill. The following table illustrates adjusted net income
and basic and diluted earnings per share as if these pronouncements were adopted
as of January 1, 2001:
Three Months Ended Nine Months Ended
------------------------------------------ -----------------------------------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
------------------ ------------------ ------------------ -------------------
Adjusted net income:
Net income (loss) $ (388) $ 173 $ (22,572) $ 574
Add back: Goodwill
amortization, net of tax - 119 - 357
------------------ ------------------ ------------------ -------------------
Adjusted net income (loss) $ (388) $ 292 $ (22,572) $ 931
================== ================== ================== ===================
Basic and diluted earnings (loss) per share:
Reported $ (.04) $ .02 $ (2.56) $ .07
Goodwill amortization - .01 - .03
------------------ ------------------ ------------------ -------------------
Adjusted basic and diluted
earnings (loss) per share $ (.04) $ .03 $ (2.56) $ .10
================== ================== ================== ===================
Management determined that goodwill was not impaired at January 1, 2002 and
September 28, 2002 under SFAS No. 142, based on the estimated enterprise value
of the Company, using various valuation methods. If the assumptions and
estimates used to determine the fair value of the Company change in the future,
the Company may be required to record an impairment charge related to goodwill.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which establishes a single accounting model,
based on the framework established in SFAS No. 121, "Accounting for the
Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of," for
long-lived assets to be disposed of and resolves significant implementation
issues related to SFAS No. 121. SFAS No. 144 supersedes SFAS No. 121 and APB No.
30, "Reporting the Results of Operations - Reporting the Effects of a Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." The Company adopted SFAS No. 144 effective
January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on
the Company's financial condition or results of operations.
7
Accounting for Exit or Disposal Activities
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities". SFAS No. 146 addresses the recognition, measurement and reporting
of costs associated with exit and disposal activities, including restructuring
activities. SFAS No. 146 also addresses recognition of certain costs related to
terminating a contract that is not a capital lease, costs to consolidate
facilities or relocate employees and termination of benefits provided to
employees that are involuntarily terminated under the terms of a one-time
benefit arrangement that is not an ongoing benefit arrangement or an individual
deferred compensation contract. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. Adoption of SFAS No. 146
is not expected to have an impact on the financial position or results of
operations of the Company.
NOTE 3 -- INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of the following:
September 28, December 31,
2002 2001
---------------------- --------------------
Raw materials $ 3,466,000 $ 3,121,000
Work in process 1,522,000 1,452,000
Finished goods 3,178,000 3,334,000
---------------------- --------------------
$ 8,166,000 $ 7,907,000
====================== ====================
NOTE 4 -- LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
September 28, December 31,
2002 2001
---------------------- --------------------
Bank revolving loan $ 7,299,000 $ 7,368,000
Bank term loans 18,868,000 18,916,000
Industrial development revenue bond 1,900,000 2,200,000
Promissory note - 2,006,000
Borrowings from stockholder 1,000,000 -
---------------------- --------------------
29,067,000 30,490,000
Less - current portion (11,955,000) (12,868,000)
---------------------- --------------------
$ 17,112,000 $ 17,622,000
====================== ====================
8
On May 21, 1998, the Company entered into a Credit Agreement (the "Agreement")
with several banks that consisted of a $26,700,000 revolving loan (the
"Revolver"), increased to $30,000,000 in May 1999, and a $25,000,000 term loan.
On April 12, 2001, the Agreement was amended to, among other things, revise the
financial covenants; waive financial covenant defaults that existed at the time;
fix May 1, 2002 as the maturity date of all loans under the Agreement; reduce
the availability under the revolving loan facility to the lesser of $20,125,000
or an amount determined by reference to a borrowing base formula and provide
certain additional collateral to the banks. On December 21, 2001, the Agreement
was amended and restated in its entirety (the "Restated Agreement") to provide
for an $11,000,000 revolving loan, subject to a borrowing base formula based on
accounts receivable and inventory (the "Revolver"), term loans totaling
$19,167,000 (the "Term Loans"), and a letter of credit facility of $4,459,000.
Under the Restated Agreement, the facility expires on December 31, 2003. The
total principal due to the banks did not change as a result of the Restated
Agreement; however there was a $3,250,000 reclassification between the Revolver
and Term Loans. In February 2002, a letter of credit under the letter of credit
facility was utilized to retire an outstanding promissory note of $2,006,000.
Pursuant to the terms of the Restated Agreement, the letter of credit facility
was reduced by $2,006,000 and replaced by an additional Term Loan in the same
amount. After the end of the second quarter of 2002, the Company and the banks
entered into the First Amendment to Amended and Restated Credit Agreement (the
"First Amendment"), which amends the Restated Agreement in certain respects,
including revising the financial covenants, waiving any then outstanding
defaults and deferring principal payments otherwise due July 1, 2002.
In connection with the First Amendment, UM Holdings Ltd., a principal
stockholder of the Company, lent to the Company, on a subordinated basis,
$1,000,000 bearing interest at 10% and maturing January 1, 2004, or earlier if
the Agreement is repaid. On September 30, 2002, the Company and the banks
entered into the Second Amendment to Amended and Restated Credit Agreement (the
"Second Amendment"), which amends the Restated Agreement in certain respects,
including revising the financial covenants, waiving any then outstanding
defaults, and increasing the borrowing base under the Revolver, from the date of
the Second Amendment to December 31, 2002, by an overadvance of $1,100,000. The
repayment of this $1,100,000 overadvance has been guaranteed by UM Holdings Ltd.
Under the Restated Agreement, the Revolver expires on December 31, 2003;
however, it is classified as a current liability as a result of the Company's
lockbox arrangement with the banks whereby remittances from the Company's
customers are used to reduce the outstanding Revolver balance. At September 28,
2002, the unused availability under the Revolver was $2,591,000 (which does not
include the $1,100,000 overadvance provided by the Second Amendment). The Term
Loans are due in equal monthly principal installments of $294,000, with four
additional monthly payments of $133,000 due beginning on September 30, 2002, and
a final payment of all principal due on December 31, 2003. Interest is payable
monthly.
Under the Restated Agreement, borrowings under the Revolver bear interest at the
Base Rate plus 2 percent, except for the overadvance, which will bear interest
at the Base Rate plus 3.50 percent, and borrowings under the Term Loans bear
interest at the Base Rate plus 3 percent. The Base Rate is equal to the greater
of the prime rate, as defined, or the federal funds effective rate plus 50 basis
points. The Base Rate was 4.75% at September 28, 2002. From March 31, 2001
through December 21, 2001, borrowings under the Revolver bore interest at the
Base Rate plus rates ranging from 1% to 2% and borrowings under the Term Loans
bore interest at the Base Rate plus rates ranging from 1.5% to 3%. The Company
is required to pay commitment fees equal to .5% of the unused Revolver. Prior to
March 31, 2001, the Revolver and Term Loan borrowings bore interest at the
Company's option of either the Base Rate or LIBOR plus an applicable margin that
varied depending on the Company's level of compliance with certain financial
covenants, as defined.
In November 1998, the Company entered into an Interest Rate Swap Agreement
whereby the Company receives a variable LIBOR rate and pays a fixed rate of
5.04% through December 2003. The purpose of
9
the Interest Rate Swap was to fix the interest rate on the Term Loans and the
notional amount of the Interest Rate Swap amortizes based on the original terms
of the Term Loan. At September 28, 2002, the notional amount of the Interest
Rate Swap was $8,500,000. At September 28, 2002, the Company received interest
at a rate of 1.855% and paid interest at a rate of 5.04% under the Interest Rate
Swap.
In connection with the Restated Agreement, the Company issued warrants to the
banks to purchase 263,501 shares of common stock at an exercise price of $1.269
per share. The warrants have a term of 10 years and are exercisable immediately.
The fair value of the warrants of $209,000 was accounted for as an additional
deferred financing cost. The fair value of the warrants was determined using the
Black-Scholes pricing model using expected volatility of 60%, the contractual
term of the warrants and a risk-free interest rate of 5.25%. Additional
warrants, representing 264,211 shares of the Company's common stock became
exercisable as of July 30, 2002, at an exercise price of $1.269 per share. The
fair value of these warrants of $276,000 was accounted for as additional
deferred financing cost in the third quarter of 2002. Pursuant to the Restated
Agreement, as amended, the Company is required to pay fees of $281,000 on
December 31, 2002, fees of $400,000 on March 31, 2003 if the facility is not
retired in full prior to March 31, 2003 and fees of $281,000 on December 31,
2003 if the facility is not retired in full prior to December 31, 2003.
Management is seeking to refinance the existing facility; however, there can be
no assurance that management will be successful in refinancing the facility or
that any such refinancing will be on terms favorable to the Company. Pursuant to
the Second Amendment, the Company has retained an investment banking firm to
assist the Company in its efforts to refinance the existing facility.
Pursuant to the Restated Agreement, as amended, the Company is required to
maintain certain financial and non-financial covenants, as defined, including
certain cumulative minimum earnings before interest, taxes, depreciation and
amortization levels, maximum capital expenditures and a maximum leverage ratio.
Additionally, the Company currently does not have the ability under the Restated
Agreement to pay cash dividends. Borrowings under the Restated Agreement are
secured by substantially all of the Company's assets with certain exceptions.
In 1992, an industrial development revenue bond provided the funds to purchase,
expand and equip the manufacturing and administrative facility in Medway,
Massachusetts. The bonds bear interest at a rate that resets weekly (1.75% at
September 28, 2002) with interest payable monthly and principal payable annually
through May 2007. A letter of credit of $1,941,000 is outstanding under the
Restated Agreement for the benefit of the bondholders to guarantee principal and
interest payments.
NOTE 5 -- RESTRUCTURING CHARGES
In December 2000, Cybex announced a restructuring plan designed to streamline
operations, improve efficiency and reduce costs. During the March 30, 2002
quarter, the Company adjusted the reserve for severance payments provided as
part of the December 2000 restructuring plan resulting in a reduction to
selling, general and administrative expenses of $358,000. This adjustment to the
reserve occurred as a result of a change in required future payments which
occurred during the first quarter of 2002. Management's plans with respect to
the December 2000 restructuring plan are substantially complete.
10
The following table summarizes accrued restructuring costs at September 28,
2002:
Balance Utilized/ Balance
December 31, 2001 Reversed September 28, 2002
--------------------------- ------------------ ------------------------
Severance and other $ 525,000 $ (498,000) $ 27,000
License settlement 2,426,000 (92,000) 2,334,000
--------------------------- ------------------ ------------------------
$2,951,000 $ (590,000) $2,361,000
=========================== ================== ========================
NOTE 6 -- EARNINGS (LOSS) PER SHARE
The table below sets forth a reconciliation of the shares used in the basic and
diluted net income (loss) per share computations:
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
------------------ ------------------- ------------------ ------------------
Shares used in computing basic net
income (loss) per share 8,806,000 8,786,000 8,806,000 8,786,000
Dilutive effect of options and
warrants - 1,000 - 3,000
------------------ ------------------- ------------------ ------------------
Shares used in computing diluted
net income (loss) per share 8,806,000 8,787,000 8,806,000 8,789,000
================== =================== ================== ==================
For the three and nine months ended September 28, 2002, options to purchase
453,278 shares of the Company's common stock at exercise prices ranging from
$1.30 to $11.75 per share were outstanding but were not included in the
calculation of diluted net income (loss) per share since the result would be
anti-dilutive. For the three and nine months ended September 29, 2001, options
to purchase 472,911 and 412,911 shares, respectively, of the Company's common
stock at exercise prices ranging from $1.30 to $11.75 per share were outstanding
but were not included in the calculation of diluted net income (loss) per share
since the result would be anti-dilutive.
NOTE 7 -- CONTINGENCIES
The Company is involved in certain legal actions and claims arising in the
ordinary course of business, including product liability claims and disputes,
patent disputes, a dispute with the seller of an acquired business and disputes
pertaining to distributor agreements. The Company recorded a charge of
$2,200,000 at December 31, 2001, primarily to cover potential costs relating to
the dispute with the seller of an acquired business.
Kirila et al v. Cybex International, Inc., et al
This action was commenced in the Court of Common Pleas of Mercer County,
Pennsylvania in May 1997 against the Company, the Company's wholly-owned
subsidiary, Trotter, and certain officers, directors and affiliates of the
Company. The plaintiffs include companies which sold to Trotter a strength
equipment company in 1993, a principal of the corporate plaintiffs who was
employed by Trotter following the acquisition, and a company which leased to
Trotter a plant located in Sharpsville, Pennsylvania. In accordance with
Pennsylvania practice, the complaint in this matter was not served upon the
defendants until the second quarter of 1998. The complaint, among other things,
alleged wrongful closure of the Sharpsville facility, wrongful termination of
the individual plaintiff's employment and nonpayment of compensation, breach of
the lease agreement and the asset purchase agreement,
11
tortious interference with business relationships, fraud, negligent
misrepresentation, unjust enrichment, breach of the covenant of good faith and
fair dealing, conversion, unfair competition and violation of the Wage Payment
and Collection Law. The complaint also sought specific performance of the lease,
the employment agreement and the indemnification provisions of the asset
purchase agreement, and an unspecified amount of compensatory and punitive
damages and expenses. The Company filed an answer to the complaint denying the
material allegations of the complaint and denying liability and it further
asserted counterclaims against the plaintiffs, including for repayment of
over-allocations of expenses under the lease and certain excess incentive
compensation payments which were made to the individual plaintiff.
A jury verdict was rendered in this litigation on February 2, 2002. While the
jury found in favor of the Company with respect to the majority of the
plaintiffs' claims, it also found that the Company owes certain incentive
compensation payments totaling approximately $873,000 and rent of approximately
$38,000, plus interest. A motion is pending before the trial judge to award to
the plaintiffs their attorneys fees and a further sum under the Wage Payment and
Collection Law equal to 25% of the awarded compensation payments. The Company
intends to vigorously defend this motion and to also vigorously pursue the
appeal of the portion of the jury award related to incentive compensation.
Hot New Products v. Cybex International, Inc., et al
This action is in the United States District Court for the Northern District of
Alabama. The plaintiff in this action is a terminated dealer of Trotter. Shortly
after the termination, plaintiff filed a State action against Trotter and Cybex,
alleging fraud, breach of contract, unjust enrichment and recoupment. The
plaintiff also sued another Cybex dealer alleging intentional interference with
business relations. In July 1998, the plaintiff filed this antitrust Complaint
in federal court, alleging price discrimination and price and territory
conspiracy violations; the State court case was dismissed with the State court
claims refiled as part of this federal action. The plaintiff is seeking
approximately $3,500,000 in compensatory damages, plus treble damages for the
antitrust claims and punitive damages. The Company has filed an answer to the
complaint denying the material allegations of the complaint and denying
liability and has filed a counterclaim for fraud, promissory estoppel and
intentional interference with business relations. The Company intends to
vigorously defend this litigation.
Creighton et al v. Cybex International, Inc., et al
This action is in the Superior Court of the State of California for the County
of Orange. The plaintiffs are a corporation which is a terminated dealer of
Trotter and its stockholder. The complaint states a number of causes of actions
generally arising from the termination, including claims for fraud and negligent
misrepresentation, breach of contract, breach of fiduciary duty, breach of the
implied covenant of good faith and fair dealing, interference with contract and
prospective business advantage and the intentional infliction of emotional
distress. Plaintiffs in a Statement of Damages provided prior to the dismissal
of claims discussed below alleged $15,000,000 of compensatory damages and sought
$20,000,000 in punitive damages. On December 8, 1998, the trial court granted
Cybex's motion for summary judgment of all claims asserted by the individual
plaintiff and on March 4, 1999 the trial court granted Cybex's motion for
summary judgment of all claims asserted by the corporate plaintiff. The
plaintiffs appealed these summary adjudications. On February 25, 2002, the Court
of Appeal determined that the trial court had properly granted summary
adjudication on the individual claims and on the corporate plaintiff's
intentional interference and breach of fiduciary duty claims, and reversed the
summary adjudication on the corporate plaintiff's contract-based causes of
action and intentional and negligent misrepresentation claims. Accordingly, the
latter claims will proceed at the trial level. The Company intends to vigorously
defend this litigation.
12
NOTE 8 -- INCOME TAXES
During the three months ended June 29, 2002, the Company recorded an income tax
provision of $21,316,000 to record a valuation allowance against its net
deferred tax assets. In accordance with SFAS No. 109, "Accounting For Income
Taxes," projected future taxable income generally cannot be used as a basis for
recovering deferred tax assets if there are cumulative losses during recent
periods. Accordingly, as a result of the recent losses in 2002, this valuation
allowance was recorded. At September 28, 2002, deferred tax assets of
approximately $21,473,000 are available to the Company to offset future tax
liabilities. Management will continually re-evaluate the need for the valuation
allowance in future periods.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT FOR FORWARD LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements.
There are a number of risks and uncertainties that could cause actual results to
differ materially from those anticipated by the statements made below. These
include, but are not limited to, competitive factors, technological and product
developments, market demand, economic conditions, the ability of the Company to
comply with the terms of its credit facility and to refinance such credit
facility, and uncertainties relating to the implementation of the Company's
restructuring plan. Further information on these and other factors, which could
affect the Company's financial results, can be found in the Company's reports
filed with the Securities and Exchange Commission, including its Report on Form
10-K, including Part I thereof, its Current Reports on Form 8-K, this Form 10-Q
and its proxy statement dated April 9, 2002.
OVERVIEW AND OUTLOOK
Cybex International, Inc. (the "Company" or "Cybex"), a New York corporation, is
a leading manufacturer of exercise equipment and develops, manufactures and
markets premium performance, professional quality, strength and cardiovascular
fitness equipment products for the commercial and consumer markets. Cybex is
comprised of three formerly independent companies, Cybex, Trotter Inc.
("Trotter") and Tectrix Fitness Equipment, Inc. ("Tectrix").
The following statements are based on current expectations. These statements are
forward-looking and actual results may differ materially. In particular, the
continued uncertainties in US and global economic conditions and in the fitness
industry, together with the Company's reliance on newly-introduced products,
make it particularly difficult to predict product demand and other related
matters, and may preclude the Company from achieving expected results.
The Company responded to the decline in its sales, which commenced in the fourth
quarter 2000, by pursuing a number of initiatives in 2001 and 2002 designed to
increase sales and improve profitability, including developing new
cardiovascular and strength models, changing its channels of distribution in the
United Kingdom and parts of Europe, instituting changes in its independent
authorized dealer standards, and restructuring its leasing and service
operations. Many of the causes of the 2001 and 2002 sales decline will continue
for the remainder of 2002. In addition, first quarter of 2002 results were
negatively impacted by shipping delays caused by the transition to new treadmill
products. While the full impact of the Company's new product offerings was not
felt during the first nine months of 2002, the Company's three new treadmill
offerings, eleven components of its new Eagle strength line and its new
ArcTrainer all entered full production in the third quarter of 2002. Management
believes that the impact of its initiatives, including these new product
offerings, will have a positive effect on the balance of the year. Net sales in
the fourth quarter of 2002 are expected to exceed the net sales of $22,381,000
achieved in the fourth quarter of 2001, and the Company is expecting to be
profitable for the fourth quarter of 2002.
RESULTS OF OPERATIONS
NET SALES
Cybex's net sales increased $520,000, or 3%, to $19,898,000 for the third
quarter of 2002 from $19,378,000 for the third quarter of 2001. For the nine
months ended September 28, 2002, net sales decreased $6,025,000, or 10%, to
$56,816,000 from $62,841,000 for the same period in 2001. For the third quarter
of 2002, sales of cardiovascular products increased $1,414,000, or 23%, to
$7,627,000 and
14
sales of strength products decreased $774,000, or 7%, to $9,970,000. The third
quarter sales increase is attributable to the introduction of new products in
2002, including $1,722,000 of sales of the Company's new cardiovascular product,
the ArcTrainer, which began full production in the quarter. In addition to the
ArcTrainer, treadmill sales increased in the third quarter compared to 2001 as a
result of new models introduced earlier in 2002 and sales of bikes and steppers
decreased from 2001. For the nine months ended September 28, 2002, sales of
cardiovascular products decreased $2,668,000, or 12%, to $19,685,000 and sales
of strength products decreased $3,586,000, or 11%, to $29,480,000. The decline
in the sales of these products during the nine month period was predominantly
related to the Company's stricter credit policies, tighter warranty standards
and pricing policies adopted as part of its restructuring plan, and to economic
conditions. Freight and other revenue decreased $120,000, or 13%, to $712,000 in
the third quarter of 2002 and increased $229,000, or 13%, to $2,684,000 for the
nine months ended September 28, 2002 compared to the corresponding periods of
2001. Sales of parts and service were $1,589,000 and $4,967,000 for the three
and nine months ended September 28, 2002, respectively, and were comparable to
the corresponding 2001 periods.
GROSS MARGIN
Gross margin decreased to 34.5% in the third quarter of 2002 from 38.1% in the
corresponding prior year period due to production inefficiencies caused by the
introduction of new products, including the ArcTrainer and the Eagle strength
line. The Company expects margins to improve with production experience relating
to these new products. Gross margin for the nine months ended September 28, 2002
increased to 35.8% from 35.3% for the same period in 2001. The increase in gross
margin during the nine months was predominantly due to higher pricing and
improvement in the Company's freight billings.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $525,000, or 9%, to
$6,353,000 in the third quarter of 2002 compared to $5,828,000 in the third
quarter of 2001, predominantly due to increased sales and marketing expenses.
For the nine months ended September 28, 2002, selling, general and
administrative expenses increased by $1,630,000, or 9%, compared to the same
period in 2001 predominantly due to increased sales and marketing expense and
product development expenses. This increase was partially offset by a second
quarter 2002 reduction of $470,000 to a product liability reserve as a result of
favorable claims experience and by a reduction in the first quarter of 2002 of
$358,000 to the reserve for severance payments provided as part of the December
2000 restructuring plan, reflecting lower than anticipated severance payments.
Goodwill amortization of $124,000 and $372,000 was included in the third quarter
of 2001 and nine months ended September 29, 2001 expenses, respectively.
Amortization of goodwill was discontinued effective January 1, 2002 upon the
adoption of SFAS No. 142.
INTEREST AND OTHER
Net interest and other expense decreased by $371,000 in the third quarter of
2002 and $611,000 for the first nine months of 2002 compared to the
corresponding periods of 2001 due to lower borrowing levels and favorable
changes in the fair value of the interest rate swap in 2002 versus unfavorable
changes in 2001.
INCOME TAXES
The Company's 2002 tax provision for the nine months ended September 28, 2002
includes a charge of $21,316,000 to establish a valuation reserve for deferred
taxes in accordance with SFAS No. 109. Deferred tax assets of $21,473,000 are
available to the Company to offset future tax liabilities. Management will
re-evaluate the need for the valuation reserve in future periods. The Company is
not expected to recognize a significant tax provision until a substantial
portion of the net operating losses are utilized.
15
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of September 28, 2002, the Company had negative working capital of $9,317,000
compared to $3,735,000 of negative working capital at December 31, 2001. Working
capital is negatively impacted by the requirement to classify the revolver loan
balance of $7,299,000 at September 28, 2002 and $7,368,000 at December 31, 2001
as a current liability as a result of the Company's lockbox arrangement with the
bank whereby remittances from customers are used to reduce the outstanding
revolver balance, although the revolver loan does not mature until December 31,
2003. The net change in working capital was predominantly the result of the
Company's lower sales levels Working capital was also negatively impacted by the
valuation allowance established in the second quarter of 2002 for current
deferred taxes of $5,269,000.
For the nine months ended September 28, 2002, the Company generated $1,975,000
of cash from operating activities compared to $5,402,000 for 2001. The decrease
in cash from operating activities in 2002 compared to 2001 largely reflects the
net loss in 2002. Cash from operating activities for 2001 was negatively
impacted by approximately $3,031,000 of severance payments which had been
accrued for as part of the Company's 2000 restructuring plan. Cash used in
investing activities was for purchases of equipment and totaled $1,124,000 in
2002 compared to $1,523,000 in 2001. The 2002 purchases relate primarily to
equipment and tooling for the manufacturing of new products and improvements to
the Company's computer network.
On December 21, 2001, the Company and its banks agreed to a restructuring of the
Company's Credit Agreement, with the Credit Agreement being amended and restated
in full (the "Restated Credit Agreement"). The Restated Credit Agreement, among
other things, extended the maturity date of the facility to December 31, 2003,
restructured the indebtedness, reduced the monthly principal payments, amended
the financial covenants under the facility, and waived all then outstanding
defaults under the Credit Agreement. The Restated Credit Agreement provided for
term loans with an initial balance of $19,167,000, a revolving loan availability
equal to the lesser of $11,000,000 or an amount determined by reference to a
borrowing base, and a letter of credit facility of up to $4,459,000. In February
2002, a letter of credit under the letter of credit facility was utilized to
retire an outstanding promissory note in the amount of $2,006,000. Pursuant to
the terms of the Restated Credit Agreement, the letter of credit facility was
reduced by $2,006,000 and replaced by an additional term loan in the same
amount. After the end of the second quarter of 2002, the Company and the banks
entered into the First Amendment to Amended and Restated Credit Agreement (the
"First Amendment"), which amends the Restated Credit Agreement in certain
respects, including revising the financial covenants, waiving any then
outstanding defaults and deferring principal payments otherwise due July 1,
2002. In connection with the First Amendment, UM Holdings Ltd., a principal
stockholder of the Company, lent to the Company, on a subordinated basis,
$1,000,000 that matures on January 1, 2004, or earlier if the credit agreement
is repaid. On September 30, 2002, the Company and the banks entered into the
Second Amendment to Amended and Restated Credit Agreement (the "Second
Amendment"), which amends the Restated Agreement in certain respects, including
revising the financial covenants through December 31, 2002 and increasing the
borrowing base under the revolver, from the date of the Second Amendment until
December 31, 2002, by an overadvance of $1,100,000. The repayment of this
$1,100,000 overadvance has been guaranteed by UM Holdings Ltd.
At September 28, 2002, there was outstanding under the Credit Agreement
$18,868,000 in term loans, $7,299,000 in revolving loans and $1,947,000 in
letters of credit. Availability under the revolver loan fluctuates daily, and
for much of the third quarter there was little unused availability. At September
28, 2002, there was $2,591,000 in unused availability under the revolving loan,
not including the $1,100,000 overadvance subsequently provided by the Second
Amendment.
Pursuant to the Restated Credit Agreement, the Company issued warrants to the
banks to purchase 263,501 shares of the Company's common stock at an exercise
price of $1.269 per share and additional warrants to purchase 264,211 shares of
the Company's common stock became exercisable on July 30,
16
2002, at an exercise price of $1.269 per share. Pursuant to the Restated Credit
Agreement, as amended, the Company is required to pay fees of $281,000 on
December 31, 2002, fees of $400,000 if the facility is not retired in full prior
to March 31, 2003 and fees of $281,000 if the facility is not retired in full
prior to December 31, 2003. Management is seeking to refinance the existing
facility, which has a maturity date of December 31, 2003. Pursuant to the Second
Amendment, the Company has retained an investment banking firm to assist the
Company in its efforts to refinance the existing facility; however, there can be
no assurance that management will be successful in refinancing the facility or
that any such refinancing will be on terms favorable to the Company.
The Company relies upon cash flows from its operations and borrowings under its
Credit Agreement to fund its working capital and capital expenditure
requirements, and a decline in sales or margins or a failure to remain in
compliance with the terms of the Credit Agreement could result in the Company
having insufficient funds for such purposes. During the second half of 2002, the
Company has also relied upon $1,000,000 of loans from, and the guaranty of the
$1,100,000 overadvance by, UM Holdings Ltd. UM Holdings Ltd. has no obligation
to provide such support to the Company, and there is no assurance it will do so
in the future. Management believes that its cash flows and availability under
the Company's Restated Credit Agreement will be sufficient to fund its general
working capital and capital expenditure needs into 2003.
As of September 28, 2002, the Company had approximately $31,800,000 in net
operating loss carry forwards of which approximately $18,000,000 are available
to offset 2002 taxable income.
CONTRACTUAL OBLIGATIONS
The following is an aggregated summary of the Company's obligations and
commitments to make future payments under debt, royalty and lease agreements as
of September 28, 2002:
Less Than One to Four to Five After Five
Contractual obligations: TOTAL One Year Three Years Years Years
----- -------- ----------- ----- -----
Long-term debt $29,067,000 $ 4,656,000 $ 24,011,000 $ 400,000 $ -
Royalty agreement 3,740,000 410,000 1,080,000 360,000 1,890,000
Operating lease commitments 802,000 325,000 477,000 - -
OFF-BALANCE SHEET ARRANGEMENTS
The Company has a lease financing program, through its wholly-owned subsidiary,
for certain commercial customers for selected products. Leases written by Cybex
are accounted for as sales-type leases and are generally for terms of three to
five years, at which time title transfers to the lessee. The Company has entered
into agreements, generally subject to limited recourse, to sell certain lease
receivables to financial institutions in a two-step process through a
bankruptcy-remote entity. Under limited recourse provisions, the Company may be
required to repurchase or replace leases in default. In return, the Company
would receive the collateral position in the defaulted leases. The recourse
provisions, which are generally limited to 15% of the outstanding net lease
receivables, may be reduced annually based upon the remaining outstanding lease
payment streams. In 2001, the Company changed its practice whereby it now
arranges equipment leases and other financing and no longer originates and holds
leases. While most of these financings are without recourse, in certain cases
the Company may offer a guaranty or other recourse provisions. At September 28,
2002, the maximum contingent liability under all recourse provisions was
approximately $2,346,000. A reserve for estimated losses under recourse
provisions has been recorded based upon historical and industry experience, and
is included in accrued liabilities at September 28, 2002 and December 31, 2001.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities
17
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, management evaluates
its estimates and judgments, including those related to the allowance for
doubtful accounts, realizability of inventory, reserve for warranty obligations,
legal matters, impairment of goodwill, and valuation of deferred tax assets.
Management bases its estimates and judgements on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions, which could materially impact the Company's results
of operations and financial position.
Allowance for doubtful accounts. Management performs ongoing credit evaluations
of customers and adjusts credit limits based upon payment history and the
customer's current credit-worthiness, as determined by a review of their current
credit information. Management continuously monitors collections and payments
from customers and maintains a provision for estimated credit losses based upon
historical experience and any specific customer collection issues that have been
identified. If the financial condition of a specific customer or the Company's
general customer base were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.
Realizability of inventory. The Company values inventory at the lower of cost or
market. Management regularly reviews inventory quantities on-hand and records a
provision for excess and obsolete inventory based primarily on estimated
forecasts of product demand and historical usage, after considering the impact
of new products. If actual market conditions and product demand are less
favorable than projected, additional inventory write-downs may be required.
Warranty reserve. Since January 1, 2001, all products are warranted for one year
for labor and ten years for structural frames. Warranty periods for parts range
from one to three years depending on the part and the type of equipment. Prior
to December 31, 2000, the Company generally provided a three year warranty on
cardiovascular products. A warranty liability is recorded at the time of product
sale based on estimates that are developed from historical information and
certain assumptions about future events. Future warranty obligations are
affected by product failure rates, usage and service costs incurred in
addressing warranty claims. These factors are impacted by the level of new
product introductions and the mix of equipment sold to the commercial and
consumer markets. If actual warranty costs differ from management's estimates,
adjustments to the warranty liability would be required.
Legal matters. The Company has recorded a reserve related to certain legal
matters for which it is probable that a loss has been incurred and the range of
such loss can be determined. With respect to other matters, management has
concluded that a loss is only possible or remote and, therefore, no loss is
recorded. In addition, there are certain gain contingencies for which the
Company has not recorded an asset because realization is not considered highly
likely as of the balance sheet date. As additional information becomes
available, the Company will continue to assess whether losses from legal matters
are probable, possible or remote, the adequacy of accruals for probable loss
contingencies and the status of gain contingencies.
Impairment of goodwill. In assessing the recoverability of goodwill, management
is required to make assumptions regarding estimated future cash flows and other
factors to determine whether the fair value of the business supports the
carrying value of goodwill and net operating assets. This analysis includes
assumptions and estimates about future sales, costs, working capital, capital
expenditures, and cost of capital. If these assumptions and estimates change in
the future, the Company may be required to record an impairment charge related
to goodwill.
Valuation of deferred tax assets. The Company established, during the second
quarter of 2002, a valuation allowance of $21,316,000 against the carrying value
of its deferred tax assets. Approximately $57,000,000 of future taxable income
is needed prior to the expiration of the net operating losses to fully realize
the Company's deferred tax assets. If the estimates and related assumptions
relating to the
18
likely utilization of the deferred tax asset change in the future, the valuation
allowance may change accordingly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no material changes in quantitative and qualitative market risk
from the disclosure within the December 31, 2001 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Within ninety days prior to the filing of this Report, the Company's Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of the
design and operation of the Company's disclosure controls and procedures, which
are designed to insure that the Company records, processes, summarizes and
reports in a timely and effective manner the information required to be
disclosed in reports filed with or submitted to the Securities and Exchange
Commission. Based upon this evaluation, they concluded that, as of the date of
the evaluation, the Company's disclosure controls are effective. Since the date
of this evaluation, there have been no significant changes in the Company's
internal controls or in other factors that could significantly affect those
controls.
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Kirila et al v. Cybex International, Inc. et al
-----------------------------------------------
See Part 1 Item 3 of the Company's Report on Form 10-K for the
year ended December 31, 2001 for a description of these
proceedings.
Hot New Products v. Cybex International, Inc. et al
---------------------------------------------------
See Part 1 Item 3 of the Company's Report on Form 10-K for
the year ended December 31, 2001 for a description of these
proceedings.
Creighton et al v. Cybex International, Inc., et al
---------------------------------------------------
See Part 1 Item 3 of the Company's Report on Form 10-K for
the year ended December 31, 2001 for a description of these
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
Exhibit 10.1 - Amended and Restated 1995 Omnibus
Incentive Plan, as amended.
Exhibit 10.2 - 2002 Stock Retainer Plan for Nonemployee
Directors.
Exhibit 10.3 - First Amendment to Amended and
Restated Credit Agreement, dated as of July 24, 2002,
among the Company, the Company's subsidiaries which
are parties thereto, Wachovia Bank, National
Association, as administrative agent, and the lenders
which are parties thereto.
Exhibit 10.4 - Second Amendment to Amended and
Restated Credit Agreement, dated as of September 30,
2002, among the Company, the Company's subsidiaries
which are parties thereto, Wachovia Bank, National
Association, as administrative agent, and the lenders
which are parties thereto.
Exhibit 10.5 - Subordination Agreement dated July 24,
2002, among the Company, UM Holdings, Ltd., Wachovia
Bank, National Association, Fleet National Bank and
Fleet Capital Corporation.
Exhibit 10.6 - Subordinated Promissory Note dated
July 24, 2002 in the principal amount of $500,000
payable to the order of UM Holdings, Ltd.
20
Exhibit 10.7 - Subordinated Promissory Note dated
September 16, 2002 in the principal amount of
$500,000, payable to the order of UM Holdings, Ltd.
Exhibit 99.1 - Statement of Chief Executive Officer
Exhibit 99.2 - Statement of Chief Financial Officer
(b) Reports on Form 8-K
-------------------
None
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Cybex International, Inc.
---------------------------------------------
By: /s/ John Aglialoro
--------------------------------------
November 7, 2002 John Aglialoro
---------------- Chairman and Chief Executive Officer
By: /s/ Arthur W. Hicks, Jr.
--------------------------------------
November 7, 2002 Arthur W. Hicks, Jr.
---------------- Chief Financial Officer
22
CERTIFICATION
I, John Aglialoro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cybex International,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 7, 2002
---------------- /s/ John Aglialoro
------------------------
Chairman and CEO
-------------------------
23
CERTIFICATION
I, Arthur W. Hicks, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cybex International,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 7, 2002
---------------- /s/ Arthur W. Hicks, Jr.
------------------------
Chief Financial Officer
-------------------------
24