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Cybex CEO Uses Financial Call to Question U.S. Tort System

Despite the news that Cybex International, Medway, MA, had a third consecutive quarter of sales growth in second quarter 2011, the company’s CEO, John Aglialoro, spent much of the call with analysts voicing his opinion about the tort system in the United States rather than discussing his company’s second quarter results.

Cybex had net sales of $32.6 million in second quarter 2011, an 18 percent increase from second quarter 2010. Aglialoro credited much of that growth to the company’s new and current product offerings, in particular, its new 770T and 625T treadmill models, which he said had been well received by the industry.

On the other hand, Cybex had a net loss of $0.6 million compared to $0.4 million in second quarter 2010. Part of that net loss was due to $1.6 million in litigation charges for the quarter stemming from the Barnhard vs. Cybex International product liability case in which Cybex was held 75 percent responsible for a $66 million judgment. The case involves a piece of Cybex equipment that came down on a woman, Natalie Barnhard, rendering her a quadriplegic. Cybex has appealed that judgment and has received a stay of enforcement preventing the plaintiff from collecting on the judgment until the appeal is heard in the New York Court of Appeals in Buffalo, NY, possibly this fall.

“We want to get this behind us, but we feel we have a case where a piece of equipment was improperly used and, unfortunately, a tragic accident happened,” Aglialoro said in the call, adding that with such a short time window to a judicial resolution, the company would avoid any settlement discussions at this point.

Aglialoro used the earnings call as an opportunity to blast the tort system. Any CEO of a company facing such a large verdict—said to be the largest product liability judgment in New York history to date—could be expected to take issue with the judgment, but Aglialoro’s personal philosophical beliefs may give him even greater reason to speak out. Aglialoro is a trustee of the Atlas Society, which promotes Ayn Rand’s philosophy of objectivism or rational individualism, which she explored in her book “Atlas Shrugged” and in nonfiction essays. Aglialoro had purchased rights to the book and financed a movie based on it. The movie, covering the first third of the book, was released this spring.

According to an essay on the Atlas Society’s website by William R. Thomas, the director of programs at the society, “Politically, Objectivists advocate laissez-faire capitalism. Under capitalism, a strictly limited government protects each person’s rights to life, liberty and property, and forbids that anyone initiate force against anyone else. The heroes of Objectivism are achievers who build businesses, invent technologies and create art and ideas, depending on their own talents and on trade with other independent people to reach their goals.”

So, it may come as no surprise that Aglialoro commented about the case in the analyst call last month, saying: “It’s an outrageous decision that puts 600 employees at risk at Cybex. We are trying to hire people in this country, create jobs. We have U.S.-made products. We don’t import pieces. We ship products to China, India, Brazil, Russia, the whole world. To put Cybex International in a position of this much trauma for this many months is simply outrageous. We need to change the tort.”

The Barnhard verdict came down in December 2010. Cybex filed an appeal soon thereafter. The company perfected its appeal to the Buffalo, NY, appellate court in late June. The plaintiff was scheduled to present in July. Cybex will then comment on the plaintiff’s comments. Aglialoro said he expected the five appellate judges to get the case in mid-September and hoped to have a decision from them before presenting third quarter financials, which would be in October.

“We need to win in this country,” Aglialoro said. “We need to create jobs. And to put companies like Cybex at risk for any of this is beyond the pale. We are an American manufacturer. We have enough competition pressures with very great companies in other countries. We will get better; they will get better. We need global competition. Each country will achieve the maximization of its abilities and talents. That’s a goal we all should consider—and not have our own countrymen attack our very existence.”

Cybex also is facing pressures on its stock price, which had fallen below $1 for more than 30 consecutive days, prompting a possible delisting by NASDAQ. NASDAQ also notified Cybex that it could be delisted because its stockholder equity of negative $15 million fell below the minimum $10 million required by NASDAQ to be listed. Cybex has until Oct. 3 to regain compliance.

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