<PAGE>1
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company designs and manufactures institutional furniture and markets these
products in niche markets. The Company's product lines consist of multipurpose
room furniture, healthcare seating, call center furniture, specialty office
seating, office systems, and dispatch furniture. In addition, the Company
continues to pursue acquisitions of product lines or companies that will be
complementary to the Company's businesses.
The Company's multipurpose room furniture is marketed under the Mity-Lite
trade name. It consists of lightweight, durable, folding leg tables, stacking
chairs, folding chairs, and other related products. These products are used in
multipurpose rooms of educational, recreational, hotel and hospitality,
government, office, healthcare, religious and other public assembly
facilities. The stacking chairs are marketed under the MityTuff(R),
MityStack(TM), and MityHost(TM) trade names. Some of these chairs are
distributed by Mity-Lite under original equipment manufacturer (OEM)
arrangements with the chair manufacturers while others are manufactured and/or
assembled in the Company's Orem, Utah facility. In November 1999, the Company
introduced a new line of folding chairs. This chair line is manufactured in-
house and is marketed under the SwiftSet(TM) trade name. Historically, Mity-
Lite's growth has come from an expanding base of new customers and from
increasing sales to existing customers in this segment of the business. The
multipurpose room operation's current and future growth is largely dependent
upon its ability to successfully introduce and market new product lines of
multipurpose room furniture such as chairs, staging, flooring, partitions,
podiums, risers and bench seating and its ability to continue increasing its
market penetration into existing markets.
Net sales of the Company's products have increased during the fiscal years
ended March 31, 2000, 1999 and 1998. Management expects, but cannot assure,
this trend will continue. Gross margins and expenses associated with chairs
and other new product lines are difficult to predict during start-up periods
but the Company believes that by applying its management techniques to these
product lines, profitability rates slightly less than those achieved on table
products can ultimately be reached. However, no assurance can be given that
these results will be realized.
The Company's healthcare seating operations were acquired in November 1998.
The Company acquired all of the outstanding stock of Broda Enterprises Inc.
for $2.5 million. Broda's products are marketed under the Broda trade name.
Its operations are based in Waterloo, Ontario, Canada.
On April 9, 1999, the Company acquired certain assets and obligations of The
CenterCore Group, Inc. ("CenterCore"), a privately-owned designer,
manufacturer and marketer of pod style and panel systems furniture marketed to
call centers and other high-density office use environments. Two wholly-owned
subsidiaries of Mity-Lite completed the transactions. C Core, Inc., a Utah
corporation, purchased the accounts receivable, inventory, machinery and
equipment, intellectual property and certain other assets of The CenterCore
Group, Inc, for an estimated $5.3 million. The final purchase price will be
determined based on asset values at closing and will be adjusted dollar for
dollar for increases and/or decreases in the closing book values of accounts
receivable, inventory, and machinery and equipment. C Core designs and markets
call center and panel systems furniture under the CenterCore name. Product
manufacturing has been transitioned to DO Group, Inc., a wholly-owned
subsidiary of the Company.
<PAGE> 2
BOCCC, Inc., also a Utah corporation and wholly-owned subsidiary of the
Company, purchased the outstanding subordinated debt obligations of CenterCore
for $0.5 million. The outstanding subordinated debt obligations of CenterCore
totaled approximately $2.0 million at closing. In addition, BOCCC, Inc., has
since purchased other certain claims. Cash from the Company's general working
capital was used to fund the purchases.
Effective April 1, 2000, the Company acquired the remaining 50.1 percent
equity interest in DO Group, Inc. making DO Group, Inc. a wholly-owned
subsidiary of the Company. DO Group, Inc. is a privately-held manufacturer of
specialty office seating and office panel systems headquartered in Elkhart,
Indiana. DO Group markets its products under the Domore(TM), Corel(TM), JG(TM)
and DO3(TM) trade names and has manufacturing facilities in Elkhart, Indiana,
and Marked Tree, Arkansas. DO Group's total sales for the years ended March
31, 2000, 1999 and 1998 were $18,045,000, $15,139,000 and $12,145,000,
respectively. DO Group's net income for the years ended March 31, 2000, 1999
and 1998 was $508,000, $1,923,000 and $1,203,000, respectively.
Mity-Lite exchanged approximately $2.2 million cash and 41,000 shares of Mity-
Lite common stock for the remaining 50.1 percent of DO Group stock from the DO
Group shareholders. In addition, Mity-Lite assumed approximately $1.0 million
in long term debt and another $2.5 million in a revolving credit line. The
acquisition will be treated for accounting purposes as a step purchase. DO
Group, Inc. has become a wholly-owned subsidiary of Mity-Lite, Inc. Cash from
the Company's general working capital was used to fund the purchase.
In conjunction with the DO Group acquisition, the Company merged C Core, Inc.
with DO Group, Inc. The new subsidiary will retain the DO Group, Inc. name.
Both DO Group and C Core produce office systems in a shared manufacturing
facility in Marked Tree, Arkansas.
On April 1, 2000, the Company also created a new corporation called MLI
Acquisition, Inc. With the exception of cash, real property, certain deferred
tax obligations, and investments in and notes receivable from subsidiaries,
all of the assets and liabilities of Mity-Lite, Inc. were transferred to
MLI Acquisition, Inc. MLI Acquisition, Inc. has become the operating company
for the multipurpose furniture operations and is a wholly-owned subsidiary of
the Company.
<PAGE> 3
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
net sales represented by items included in or derived from the Company's
Statements of Income:
---------------------------------------------------------------------------
Year Ended March 31, 2000 1999 1998 1997 1996
---------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold 61.3 61.5 63.1 58.5 59.3
---------------------------------------------------------------------------
Gross profit 38.7 38.5 36.9 41.5 40.7
Operating expenses:
Selling 16.4 14.4 14.9 15.9 14.3
General and administrative 6.3 4.5 3.4 4.6 5.4
Research and development 1.7 1.8 1.9 2.0 3.3
---------------------------------------------------------------------------
Income from operations 14.3 17.8 16.7 19.0 17.7
Interest and other, net 1.4 2.9 2.8 1.8 1.4
---------------------------------------------------------------------------
Income before tax 15.7 20.7 19.5 20.8 19.1
Provision for income taxes 5.8 7.4 6.9 7.5 6.6
---------------------------------------------------------------------------
Net Income 9.9% 13.3% 12.6% 13.3% 12.5%
===========================================================================
<PAGE> 4
COMPARISON OF FISCAL YEARS 2000, 1999 AND 1998
NET SALES
The Company's fiscal 2000 net sales of $47.50 million increased 61 percent
over net sales in fiscal 1999. The current year sales increase has resulted
primarily from increased penetration into the multipurpose room market as well
as sales from the recent Broda and CenterCore acquisitions. For fiscal 2000,
the increase primarily reflected sales growth of 21 percent in the Company's
multipurpose room furniture lines. Specialty office seating and systems
sales, related to the CenterCore acquisition in April 1999, represented 21
percent of net sales for fiscal 2000. Healthcare chair and accessories sales,
related to Broda's operations, represented 7 percent and 5 percent of net
sales for fiscal 2000 and 1999 respectively. International sales for all
product lines represented 11 percent of net sales for fiscal 2000 and 1999.
The Company's fiscal 1999 net sales of $29.47 million increased 16 percent
over net sales in fiscal 1998. The sales increase has resulted mainly from
increased sales in the government, recreation, church and hospitality market
segments and an overall higher average unit sales price realized on table
sales, as well as additional sales resulting from the Broda acquisition. For
fiscal 1999, the increase reflected sales growth of 11 percent in the
Company's multipurpose room furniture lines. Healthcare chair and accessories
sales, related to the Broda acquisition in November 1998, represented 5
percent of net sales for fiscal 1999. International sales for all product
lines represented 11 percent of net sales for fiscal 1999 as compared to 8
percent in fiscal 1998.
GROSS PROFIT
For the fiscal year ended March 31, 2000, gross profit as a percentage of net
sales was unchanged at 39 percent as compared to the prior year. Increasing
gross profit margins in the multipurpose room and healthcare seating
businesses were offset by lower gross profit margins in the Company's
CenterCore operations. The gross profit margin on multipurpose room furniture
sales increased by 1 percentage point due to higher average sales prices on
the Company's table products and lower material costs experienced earlier in
the year partially offset by lower margins on the Company's chair products.
The gross profit margin on healthcare seating and accessories sales increased
by 13 percentage points mainly due to writing off the inventory purchase
adjustment resulting from the Broda acquisition in the prior year. In
addition to incurring transition and relocation costs associated with the
CenterCore acquisition and writing off the inventory purchase adjustment
during the current fiscal year, CenterCore sales carried a lower gross profit
margin, which offset the previously mentioned increases.
For the fiscal year ended March 31, 1999, gross profit as a percentage of net
sales increased by 2 percentage points to 39 percent as compared to 37 percent
in the prior year. The increase was the result of a higher average sales
price on table products, lower material costs and higher labor efficiency due
to improved training and retention of employees. This was partially offset by
an increase in labor costs as well as a lower gross profit on healthcare
seating and accessories sales due to writing off the inventory purchase
adjustment resulting from the Broda acquisition.
<PAGE> 5
OPERATING EXPENSES
For fiscal 2000, selling expenses were 16 percent of net sales as compared to
14 percent in the prior year. Actual expenses increased by $3.55 million or
84 percent. The increase as a percent of sales was mainly due to increased
selling costs for healthcare seating and specialty office seating and systems
products resulting from the recent acquisitions, one-time transition selling
costs associated with CenterCore, and higher commissions and personnel
expenses related to the multipurpose room furniture operation. For fiscal
1999, selling expenses were 14 percent of net sales as compared to 15 percent
in the prior year. Actual expenses increased by $452,000 or 12 percent. The
decrease as a percent of sales was due to lower personnel and advertising
costs partially offset by higher selling expenses for healthcare chairs.
General and administrative expenses were 6 percent, 4 percent and 3 percent of
net sales in fiscal 2000, 1999 and 1998, respectively. The increase of 2
percentage points, or $1.64 million, in fiscal 2000 over fiscal 1999 resulted
mainly from increased general and administrative costs associated with
CenterCore and Broda as well as additional personnel related expenses. The
increase of 1 percentage point, or $490,000, in fiscal 1999 over fiscal 1998
was due to additional personnel related expenses, the addition of the total
quality management and training position to the administrative staff,
increased investor relations spending, and higher general and administrative
costs associated with Broda.
Research and development expenses were 2 percent of net sales in fiscal 2000,
1999 and 1998. For fiscal 2000, actual spending increased by 50 percent, or
$275,000, as compared to fiscal 1999. This increase in actual spending
resulted from increased costs associated with additional product development,
prototyping and higher personnel expenses at the multipurpose room operations,
and Broda and CenterCore product development expenditures. For fiscal 1999,
actual spending increased by 12.5 percent, or $61,000, as compared to fiscal
1998. This increase in actual spending resulted from increased spending on
product development and prototyping, partially offset by lower personnel
expenses.
OTHER INCOME/EXPENSE
Other income and expense netted to $664,000 in fiscal 2000. Investment income
was $342,000, a decrease of $100,000 from the prior fiscal year due to a lower
average balance of cash and cash equivalents and available-for-sale securities
due to the recent acquisitions. Mity-Lite recognized income of $368,000 from
its investment in the DO Group. The $368,000 represents Mity-Lite's
proportionate share of DO Group's net income for the year ended March 31,
2000, less certain additional amortization and depreciation created as a
result of the purchase. Mity-Lite also incurred a net gain of $1,000 from the
disposition of certain assets, a loss of $17,000 on currency exchange, and
$30,000 in interest expense resulting from Broda's line of credit.
Other income and expense netted to $874,000 in fiscal 1999. Investment income
was $442,000, an increase of $67,000 from the prior fiscal year due to a
higher average balance of cash and cash equivalents and available-for-sale
securities. Mity-Lite recognized income of $480,000 from its investment in
the DO Group. The $480,000 represents Mity-Lite's proportionate share of DO
Group's net income for the year ended March 31, 1999, less certain additional
amortization and depreciation created as a result of the purchase. Mity-Lite
also incurred a net loss of $28,000 from the disposition of certain assets, a
loss of $10,000 on currency exchange, and $10,000 in interest expense
resulting from Broda's long term debt and line of credit.
<PAGE> 6
NET INCOME
For reasons stated above, the Company's 2000 fiscal year net income of $4.7
million increased 20 percent over net income in fiscal 1999. For fiscal 1999,
net income of $3.93 million increased 23 percent over net income in fiscal
1998.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly financial data for
the most recent twelve quarters. This quarterly financial data reflects, in
the opinion of Management, all adjustments necessary to present fairly the
results of operations for such periods. The operating results for any quarter
are not necessarily indicative of results for any future period. The Company
anticipates that operating results may fluctuate on a quarterly basis
depending upon a number of factors. Earnings per share information may not
add to match annual earnings per share information due to rounding.
Unaudited Quarterly Financial Information:
(in thousands, except per share amounts)
-------------------------------------------------------------------
Q1 1998 Q2 1998 Q3 1998 Q4 1998
-------------------------------------------------------------------
Net sales $6,296 $7,341 $5,667 $6,033
Gross profit 2,423 2,780 2,003 2,143
Income before provision for
income tax 1,247 1,562 1,023 1,111
Net income 786 984 644 775
Basic earnings per share* 0.16 0.20 0.13 0.16
Diluted earnings per share* 0.16 0.19 0.13 0.15
-------------------------------------------------------------------
Q1 1999 Q2 1999 Q3 1999 Q4 1999
-------------------------------------------------------------------
Net sales $7,664 $7,361 $6,812 $7,631
Gross profit 2,753 2,815 2,733 3,045
Income before provision for
income tax 1,586 1,684 1,380 1,454
Net income 999 1,061 836 1,034
Basic earnings per share* 0.20 0.22 0.17 0.21
Diluted earnings per share* 0.20 0.21 0.17 0.21
-------------------------------------------------------------------
Q1 2000 Q2 2000 Q3 2000 Q4 2000
-------------------------------------------------------------------
Net sales $11,223 $10,979 $11,723 $13,571
Gross profit 4,264 4,560 4,606 4,939
Income before provision for
income tax 1,620 1,968 2,017 1,846
Net income 1,016 1,235 1,274 1,175
Basic earnings per share* 0.21 0.26 0.26 0.24
Diluted earnings per share* 0.20 0.24 0.25 0.23
*Retroactively restated for the 3-for-2 stock split distributed September 23,
1999
<PAGE> 7
The Company's quarterly operating results can fluctuate significantly
depending on factors such as timing of new product introductions, market
acceptance of new products, increased competitive pressures, growth in the
institutional furniture market, acquisitions, expansion of international
operations, timing and expansion into complementary products such as chairs,
changes in raw material sources and costs, and adverse changes in general
economic conditions in any of the countries in which the Company does
business. The Company's ability to effectively integrate its recent
acquisitions and to develop and market tables, chairs, office furniture,
healthcare furniture and complementary products that successfully adapt to
current market needs may also have an impact on future quarterly results of
operations. No assurances are made that the Company will not experience such
quarterly variations in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which consist primarily of high-quality municipal
bonds, tax-advantaged money market instruments and repurchase agreements
collateralized with U.S. Treasury securities, totaled $6.14 million at March
31, 2000 which compared to $8.03 million at March 31, 1999. In addition, the
Company held available-for-sale securities which totaled $3.90 million at
March 31, 1999. The Company liquidated its available-for-sale securities at
the end of fiscal 2000 in anticipation of completing the DO Group acquisition.
The decrease in cash and cash equivalents for fiscal 2000 as compared to
fiscal 1999 was due primarily to the purchase of certain assets of CenterCore
($5.34 million), purchases of property, plant and equipment ($2.69 million)
and buying back shares of the Company's common stock ($0.60 million). This
decrease was partially offset by cash generated from operations ($2.31
million), net sales of highly liquid available-for-sale securities ($3.89
million), net proceeds from the sale of equipment ($0.30 million) and net
proceeds related to the exercise of stock options ($0.25 million).
The decrease in cash and cash equivalents for fiscal 1999 as compared to
fiscal 1998 was due primarily to net purchases of highly liquid available-for-
sale securities ($2.69 million), the purchase of Broda Enterprises ($2.01
million), buying back shares of the Company's common stock ($1.16 million) and
purchases of manufacturing and computer equipment ($0.63 million). This
decrease was partially offset by cash generated from operations ($4.90
million), net proceeds related to the exercise of stock options ($0.20
million) and interest received from affiliate ($0.10 million).
In recent history, the Company has financed its growth through cash from
operations. In addition, the Company has a revolving credit facility
associated with its Broda Enterprises subsidiary from Toronto Dominion Bank.
The agreement allows the Company to draw up to $364,000 under the credit
facility. As of March 31, 2000, the Company had drawn $319,000. The credit
facilities require the maintenance of certain financial ratios and levels of
working capital, all of which were met as of March 31, 2000.
In May 2000, the Company established a revolving credit facility with Zions
First National Bank. The agreement, which expires on May 25, 2001, allows the
Company to draw up to $4,000,000 under the credit facility and requires the
maintenance of certain financial ratios.
<PAGE> 8
The Company believes that cash flow from its current operations together with
existing cash reserves and available lines of credit will be sufficient to
support its working capital requirements for its existing operations for at
least the next 12 months. However, the Company's working capital requirements
have significantly increased and may further increase if other acquisitions
are consummated. No assurances can be given as to the sufficiency of the
Company's working capital to support the Company's operations. If the
existing cash reserves, cash flow from operations and debt financing are
insufficient or if working capital requirements are greater than currently
estimated, the Company could be required to raise additional capital. There
can be no assurance the Company will be capable of raising additional capital
or that the terms upon which such capital will be available to the Company
will be acceptable. Additional sources of equity capital are available to the
Company through the exercise by holders of outstanding options. At March 31,
2000, the proceeds which would have been received by the Company upon exercise
of outstanding options which were exercisable on that date were approximately
$1.6 million. There is no assurance that such options will be exercised.
The Company's material cash commitments at March 31, 2000 consisted primarily
of cash to be used to develop real estate in its Orem location ($0.5 million),
purchase the stock of DO Group ($2.2 million), pay down the DO Group's bank
debt ($3.5 million) and fund current liabilities. At March 31, 2000, the
Company had total current liabilities of $4.76 million. The Company has also
entered into a lease agreement from a related party for its Orem, Utah
production and office facility under which it is obligated to pay $17,100 per
month through March 2005. The Company has also entered into two lease
agreements for Broda's production and office facilities under which it is
obligated to pay $7,218 Canadian (approximately US $5,000) per month through
August 2000. The Company is in the process of building a new facility with
office and manufacturing space. As of March 31, 2000, $1.5 million had been
spent on the land and facility. The Company anticipates additional spending
of approximately $0.5 million for a total of $2.0 million in capital
expenditures. These additional expenditures are anticipated to be completed
by the end of the first quarter of fiscal 2001 and will be funded with cash
from operations and a bank line of credit.
INFORMATION SYSTEMS AND THE YEAR 2000
The Company did not experience any adverse results or significant business
disruptions during the year-end 1999 rollover to January 1, 2000 or in any
other critical dates as of the date of this filing. Based on operations since
January 1, 2000, the Company does not expect any significant impact to its
ongoing business as a result of the Year 2000 issue. The Company also has not
had any material effects on its business due to failures by customers or
vendors to address the Year 2000 problem. However, the Company cannot give
any assurances that no Year 2000 problem will arise.
The Company utilized internal resources to test all of its software for Year
2000 compliance and, where necessary, upgrade or replace noncompliant systems.
The cost of this project, including the cost of new systems which was
capitalized, was less than $30,000. Of this amount, $25,000 was expensed, and
$5,000 was capitalized. This cost was funded through operating cash flows.
IMPACT OF INFLATION AND ENVIRONMENTAL REGULATIONS
The Company believes that inflation has not had a material effect on its
operating results. However, significant increases in the price of raw
materials could have a material adverse impact on the Company's results of
operations. In addition, compliance with environmental laws or regulations
has not had a material effect on the Company's operations.
<PAGE> 9
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS
Certain statements made above in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "Reform Act"). In addition, when used in this filing, the words or
phrases "may," "will," "Management believes," "Company believes," "Company
intends," "estimates," "projects," "anticipates," "expects" and similar
expressions are intended to identify "forward-looking statements" within the
meaning of the Reform Act.
Forward-looking statements contained herein include plans and objectives of
management for future operations, including plans and objectives relating to
the Company's products, marketing, customers, product line expansions,
manufacturing process and potential acquisitions. These forward-looking
statements involve risks and uncertainties and are based on certain
assumptions that may not be realized. Actual results and outcomes may differ
materially from those discussed or anticipated. The forward-looking
statements and associated risks set forth herein and elsewhere in this annual
report relate to: (i) the Company's expectation that it will be able to
continue to increase net sales of its products, expand its share of the
multipurpose room market and achieve and maintain expected levels of
profitability over time, (ii) the Company's anticipation that it will be able
to attract new customers, (iii) the Company's intentions to expand into new
markets, (iv) the Company's ability to locate and consummate acquisitions of
product lines or companies on terms acceptable to the Company and successfully
integrate such acquisitions into the Company's operations following
consummation thereof, (v) the Company's ability to successfully integrate the
business operations of Broda Enterprises Inc., CenterCore and DO Group, Inc.
into the Company's operations, (vi) the Company's intention to expand and
introduce new product lines to existing customers, (vii) the Company's
expectation that it will be able to expand into new market segments by
developing new products or acquiring other products or businesses in such
segments, (viii) the Company's expectation that it will have sufficient
capital resources for the next 12 months, and (ix) the Company's expectations
regarding its new manufacturing facility and related capital expenditures.
All forward-looking statements involve predictions and are subject to known
and unknown risks and uncertainties, including, without limitation, those
discussed below as well as general economic and business conditions, that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. Readers should not place undue
reliance on any such forward-looking statements, which speak only as of the
date made. The considerations listed below and elsewhere in this filing could
affect the Company's financial performance and could cause the Company's
actual results for future periods to differ materially from any forward
looking statements expressed with respect to future periods. Important
factors and risks that might cause such differences, include, but are not
limited to (a) lower than expected revenue, revenue growth and cash flow from
operations because of recent acquisitions and any operating and post
acquisition integration challenges related thereto, adverse economic or
business conditions or the Company's inability, for any reason, to profitably
introduce new products or implement its marketing strategies in the healthcare
seating, call center, and specialty seating and office panel systems markets,
(b) management's ability to manage effectively the Company's growth, (c) the
Company's ability to expand successfully into new markets such as in the
healthcare seating and seating accessories, call center, specialty seating and
office panel systems markets, (d) import restrictions and economic conditions
in the Company's foreign markets and foreign currency risks associated
<PAGE> 10
therewith, (e) increased competition in the Company's existing and future
markets, (f) the market's acceptance of products currently being developed by
the Company, (g) the Company's ability to maintain relatively low cost labor
rates in a period of lower unemployment, (h) the Company's ability to source a
sufficient volume of acceptable raw materials at current prices, (i) increased
product warranty service costs if warranty claims increase as a result of the
Company's new product introductions or acquisitions or for any other reason,
(j) the Company's ability to refine and enhance the quality and productivity
of its manufacturing process and build its new manufacturing facility on a
cost effective and timely basis, (k) the Company's ability to manufacture and
market at current margins high quality, high performance products at
competitive prices, and (l) the Company's ability to locate and consummate
acquisitions of complementary product lines or companies on terms acceptable
to the Company and integrate such acquisitions into the Company's operations.
In light of the significant uncertainties inherent in forward-looking
statements, the inclusion of any such statement should not be regarded as a
representation by the Company or any other person that the objectives, plans
or expectations of the Company will be achieved. The Company disclaims any
obligation or intent to update any such factors or forward-looking statements
to reflect future events or developments.
<PAGE> 11
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements and the Notes thereto included in this Annual Report to
Shareholders. The statement of income data set forth below with respect to the
fiscal years ended March 31, 2000, 1999 and 1998 and the balance sheet data at
March 31, 2000 and 1999 are derived from, and should be read in conjunction
with the audited Financial Statements included in this Annual Report to
Shareholders. The statement of income data set forth below with respect to the
fiscal year ended March 31, 1997 and 1996 and the balance sheet data at March
31, 1998, 1997 and 1996 are derived from audited financial statements not
included in this Annual Report to Shareholders.
STATEMENT OF INCOME DATA
------------------------------------------------------------------------------
Year Ended March 31, 2000 1999 1998 1997 1996
------------------------------------------------------------------------------
(in thousands, except per share data)
Net sales $47,496 $29,468 $25,337 $18,680 $15,383
Cost of products sold 29,127 18,122 15,988 10,921 9,125
------------------------------------------------------------------------------
Gross profit 18,369 11,346 9,349 7,759 6,258
Expenses:
Selling 7,786 4,234 3,782 2,969 2,194
General and administrative 2,972 1,333 843 865 835
Research and development 824 549 488 375 511
------------------------------------------------------------------------------
Income from operations 6,787 5,230 4,236 3,550 2,718
Interest and other, net 664 874 707 339 219
------------------------------------------------------------------------------
Income before provision for
income taxes 7,451 6,104 4,943 3,889 2,937
Provision for income taxes 2,751 2,174 1,754 1,404 1,009
------------------------------------------------------------------------------
Net income $4,700 $3,930 $3,189 $2,485 $1,928
==============================================================================
Basic earnings per share* $0.98 $0.81 $0.66 $0.53 $0.42
==============================================================================
Weighted average common shares
outstanding basic* 4,812,610 4,868,375 4,841,775 4,680,649 4,628,701
==============================================================================
Diluted earnings per share* $0.92 $0.78 $0.63 $0.51 $0.40
==============================================================================
Weighted average common and
common equivalent shares
diluted* 5,120,247 5,037,680 5,084,180 4,919,002 4,852,590
==============================================================================
* Retroactively restated for the 3-for-2 stock split distributed September 23,
1999.
<PAGE> 12
BALANCE SHEET DATA
------------------------------------------------------------------------------
March 31, 2000 1999 1998 1997 1996
------------------------------------------------------------------------------
(in thousands)
Total assets $29,432 $23,463 $18,556 $14,264 $11,321
Working capital 13,574 14,374 12,895 9,454 8,918
Current portion of long term
debt -- 45 -- -- --
Long term debt less current
portion -- 97 -- -- --
Stockholders' equity 24,385 19,918 16,819 12,933 10,231
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Mity-Lite, Inc.
We have audited the accompanying consolidated balance sheets of Mity-Lite,
Inc. and subsidiaries as of March 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended March 31, 2000. These financial
statements are the responsibility of Mity-Lite's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of DO Group, Inc., Mity-
Lite's investment in which is accounted for by use of the equity method. Mity-
Lite's equity of $1,672,000 $1,483,000 and $1,108,000 in the DO Group's net
assets at March 31, 2000, March 31, 1999 and March 31, 1998, and of $368,000,
$480,000 and $340,000 in that company's net income for the respective years
then ended are included in the accompanying financial statements. The
financial statements of DO Group, Inc. were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for such company, is based solely on the report of such other
auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects,
the financial position of Mity-Lite, Inc. and subsidiaries at March 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
May 12, 2000
<PAGE> 14
CONSOLIDATED FINANCIAL STATEMENTS
MITY-LITE, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------
March 31, 2000 1999
--------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $6,141,000 $8,029,000
Available for sale securities -- 3,899,000
Accounts receivable, less allowances of
$1,179,000 at March 31, 2000 and
$395,000 at March 31, 1999 9,393,000 3,596,000
Inventories 1,410,000 1,544,000
Prepaid expenses and other current assets 1,152,000 233,000
Deferred income tax assets 234,000 250,000
--------------------------------------------------------------------------
Total current assets 18,330,000 17,551,000
Property and equipment, net 4,169,000 2,155,000
Investment in affiliate 1,672,000 1,483,000
Note receivable from affiliate 2,127,000 1,066,000
Intangible assets, net 3,134,000 1,208,000
--------------------------------------------------------------------------
$29,432,000 $23,463,000
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit $319,000 $286,000
Accounts payable 2,227,000 1,569,000
Accrued expenses 2,210,000 1,277,000
Current portion -- long term debt -- 45,000
--------------------------------------------------------------------------
Total current liabilities 4,756,000 3,177,000
Deferred income tax liabilities 291,000 271,000
Long term debt -- 97,000
--------------------------------------------------------------------------
Total liabilities 5,047,000 3,545,000
COMMITMENTS AND CONTINGENCIES (NOTE 11) -- --
Stockholders' equity:
Preferred stock, par value $.10 per share;
authorized 3,000,000 shares; no shares
issued and outstanding -- --
Common stock, par value $.01 per share;
authorized 10,000,000 shares; issued and
outstanding 4,823,582 shares at March 31,
2000 and 4,834,725 shares* at March 31, 1999 48,000 48,000
Additional paid-in capital 8,015,000 7,806,000
Retained earnings 16,187,000 12,009,000
Accumulated other comprehensive income 135,000 55,000
--------------------------------------------------------------------------
Total stockholders' equity 24,385,000 19,918,000
--------------------------------------------------------------------------
$29,432,000 $23,463,000
==========================================================================
* Retroactively restated for the 3-for-2 stock split distributed September 23,
1999.
See accompanying notes to financial statements
<PAGE> 15
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------------------------------------
Year Ended March 31, 2000 1999 1998
-----------------------------------------------------------------------
Net sales $47,496,000 $29,468,000 $25,337,000
Cost of products sold 29,127,000 18,122,000 15,988,000
-----------------------------------------------------------------------
Gross profit 18,369,000 11,346,000 9,349,000
Selling 7,786,000 4,234,000 3,782,000
General and administrative 2,972,000 1,333,000 843,000
Research and development 824,000 549,000 488,000
-----------------------------------------------------------------------
Total operating expenses 11,582,000 6,116,000 5,113,000
-----------------------------------------------------------------------
Income from operations 6,787,000 5,230,000 4,236,000
Other income (expense):
Interest expense (30,000) (10,000) --
Investment income 342,000 442,000 375,000
Equity in income of affiliate 368,000 480,000 340,000
Other (16,000) (38,000) (8,000)
-----------------------------------------------------------------------
Total other income, net 664,000 874,000 707,000
-----------------------------------------------------------------------
Income before provision for
income taxes 7,451,000 6,104,000 4,943,000
Provision for income taxes 2,751,000 2,174,000 1,754,000
-----------------------------------------------------------------------
Net income $4,700,000 $3,930,000 $3,189,000
=======================================================================
Basic earnings per share* $0.98 $0.81 $0.66
=======================================================================
Weighted average number of
common shares basic* 4,812,610 4,868,375 4,841,775
=======================================================================
Diluted earnings per share* $0.92 $0.78 $0.63
=======================================================================
Weighted average number of common
and common equivalent shares
diluted* 5,120,247 5,037,680 5,084,180
=======================================================================
*Retroactively restated for the 3-for-2 stock split distributed September 23,
1999.
See accompanying notes to financial statements
<PAGE> 16
<TABLE>
<CAPTION>
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY*
Accumulated
Common Additional Other Total
Stock Paid-In Retained Comprehensive Stockholders'
Par Value Capital Earnings Income Equity
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1997 $48,000 $6,936,000 $5,949,000 0 $12,933,000
Comprehensive income:
Net income 3,189,000
Unrealized gains on
available- for-sale
securities --
Foreign currency
translation --
----------
Total comprehensive income 3,189,000
Issuance of 151,107 shares
of common stock from the
exercise of options 1,000 383,000 384,000
Issuance of 6,228 shares
of common stock to the
Company's 401(k) plan 50,000 50,000
Purchase and retirement of
8,496 shares of common
stock (30,000) (73,000) (103,000)
Tax benefit of employee
stock options 366,000 366,000
-------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 49,000 7,705,000 9,065,000 0 16,819,000
Comprehensive income:
Net income 3,930,000
Unrealized gains on
available-for-sale
securities $5,000
Foreign currency
translation 50,000
----------
Total comprehensive income 3,985,000
Issuance of 48,661 shares
of common stock from the
exercise of options 144,000 144,000
Issuance of 6,060 shares
of common stock to the
Company's 401(k) plan 58,000 58,000
Purchase and retirement of
110,874 shares of common
stock (1,000) (177,000) (986,000) (1,164,000)
Tax benefit of employee
stock options 76,000 76,000
-------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 48,000 7,806,000 12,009,000 55,000 19,918,000
<PAGE> 17
Comprehensive income:
Net income 4,700,000
Unrealized loss on
available-for-sale
securities (5,000)
Foreign currency
translation 85,000
----------
Total comprehensive income 4,780,000
Issuance of 25,450 shares
of common stock from the
exercise of options 128,000 128,000
Issuance of 12,198 shares
of common stock to the
Company's 401(k) plan 119,000 119,000
Purchase and retirement of
48,750 shares of common
stock (79,000) (522,000) (601,000)
Tax benefit of employee
stock options 41,000 41,000
-------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 $48,000 $8,015,000 $16,187,000 $135,000 $24,385,000
=======================================================================================================
</TABLE>
* Retroactively restated for the 3-for-2 stock split distributed September 23,
1999.
See accompanying notes to financial statements
<PAGE> 18
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------
Year Ended March 31, 2000 1999 1998
---------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,700,000 $3,930,000 $3,189,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 914,000 624,000 492,000
Deferred tax expense 36,000 9,000 34,000
Equity in income of affiliate (368,000) (480,000) (340,000)
Loss (Gain) on disposal of
property and equipment (1,000) 30,000 8,000
Tax benefit from exercise of
stock options 41,000 76,000 366,000
Changes in assets and liabilities
(net of effects from purchase of
Broda and CenterCore):
Accounts receivable (2,998,000) (322,000) (390,000)
Inventories (75,000) 146,000 (260,000)
Prepaid expenses and other
current assets (726,000) (28,000) (236,000)
Accounts payable 536,000 247,000 311,000
Accrued expenses 155,000 665,000 11,000
---------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,214,000 4,897,000 3,185,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale
securities (3,057,000) (3,429,000) (2,660,000)
Sales of available-for-sale
securities 6,950,000 743,000 1,453,000
Proceeds from sale of property and
equipment 295,000 26,000 --
Purchases of property and equipment (2,690,000) (631,000) (783,000)
Note receivable from affiliate 199,000 (66,000) --
Cash received from affiliate 179,000 105,000 94,000
Increase in acquisition advances (158,000) -- --
Purchase of Broda Enterprises (net of
cash acquired) -- (2,011,000) --
Purchase of CenterCore (net of cash
acquired) (5,342,000) --
---------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES(3,624,000) (5,263,000) (1,896,000)
<PAGE> 19
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock
options 247,000 202,000 434,000
Purchase and retirement of common
stock (601,000) (1,164,000) (103,000)
Increase in bank line of credit 21,000 107,000 --
Decrease in long term debt (146,000) (19,000) -
---------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (479,000) (874,000) 331,000
Effect of exchange rate changes on
cash 1,000 3,000 --
---------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (1,888,000) (1,237,000) 1,620,000
Cash and cash equivalents at
beginning of year 8,029,000 9,266,000 7,646,000
---------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR $6,141,000 $8,029,000 $9,266,000
===========================================================================
See accompanying notes to financial statements
MITY-LITE, INC.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
2000 1999 1998
---------------------------------------------------------------------------
Cash paid during the year for
income taxes $2,770,000 $1,994,000 $1,594,000
Cash paid for interest on long term
debt $1,000 $5,000 --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
CENTERCORE ACQUISITION:
In April of 1999, the Company acquired certain assets and obligations of The
CenterCore Group, Inc. for $5,342,000. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $3,767,000
Cost in excess of fair value of assets 2,063,000
Cash paid for the assets (5,342,000)
----------
Liabilities assumed $488,000
==========
BRODA ACQUISITION:
In November of 1998, the Company purchased all of the capital stock of Broda
Enterprises for $2,099,000. In conjunction with the acquisition, liabilities
were assumed as follows:
Fair value of assets acquired $1,830,000
Cost in excess of fair value of assets 1,162,000
Cash paid for the capital stock (2,099,000)
----------
Liabilities assumed $893,000
==========
See accompanying notes to financial statements
<PAGE> 20
MITY-LITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Mity-Lite, Inc. (the "Company") designs and manufactures institutional
furniture and healthcare seating and markets these products in niche markets.
In addition, the Company continues to pursue acquisitions of product lines or
companies that will be complementary to the Company's businesses. The Company
markets its products throughout the United States, Canada and in certain
foreign countries.
INVESTMENT IN UNCONSOLIDATED AFFILIATE
The Company's investment in unconsolidated affiliate is accounted for using
the equity method (see Note 4. Investment in and Note Receivable from
Affiliate).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
Mity-Lite, Inc. and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments which have a term
maturity not greater than three months.
AVAILABLE-FOR-SALE SECURITIES
Debt securities, which consist of municipal bonds, corporate bonds and
government agency securities, are classified as available-for-sale. When the
fair value of available-for-sale securities differs from the amortized cost,
the resulting gain or loss is recorded as a component of comprehensive income.
The amortization of premiums and discounts on debt securities in this category
are included in investment income and reflected in the amortized cost of the
debt securities. The cost of securities sold during the period is based on the
specific identification method. Interest on securities in this category are
included in investment income.
At March 31, 2000, the company did not own any available-for-sale securities.
INVENTORIES
Inventories are stated at the lower of cost, on a first in, first out basis,
or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are charged
to operations as incurred, whereas major replacements and improvements are
capitalized and subsequently depreciated. Depreciation and amortization on the
Company's equipment, furniture, and fixtures are provided on a straight-line
basis over the estimated useful lives of the related assets (two to ten
years). Improvements to leased properties are amortized over their estimated
useful lives or the remaining term of the lease, whichever is shorter (five to
fifteen years).
REVENUE RECOGNITION
Revenue is recognized upon shipment of product.
<PAGE> 21
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables and cash equivalents. In
the normal course of business, the Company provides credit terms to its
customers. Accordingly, the Company performs ongoing credit evaluations of its
customers and maintains allowances for possible losses which, when realized,
have been within the range of management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the notes receivable from affiliate approximates their book
value at March 31, 2000 and 1999. The fair value of available-for-sale
securities exceeds cost by $5,000 as of March 31, 1999. The Company did not
own any available-for-sale securities at March 31, 2000. The fair value of
long term debt approximates cost as of March 31, 1999. The Company had no long
term debt as of March 31, 2000.
INCOME TAXES (SEE NOTE 10. INCOME TAXES)
Mity-Lite uses an asset and liability approach for financial accounting and
reporting for income taxes. Deferred income taxes are provided for temporary
differences in the bases of assets and liabilities as reported for financial
statement purposes and income tax purposes.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for
Stock-Based Compensation" requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Since Mity-Lite has decided to continue applying
Accounting Principles Board (APB) Statement No. 25 (as permitted by SFAS No.
123), the appropriate required disclosure of the effects of SFAS No. 123 are
included in Note 8.
USE OF ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and of Long-Lived Assets to be Disposed Of," the Company evaluates the
carrying value of long term assets based on current and anticipated
undiscounted cash flows and recognizes impairment when such cash flows will be
less than the carrying values. During the years ended March 31, 2000 and 1999,
there were no impairments.
INTANGIBLE ASSETS
Intangible assets represent goodwill and patents. Goodwill that arose on the
CenterCore and Broda acquisitions is amortized on a straight line basis over a
twenty year period. Patents are amortized over three years using a straight
line basis. Intangible assets are reviewed by management and are evaluated
based on expected future cash flows.
<PAGE> 22
COMPREHENSIVE INCOME
The Company adopted SFAS 130, "Reporting Comprehensive Income," effective
April 1, 1998, the beginning of its 1999 fiscal year. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general purpose
financial statements. The Company's comprehensive income consists of foreign
currency adjustments and unrealized holding gains and losses on available-for-
sale securities. For the year ended March 31, 2000, comprehensive income
exceeded net income by $80,000. Of this amount, $5,000 was related to a
holding loss on available for sale securities and $85,000 was related to
foreign currency adjustments. For the year ended March 31, 1999, comprehensive
income exceeded net income by $55,000. Of this amount, $5,000 was related to a
holding gain on available-for-sale securities, and $50,000 was related to
foreign currency adjustments. For the year ended March 31, 1998 comprehensive
income approximated net income.
RECLASSIFICATIONS
Certain reclassifications have been made to 1999 and 1998 balances to be
consistent with the 2000 presentation.
2. INVENTORIES
Inventories consisted of the following:
-------------------------------------------------------------------
March 31, 2000 1999
-------------------------------------------------------------------
Materials and supplies $866,000 $1,071,000
Work-in-progress 170,000 155,000
Finished goods 374,000 318,000
-------------------------------------------------------------------
$1,410,000 $1,544,000
===================================================================
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
-------------------------------------------------------------------
March 31, 2000 1999
-------------------------------------------------------------------
Equipment $3,396,000 $2,361,000
Furniture and fixtures 1,514,000 1,383,000
Leasehold improvements 677,000 657,000
Construction work-in-progress 450,000 --
Land and improvements 1,041,000 -
-------------------------------------------------------------------
7,078,000 4,401,000
-------------------------------------------------------------------
Less accumulated depreciation and
amortization (2,909,000) (2,246,000)
-------------------------------------------------------------------
$4,169,000 $2,155,000
===================================================================
<PAGE> 23
4. INVESTMENT IN AND NOTE RECEIVABLE FROM AFFILIATE
On March 31, 1997, the Company completed the acquisition of a 49.9 percent
equity interest in DO Group, Inc., a privately-held manufacturer of office
seating and office panel systems headquartered in Elkhart, Indiana. DO Group
markets its products under the Domore(TM) and DO3(TM) trade names and has
manufacturing facilities in Elkhart, Indiana and Marked Tree, Arkansas.
Relevant financial information is summarized below:
------------------------------------------------------------------------
Year ended March 31, 2000 1999 1998
------------------------------------------------------------------------
Net sales $18,045,000 $15,139,000 $12,145,000
Net income 508,000 1,923,000 1,203,000
Total assets 11,788,000 7,998,000 7,477,000
Total liabilities 9,070,000 5,789,000 7,088,000
Mity-Lite's share of DO
Group's net assets 1,356,000 1,102,000 194,000
Included in DO Group's net sales for the year ended March 31, 2000 are
$5,325,000 in inter-company sales to CenterCore, a wholly owned subsidiary of
Mity-Lite.
Mity-Lite purchased its 49.9 percent equity interest for $750,000 in cash and
the payment of certain closing and due diligence costs totaling $118,000.
Mity-Lite utilizes the equity method of accounting for its investment. Under
the equity method, Mity-Lite recognizes its proportionate share of the
earnings or losses of DO Group as incurred. For the year ended March 31, 2000,
1999 and 1998, DO Group contributed $368,000, $480,000 and $340,000
respectively to Mity-Lite's pretax profit. Mity-Lite's management estimates
that the difference between Mity-Lite's investment and its share of the
underlying equity in DO Group's net assets is approximately $519,000. Various
components of this amount are being amortized over periods ranging from five
to thirty years.
As part of the acquisition, Mity-Lite loaned $1,000,000 in a senior
subordinated note to a wholly owned subsidiary of DO Group. The outstanding
balance of the note has increased to $1,052,000 and is included in note
receivable from affiliate. The note, which is subordinated to a financial
institution's interest, is secured by inventories, receivables, machinery and
equipment, furniture and fixtures, real property, and all other assets of DO
Group. The note matures on April 30, 2000 and bears interest at 10 percent
payable quarterly. The Company believes the interest rate approximates the
market rate of interest for similar debt instruments negotiated at arms
length. Because of the continuing expected positive net income and cash flows
of DO Group, management believes the investment in DO Group will be
recoverable and the note receivable will be collectible.
5. RECENT ACQUISITIONS
Effective November 1, 1998, the Company acquired 100 percent of the
outstanding stock of Broda Enterprises Inc., a privately-owned designer,
manufacturer and marketer of healthcare seating and seating accessories, based
in Waterloo, Ontario, Canada. The transaction was treated for accounting
purposes as a purchase and accordingly, the Company has included the operating
results operations of Broda in the financial statements from November 1, 1998.
<PAGE> 24
In conjunction with this acquisition, the Company paid $2,099,000 in cash with
$130,000 being held in escrow for one year to offset the effect of any
breaches of representations, warranties or covenants made by the sellers. The
acquisition resulted in goodwill of $1,162,000 which is being amortized over a
twenty year period using the straight line method.
On April 9, 1999, the Company acquired certain assets and obligations of The
CenterCore Group, Inc. ("CenterCore"), a private ly-owned designer,
manufacturer and marketer of call center furniture.
Two wholly owned subsidiaries of Mity-Lite completed the transactions. C
Core, Inc., a Utah corporation, purchased the accounts receivable, inventory,
machinery and equipment, intellectual property and certain other assets of The
CenterCore Group, Inc. for an estimated $5.3 million. The final purchase
price is still being determined and will be based on final asset values at
closing. C Core will continue to design and market call center furniture
under the CenterCore name. Product manufacturing has been transitioned to DO
Group, Inc., a 49.9 percent owned affiliate of the Company. C Core purchases
the finished goods from DO Group, Inc. at an agreed upon percentage in excess
of cost at the time of shipment to the customer. Included in the Company's
prepaid expenses and other current assets are $854,000 in advances related to
the CenterCore acquisition.
BOCCC, Inc., also a Utah corporation and wholly owned subsidiary of the
Company, purchased the outstanding subordinated debt obligations of CenterCore
for $500,000. The outstanding subordinated debt obligations of CenterCore
totaled approximately $2,000,000 million at closing. Cash from the Company's
general working capital was used to fund the purchases.
The preliminary allocation of the purchase price resulted in approximately
$2,063,000 of goodwill. The actual amount of goodwill recorded will vary
based on the final purchase price allocation resulting from preacquisition
contingencies related principally to post-closing purchase price adjustments
which may result from the final determination of asset values and from any
breaches of the sellers' representations, warranties or covenants.
The unaudited pro forma results of operations of the Company for the year
ended March 31, 2000, 1999 and 1998 (assuming the acquisition of Broda and
CenterCore had occurred as of April 1, 1997) are as follows:
------------------------------------------------------------------------
Fiscal Year Ended March 31, 2000 1999 1998
(unaudited)
------------------------------------------------------------------------
Net sales $47,497,000 $54,916,000 $56,418,000
Net income 4,681,000 3,416,000 1,432,000
Basic earnings per share 0.97 0.70 0.30
Diluted earnings per share 0.91 0.68 0.28
6. DEBT
The Company's wholly owned subsidiary, Broda Enterprises has a line of credit,
bearing interest at Canadian prime plus 1.00 percent (7.00 percent at March
31, 2000) which is secured by a General Security Agreement, an assignment of
insurance and guarantees by Mity-Lite. The limit on this loan is $364,000. As
at March 31, 2000, $319,000 of the line was outstanding.
<PAGE> 25
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
-------------------------------------------------------------------
March 31, 2000 1999
-------------------------------------------------------------------
Accrued payroll and payroll taxes $1,521,000 $957,000
Accrued warranty 270,000 210,000
Other 419,000 110,000
-------------------------------------------------------------------
$2,210,000 $1,277,000
===================================================================
8. COMMON STOCK OPTIONS
At March 31, 2000, the Company has two stock incentive plans, the 1990 Stock
Option Plan (the "1990 Plan") and the 1997 Stock Incentive Plan (the "1997
Plan"). Mity-Lite authorized and reserved 750,000 shares of common stock for
issuance under each of the plans for a total of 1,500,000 shares. The purchase
price for the shares under the Plans is equal to the fair value of the common
stock at the date the options are granted as determined by the closing price
listed on The Nasdaq(TM) Stock Market except for shareholders holding more
than ten percent of the outstanding stock, whose options are issued at a ten
percent premium to the then current market value. A table of stock option
activity is shown below:
Number Weighted Average
of Options Exercise Price
---------------------------------------------------------------------
Outstanding at April 1, 1997 636,885 $ 5.63
Granted 103,500 10.09
Exercised (151,107) 2.56
Forfeited (11,587) 7.49
---------------------------------------------------------------------
Outstanding at March 31, 1998 577,691 7.19
Granted 210,975 10.45
Exercised (48,662) 2.95
Forfeited (29,151) 11.24
---------------------------------------------------------------------
Outstanding at March 31, 1999 710,853 $8.28
Granted 51,653 14.91
Exercised (25,450) 5.35
Forfeited (10,150) 9.74
---------------------------------------------------------------------
Outstanding at March 31, 2000 726,906 $ 8.84
=====================================================================
Options exercisable at March 31, 2000, 1999 and 1998 were 269,423, 207,534,
and 185,926, respectively. Options vest over a one- to four- year period.
<PAGE> 26
The following table summarizes the combined information from the 1990 and 1997
Plans' options outstanding at March 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------- -------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Exercise Exercis- Exercise
Life (in years) Price able Price
------------------------------------------------------------------------------
$1.82 - $ 2.33 79,001 4.06 $ 2.07 79,001 $ 2.07
4.08 - 5.75 67,400 5.34 4.86 67,400 4.86
6.08 - 7.75 45,426 3.65 6.74 39,424 6.59
9.50 - 11.83 483,429 5.58 10.05 83,598 10.35
12.96 - 13.08 9,750 9.50 12.98 - --
15.13 - 15.50 41,900 10.01 15.37 - -
------------------------------------------------------------------------------
$1.82 - $15.50 726,906 5.58 $ 8.84 269,423 $ 6.00
==============================================================================
Mity-Lite applied APB Opinion 25 and related Interpretations in accounting for
its Plans. Accordingly, no compensation cost has been recognized for its stock
option plans. Had compensation cost of Mity-Lite's two stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with SFAS No. 123, Mity-Lite's net
income and earnings per share would have changed to the pro forma amounts
indicated below:
------------------------------------------------------------------------
Year ended March 31, 2000 1999 1998
------------------------------------------------------------------------
Net income:
As reported $4,700,000 $3,930,000 $3,189,000
Pro forma $4,413,000 3,675,000 2,992,000
Earnings per share - basic:
As reported $0.98 $0.81 $0.66
Pro forma $0.91 $0.76 $0.62
Earnings per share - diluted:
As reported $0.92 $0.78 $0.63
Pro forma $0.86 $0.73 $0.59
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2000, 1999 and 1998, respectively: expected
volatility of 32 percent, 30 percent, and 30 percent, risk free interest rates
of 6.18 percent, 4.87 percent and 5.48 percent, and expected lives of one to
four years. Under SFAS No. 123, the weighted average fair value per share of
options issued during the years ended March 31, 2000, 1999 and 1998 were
$4.37, $4.05, and $3.36, respectively.
<PAGE> 27
9. EMPLOYEE BENEFIT PLANS
In January 1995, the Company established a defined contribution plan which
qualifies under Section 401(k) of the Internal Revenue Code. The plan provides
retirement benefits for employees meeting minimum age and service
requirements. Participants may contribute up to 20 percent of their gross
wages, subject to certain limitations. The plan provides for discretionary
matching contributions by the Company, as determined by the Board of
Directors. The discretionary amounts contributed to the plan for the years
ended March 31, 2000, 1999 and 1998 were $75,000, $42,000, and $39,000,
respectively.
In October 1996, the Board of Directors reserved up to 37,500 shares of Mity-
Lite common stock to be issued under the provisions of the 401(k) plan. Shares
are issued to the plan on a quarterly basis. The number of shares issued to
the plan for the years ended March 31, 2000, 1999 and 1998 were 12,198, 6,011,
and 6,228 respectively. As of March 31, 2000, 28,340 shares had been issued
under the provisions of the plan.
10. INCOME TAXES
Income tax provisions consisted of the following components:
------------------------------------------------------------------------
Year ended March 31, 2000 1999 1998
------------------------------------------------------------------------
Current:
Federal $2,223,000 $1,792,000 $1,495,000
State 349,000 289,000 225,000
Foreign 143,000 84,000 -
------------------------------------------------------------------------
Total current 2,715,000 2,165,000 1,720,000
------------------------------------------------------------------------
Deferred:
Federal 45,000 71,000 31,000
State 4,000 7,000 3,000
Foreign (13,000) (69,000) --
------------------------------------------------------------------------
Total deferred 36,000 9,000 34,000
------------------------------------------------------------------------
$2,751,000 $2,174,000 $1,754,000
========================================================================
The tax provisions were at effective rates as follows:
------------------------------------------------------------------------
Year ended March 31, 2000 1999 1998
------------------------------------------------------------------------
Federal statutory tax rates 34.0% 34.0% 34.0%
Foreign tax 0.3 0.2 --
State / provincial income
taxes, net of federal
benefit 3.3 3.3 3.3
Tax exempt interest (0.4) (1.6) (1.6)
Other (0.3) (0.3) (0.2)
------------------------------------------------------------------------
36.9% 35.6% 35.5%
========================================================================
<PAGE> 28
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows:
----------------------------------------------------------------------------
March 31, 2000 1999
----------------------------------------------------------------------------
Current Long Term Current Long Term
Deferred tax assets:
Allowance for doubtful accounts $49,000 $61,000
Inventory 2,000 2,000
Vacation accrual 25,000 25,000
Warranty reserve and accrual 158,000 154,000
Other accruals -- 8,000
----------------------------------------------------------------------------
Total 234,000 250,000
Deferred tax liabilities:
Depreciation and amortization ($32,000) ($41,000)
Investment in affiliate (259,000) (230,000)
----------------------------------------------------------------------------
Net deferred tax asset (liability) $234,000 ($291,000) $250,000 ($271,000)
============================================================================
11. COMMITMENTS
The Company leases its Orem location building facilities from a related party
under an operating lease which expires in March 2005 and is renewable at the
then current market rates for an additional five years. The agreement requires
minimum lease payments of $205,000 per year until expiration. Total rent
expense was $208,000, $211,000, and $209,000 for the years ended March 31,
2000, 1999 and 1998, respectively.
The Company leases two buildings in its Waterloo, Ontario, Canada location
under an operating lease which expires in July 2000. The Company will then
have the option of renewing the lease for two years upon the same terms and
conditions for an amount mutually agreed upon. The current agreement requires
lease payments of $56,000 for fiscal year 2000 and $18,000 for the first four
months of fiscal year 2001. Total rent expense was $56,000 for the year ended
March 31, 2000 and 1999. The Company also has other month to month lease
agreements.
At March 31, 2000, the Company has committed to purchasing $75,000 in raw
materials inventory.
12. BUSINESS SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," effective with its 1999 fiscal year beginning April
1, 1998. Management views the Company as being two business segments:
institutional furniture and healthcare seating, with the former being the
principal business segment. The institutional furniture business segment
manufactures and markets lightweight, durable, folding leg tables, stacking
chairs, office systems and seating, and other related products. The Company's
healthcare seating segment manufactures and markets healthcare chairs and
related products. The Company's healthcare seating segment represents all of
the Company's foreign-based sales.
<PAGE> 29
Reportable segment data reconciled to the consolidated financial statements
for the fiscal year ended March 31, 2000 and 1999 are as follows:
----------------------------------------------------------------------
Fiscal Year Ended March 31, 2000 1999
----------------------------------------------------------------------
Net sales:
Institutional furniture $44,024,000 $28,132,000
Healthcare seating 3,472,000 1,336,000
----------------------------------------------------------------------
$47,496,000 $29,468,000
======================================================================
Income from operations:
Institutional furniture $ 6,280,000 $ 5,173,000
Healthcare seating 507,000 89,000
----------------------------------------------------------------------
$ 6,787,000 $ 5,262,000
======================================================================
Total assets:
Institutional furniture $26,418,000 $20,422,000
Healthcare seating 3,014,000 3,041,000
----------------------------------------------------------------------
$29,432,000 $23,463,000
======================================================================
Depreciation & amortization expense:
Institutional furniture $ 746,000 $ 555,000
Healthcare seating 168,000 69,000
----------------------------------------------------------------------
$ 914,000 $ 624,000
======================================================================
Capital expenditure, net:
Institutional furniture $ 2,667,000 $ 609,000
Healthcare seating 23,000 22,000
----------------------------------------------------------------------
$ 2,690,000 $ 631,000
======================================================================
13. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
On July 7, 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133," an amendment of FASB Statement No. 133 which establishes
accounting and reporting standards for derivative instruments and hedging
activities and requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," supersedes SFAS No. 80, "Accounting for
Future Contracts," SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentration of Credit Risk," and SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," and also
amends certain aspects of other SFASs previously issued. SFAS No. 133, as
amended by SFAS No. 137, is effective for all quarterly and annual financial
statements of fiscal years beginning after June 15, 2000. Management does not
believe this statement will have a significant impact on the Company.
<PAGE> 30
14. STOCK SPLIT
In August 1999, the Company's board of directors approved a 3-for-2 stock
split to be effected as a stock dividend. One additional share of common
stock was distributed on September 23, 1999 for every two shares held by
stockholders of record as of September 9, 1999. Fractional shares created as
a result of the stock split were paid in cash based upon the average of the
bid and ask price per share at the close of trading on September 9, 1999. The
effect of the stock split has been retroactively reflected in all common
shares and per share amounts in the financial statements and notes as if the
stock split had occurred prior to fiscal 1998.
15. SUBSEQUENT EVENTS
On April 1, 2000, Mity-Lite acquired the remaining 50.1 percent interest in
the DO Group, Inc., a privately-held manufacturer of office seating and office
panel systems headquartered in Elkhart, Indiana. DO Group markets its
products under the Domore, DO3, JG and Corel trade names.
Mity-Lite exchanged approximately $2.2 million cash and 41,000 shares of Mity-
Lite common stock for the remaining 50.1 percent of DO Group stock from the DO
Group shareholders. In addition, Mity-Lite assumed approximately $1.0 million
in long term debt and another $2.5 million in a revolving credit line. The
acquisition will be treated for accounting purposes as a step purchase. DO
Group, Inc. has become a wholly owned subsidiary of Mity-Lite, Inc. Cash from
the Company's general working capital was used to fund the purchase.
In conjunction with the DO Group acquisition, the Company merged C Core, Inc.
with DO Group, Inc. The new subsidiary will retain the DO Group, Inc. name.
Both DO Group and C Core produce office systems in a shared manufacturing
facility in Marked Tree, Arkansas.
On April 1, 2000, the Company also created a new corporation called MLI
Acquisition, Inc. With the exception of cash, real property, certain deferred
tax obligations, and investments in and notes receivable from subsidiaries,
all of the assets and liabilities of Mity-Lite, Inc. were transferred to MLI
Acquisition, Inc. MLI Acquisition, Inc. has become the operating company for
the multipurpose furniture operations and is a wholly owned subsidiary of the
Company.
