When Cybex International announced last month that its sales increased by 14 percent in 2011, many people in the industry may have been surprised. For all of 2011, the Medway, MA-based company had been fighting a $66 million judgment handed down in 2010 in the Barnhard vs. Cybex International product liability lawsuit (for which Cybex was deemed 75 percent liable).
That fight and speculation about the company’s future led to some lost business for the company and some distraction for management, Art Hicks, president and COO of Cybex, says. However, the company continued to function, continued to increase funding for research and development, hired more sales staff and improved its marketing efforts, he says.
These efforts appear to have paid off, as the company reported that net sales improved from $123 million in 2010 to $140.1 million in 2011. Net income in 2011 also increased to $34.3 million from a net loss of $58.2 million in 2010. In addition, fourth quarter returns were good, with net sales of $43.1 million compared to $39.9 million in fourth quarter 2010, an 8 percent increase. Net income for the quarter was $34.7 million compared to a net loss of $57.1 million in fourth quarter 2010.
These returns are not the only bright spot for Cybex. The company settled the Barnhard vs. Cybex International product liability lawsuit for $19.5 million last month, much less than the original $66 million judgment and the $44 million judgment that was lowered by an appeals court. The settlement calls for Cybex to pay Natalie Barnhard, the plaintiff, a lump sum of $18.5 million, but the remaining $1 million will be paid over seven years ($144,000 per year) as a consulting fee to Barnhard for her help working on products for the disabled community. Barnhard was rendered a quadriplegic in 2004 when a Cybex leg extension machine she was stretching on fell over on her.
“I am very positive and open about having her involved as a spokesperson, for the increased revenue and participation that Cybex is going to have in that disabled market,” John Aglialoro, chairman and CEO of Cybex, said in a call with analysts and shareholders last month. “It is minor sales now, but we were a leader and one of the first to provide total access in the UK. These accidents happen worldwide. It’s a great market opportunity and an opportunity for Natalie. It’s a good thing for Cybex in the long run that we come to grips with the reality that occurred and work with her and have it be a win-win.”
The case led Aglialoro to rally executives from some of the largest manufacturers and health club companies in the industry for a meeting at the International Health, Racquet and Sportsclub Association (IHRSA) trade show this month in Los Angeles. The group will discuss litigation issues, how Cybex’s experience might affect other companies in the industry and what legal steps manufacturers and club owners should take to protect themselves.
Aglialoro called the original judgment in the Barnhard case a “legal mugging.”
“We need to get tort reform in this country, so we are going to present to our competitors and our customers at IHRSA what they may need to do to prevent these lawsuits from getting out of hand,” Aglialoro said.
Hicks said that the Barnhard case was not just about Cybex.
“This could have happened to anyone,” he said. “I think people realize this is a great threat to our industry.”
The Barnhard case had the potential to bankrupt the company, as Cybex carried just $4 million in liability insurance. Cybex has since increased its coverage to $25 million, Aglialoro said.
Cybex’s experience could lead other manufacturers to increase their liability insurance coverage, too.