Cybex International, Inc.

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Cybex International, Inc.

10 Trotter Drive
Medway, Massachusetts 02053
U.S.A.
Telephone: (508) 533-4300
Fax: (508) 533-5500
Web site: http://www.ecybex.com

Public Company
Incorporated: 1953 as Lumex, Inc.
Employees: 451
Sales: $85.2 million (2001)
Stock Exchanges: American
Ticker Symbol: CYB
NAIC: 421910 Sporting and Recreational Goods and Supplies Wholesalers

Cybex International, Inc. designs, manufactures, and markets premium quality fitness equipment for commercial, professional, and home use. The company’s products are designed to provide biomechanically correct movements with minimal impact and maximum ease of use. Cardiovascular fitness products include stationary bicycles in upright and recumbent riding positions, steppers, and treadmills. Cardiovascular equipment utilizes computer electronics to control speed, resistance, and other factors; most models are available with a heart rate monitor. Strength training equipment includes individual components or multi-station units that exercise all muscle groups. The equipment is available with selectorized or manually loaded weights designed for constant resistance in the full range of physical motion or with free weights. The personal gym for home use and the multi-gym for small fitness centers, use selectorized weights and provide over 30 biomechanically correct exercises in a compact unit. The company’s products are sold under the Cybex, Trotter, and Eagle brands.

Building the Cybex Brand

Cybex International took its name from the Cybex brand of physical therapy and fitness equipment. Lumex, Inc., a therapeutic health and hospital products company founded in 1947, acquired the patent for the first Cybex product, the Cybex Dynamometer, in 1969. A physical rehabilitation device, the Cybex Dynamometer assessed the strength of isolated joints. The equipment provided isokinetic resistance which accurately accommodated for the variable exertion applied by a body joint or muscle group as it progressed through its full range of motion. This resistance allowed for a constant rate of pressure so that the joint would not be overburdened or underchallenged at any point of its movement. The combination of resistance and speed control (isokinetic means “constant velocity”) provided rapid, effective results in rehabilitation and exercise.

Lumex sold the Cybex Dynamometer along with other physical rehabilitation and exercise products, such as the Fitron stationary bicycle, updated for variable speeds, and the Kinitron progressive weight-bearing machine. The Orthotron assessed ankle, knee, hip, and shoulder movements. Physical therapy equipment generated $600,000 in revenues in 1974 and Lumex created the Cybex division the following year.

Lumex developed into a major designer and manufacturer of performance measurement and rehabilitation systems, with the Cybex brand becoming known nationally and internationally. Sports teams, such as the Dallas Cowboys, and individual athletes, including boxer Muhammad Ali and baseball pitcher Tom Seaver, used Cybex equipment in their athletic training programs. Lumex sponsored seminars nationwide to educate physicians, physical therapists, orthopedic surgeons, and athletic trainers in the proper use of isokinetic equipment. In 1982 the company expanded its sales team and formed a field service group to set up and calibrate the equipment. A referral service provided information about clinics that used Cybex equipment. Cybex products gained international exposure in 1982 at the World Physical Therapy Congress in Sweden. The company held its first training seminars for European agents, with sales representatives in over 20 countries.

In 1981 Lumex relocated Cybex division operations and manufacturing to Ronkonkoma, New York, as the company prepared to expand the Cybex product line. New factory construction provided manufacturing space in Ronkonkoma, adding 60,000 square feet to the existing 40,000-square-foot factory and office facility. New products in 1982 included the Orthotron KT1 and KT2 designed specifically for knee rehabilitation in sports medicine. The Cybex Data Reduction Computer (CDRC) provided instant calculation and analysis of data for the Cybex II Dynamometer; the CDRC provided more accurate as well as different kinds of measurements. Lumex entered the fitness equipment industry in 1983 with the acquisition of Eagle Performance Systems, Inc., manufacturer of strength training equipment for health clubs and fitness centers. The acquisition included a large manufacturing facility in Owatonna, Minnesota.

Lumex applied Cybex system technology to the development of back rehabilitation systems, the company’s largest product development project to date. After several years of research and development, the company began to ship product in November 1985. The three products in the Cybex Back Systems line utilized proprietary software to calculate, analyze, store, and print information as they precisely tested and measured specific aspects of back function. Lumex promoted Cybex Back Systems through an extensive marketing and public relations campaign to inform physicians, physical therapists, hospitals, insurance providers, and consumers. Clinical Educators provided full day training sessions with actual patients. By 1988 the back rehabilitation systems were fully developed with updated software and hardware, allowing the company to divert research and development funds to new products.

Preparing for Growth in Fitness and Medical Markets: 1980s

Lumex began to reorganize and streamline in 1988, preparing to evolve the company in both the medical and fitness equipment markets. Lumex created separate medical and fitness subdivisions within the Cybex division in 1988, each with its own marketing and product development programs. In addition, Lumex created a new customer relations department; reorganized the factory floor to allow for more efficient movement of materials and finished product; and implemented similar computer platforms on its products.

New products in 1988 included a stationary bicycle, a rower, and an upper-body ergometer for the measurement of upper body performance. That year Lumex introduced the MET series, a line of video-based, computer-controlled exercise machines. The company also launched Cybex Strength Systems, a line of free weight exercise machines.

Cybex brand’s international presence expanded and developed in the late 1980s. With sales agents in more than 40 countries, the company saw international sales increase 70 percent in 1988, exceeding projections. That year Lumex expanded its product offerings to international clients to include Cybex Back Systems and Cybex Fitness Systems. In September the company’s fitness equipment and rehabilitation systems were highlighted at the Seoul Olympic Scientific Congress.

Lumex initiated advisory boards of medical and fitness professionals to help improve existing equipment designs as well as originate new designs. New products included the fourth generation of the Cybex Extremity Testing and Rehabilitation System, introduced in 1991. At the prompting of the medical advisory board, the system provided both powered and non-powered options and continuous passive motion. The fitness advisory board assisted the development of Cybex Modular Strength Systems, a revolutionary line for the exercise of individual muscle groups that offered high performance with minimal space requirements. Lumex developed two new stationary bicycles, “The Bike,” set in an upright position, and “The Semi,” in a semi-recumbent, or leaning position, introduced in 1992 and 1993, respectively. Two home strength-training systems were introduced as well. The year 1994 saw the introduction of the Plate Loaded Series of weight training equipment which allowed for both the controlled resistance of state-of-the art strength training equipment and the feel of a free weight workout. Lumex opened a facility dedicated to research and development in Colorado Springs, Colorado, in 1994. The location was chosen due to a concentration of athletics-oriented organizations in the area, including the Olympic Training Center.

The company’s marketing efforts involved audiovisual presentations, public service booklets, participation in trade shows, advertisements in trade and professional journals, and cooperative advertising with authorized dealers. Lumex marketed its products through 19 sales representatives and five independent sales agents in the United States. Customers included hospital physical therapy departments, physical therapists in private practice, medical research laboratories, sports medicine clinics, professional sports organizations, fitness centers, and individual consumers. Cybex Financial Corporation, formed in 1992, provided capital equipment financing to customers within the United States. International distribution involved an in-house staff of 13 people to handle the activities of 60 distributors worldwide. Lumex opened offices in Belgium and Germany in 1992 and 1993, respectively. Asia and Pacific Rim distribution was handled through a new office in Japan.

In 1995 Lumex introduced its first treadmill, “The Mill,” featuring the Cybex Controlled Impact System with nine settings to accommodate for level of stringency in relation to the user’s stride, weight, and fitness. The Eagle Performance’s new line of premium variable resistance strength training equipment, the VR2, incorporated the patented Dual Axis technology for free movement, rather than machine-defined movement.

Company Perspectives

Fitness is about a lot more than greater strength, lower body fat, improved flexibility—even longer life.

Fitness reaches into every motion and emotion of our daily lives, whether at work, at home, or at play. It electrifies our every action and thought, from the most mundane tasks to the most dramatic achievements. The pursuit of fitness is about nothing less than the quality of our lives.

Specializing in Fitness Equipment: 1995

In 1995, under the leadership of Ray Elliot as CEO, Lumex decided to restructure operations to concentrate activities on the design and manufacturing of fitness equipment. The company finalized the sale of the Lumex division of health and medical equipment to Fuqua Enterprises in April 1996 and received $40.75 million in cash. Lumex then adopted the name Cybex International. In 1996 Cybex formed a 50/50 joint venture with its distributor in the United Kingdom, The Forza Group. The new venture, CYBEX Forza International, distributed fitness products in the Middle East, Africa, and Russia. Forza handled sales, marketing, and administration, and Cybex provided products on a cost-plus basis. CYBEX Forza also offered other fitness equipment from The Step Company, Cross Conditioning, Reebok, Tectrix, and Quinton.

Cybex International announced its pending merger with Trotter, Inc. in late 1996. A subsidiary of UM Holdings (formerly United Medical Corporation), Trotter brought its own distinguished history to Cybex International. Engineer Edward Trotter constructed a motorized treadmill in 1970 out of concern for his own cardiovascular health. He formally started his company in 1973, providing customized treadmills for the consumer market in Boston, later expanding to other cities. Trotter operated the business from his basement in Holliston, Massachusetts, until 1979 when he relocated to a 5,000-square-foot industrial space. He hired Peter Haines to manage sales and marketing two years later. In 1983 sales reached $2 million and the company relocated to a 25,000-square-foot manufacturing plant. Edward Trotter retired that year and sold the company to UM Holdings, which retained Haines as president. Trotter, Inc. relocated again in 1987, to a 70,000-square-foot facility. With 65 employees and 150 sales agents nationwide, the company initiated its first national advertising campaign. By 1990, Trotter treadmills were rated best in class in a market research survey. International sales extended to Europe, the Middle East, Africa, Asia, Australia, and South America.

Trotter reached two important milestones in 1992. The company introduced its tenth generation of treadmills, the 500 series for home use, and moved to its current location in Medway, Massachusetts, to a 100,000-square-foot facility which housed the company’s headquarters and manufacturing plant. The facility allowed Trotter to expand its product offerings. In 1993 Trotter introduced its first climber exercise equipment and a new series of treadmills for commercial use. With the purchase of Pyramid Fitness, Trotter entered the strength training market, with free-weight and “selectorized” equipment (whereby users selected the weight by inserting a pin under the heaviest weight desired). Trotter gained a manufacturing plant in Pennsylvania as well as a base line of products that it developed into Galileo Strength Equipment, launched in 1995. Sales at Trotter reached $48 million in 1996.

Completion of the merger between Cybex and Trotter occurred in May 1997. John Spratt and Ray Elliot stepped down from their positions as Cybex board chair and CEO, respectively. Haines took the position of CEO at the newly formed company, the first global, publicly owned company in the fitness equipment industry. The merger made Cybex the only company with a comprehensive line of cardiovascular and strength training fitness equipment needed to fully outfit a fitness center. It also combined Cybex’s reputation in the commercial market with Trotter’s name recognition in the consumer market.

The process of integration began with the elimination of almost 200 jobs as plants closed in Pennsylvania, New York, and Washington, and the research and development facility closed in Colorado. Consolidation of operations at Medway created 70 new jobs, however. Cybex retained Eagle’s Owatonna facility. Cybex dissolved the joint venture agreement with the Forza Group in June. A new distribution agreement gave London-based Forza Fitness Equipment exclusive rights for markets in the United Kingdom, Austria, Germany, Switzerland, Russia, and the former Soviet block countries. Cybex took over sales and distribution to other international locations, combining it with Trotter’s sales and distribution network.

Choosing to focus business operations in the fitness industry, Cybex sold its line of isokinetics testing and physical rehabilitation equipment, which accounted for approximately 16 percent of revenues. Henley Healthcare purchased the product line and licensed the Cybex brand for the equipment. Also, Henley secured limited distribution of other Cybex products to the healthcare industry in North America. Some physical rehabilitation clinics continued to purchase Cybex fitness equipment.

Cybex confronted many challenges as a newly integrated company. The first year after the merger, Cybex reported a net loss of $5.2 million on consolidated sales of $90.2 million. In 1998 sales increased to $132.4 million, and net income to $1 million, on the strength of a new product and the acquisition of Tectrix Fitness Equipment. Formed in 1988, Tectrix was known for the stair climber ClimbMax, a revolutionary fitness product introduced in 1989, and the BikeMax line of stationary exercise bicycles, launched in 1993. Tectrix added approximately $30 million to Cybex revenues. New products in 1998, including The Hiker, offset slower sales. Cybex launched the PG400 Personal Gym, a compact workout unit for the home market. The equipment provided over 30 biomechanically correct exercises with the full range of motion for all muscle groups.

Key Dates

1969:: Lumex, Inc., purchases the patent for the Cybex Dynamometer, used for assessing joint strength.
1975:: Lumex creates the Cybex division of isokinetic physical rehabilitation equipment.
1983:: Company enters the fitness equipment market with the acquisition of Eagle Performance Systems.
1985:: Shipment of products in the Cybex Back Systems line begins.
1988:: International sales increase 70 percent; Cybex products are showcased at Seoul Olympic Scientific Congress.
1992:: Cybex Financial Corporation is formed to provide capital equipment financing.
1995:: Lumex begins to restructure company to focus on fitness equipment and therapeutic healthcare products.
1997:: Cybex merger with Trotter, Inc. is completed.
1998:: Cybex acquires Tectrix Fitness Equipment, Inc.
2000:: Cybex reorganizes due to losses.

Faltering amid Successes As New Century Begins

In early 2000 Cybex launched its web site for online shopping and customer support. In addition to providing product information, the site offered training tips, and news and articles on the science of human performance. At “Ask Tracy,” Cybex Education and Training Manager Tracy Morgan answered questions about health and fitness. The site featured a calculator to determine body mass and target heart rate based on personal information. Customer support included order tracking and spare parts ordering in real time, features that benefited overseas distributors as well.

To promote the web site, Cybex offered an online contest, “Who Wants to Feel Like a Millionaire?” When visitors correctly answered a health or fitness question, posted every week for eight weeks, they were entered in a prize drawing. For the grand prize Cybex offered a spa vacation at one of four Destination Spa Group locations. For second prize the company offered a 300T home treadmill, and for third prize a custom workout designed by Tracy Morgan.

After an absence of new products in 1999, in early 2000 the company launched three commercial products. The Cybex 600T Treadmill featured a heart rate monitor and new shock absorption technology. The MG500 Multi-Gym provided movement flexibility in a compact design for corporate and hotel fitness centers. The FT360 Functional Trainer featured flexible exercise options and creative programming. By July the company experienced a backlog of orders for new products. The FT 360 Functional Trainer won the award for Best Product Design and Innovation by Health and Fitness Business magazine, at the magazines trade show, the first award given for commercial products.

Despite the success of these new products, the year 2000 closed with a 30 percent decline in sales during the last quarter, prompting sudden adjustments at the executive level. Haines retired as CEO, being replaced by John Aglialoro, chairman of UM Holdings, while three executive officers resigned, including the CFO. Cybex restructured its executive offices as it replaced these executives and cut its overall workforce by 26 percent. Other action included revision of the warranty program, discount policies, credit standards, and leasing and service operations. In December Cybex closed its Irvine, California, facility, and moved cardiovascular equipment production to a new facility in Medway.

The company’s sales staff was restructured along with standards for dealer authorization. The 108 active dealers in North America were given a defined sales territory, requirements for sales goals, and standards for personnel training in sales techniques as well as product usage. Cybex sales staff served the dealers while 17 territory managers and two regional sales directors and a new vice-president directed the department’s operations. Three national account managers served large commercial customers under a new vice-president. In February 2001 Cybex terminated its distribution agreement with Forza and transferred European sales and distribution into a new subsidiary, Cybex International UK Ltd. Cybex planned to attend more closely to its 58 independent distributors worldwide.

Organizational change impacted sales and earnings in 2000 and 2001. In 2000 the company recorded $25.4 million in charges, including costs for relocation of Irvine operations and $16.9 million in Tectrix goodwill. The year finished with $125.3 million in sales, and a net loss of $20.6 million. Rumors of pending dissolution of the company prompted Aglialoro to issue public letters in November 2000 and February 2001, reassuring customers of the company’s stability, and to replace its auto-attendant telephone system with a live receptionist. Changes in company credit policies as well as general economic conditions impacted sales in 2001, which declined 32 percent to $85.2 million; the company reported a net loss of $0.7 million. Problems with replacement parts ordering motivated a new warranty program providing free annual preventive maintenance during the warranty period. Cybex expected the introduction of new products in 2002 to improve sales.