<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
------------------------------------------------------------
Form 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-23898
------------------------------------------------------------
MITY-LITE, INC.
(Exact name of registrant as specified in its charter)
Utah 87-0448892
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 West 400 North
Orem, Utah 84057
(Address of principal executive offices)
Registrant's telephone number: (801) 224-0589
N/A
(Former name, former address and former fiscal year, if changed since last
report)
------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
There were 4,816,458 shares of the registrant's Common Stock, par value
$.01 per share, outstanding on January 26, 2000 (adjusted for 3-for-2 stock
split effected as a dividend declared August 25, 1999, date of record
September 9, 1999, distributed September 23, 1999).
<PAGE> 2
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
MITY-LITE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31, March 31,
ASSETS 1999 1999
------------ ------------
Current assets:
Cash and cash equivalents. . . . . . . . . $ 4,284,000 $ 8,029,000
Available-for-sale securities. . . . . . . 2,326,000 3,899,000
Accounts receivable, less allowance of
$752,000 at December 31, 1999 and
$395,000 at March 31, 1999 . . . . . . . 8,142,000 3,596,000
Inventories. . . . . . . . . . . . . . . . 1,407,000 1,544,000
Prepaid expenses and other current assets. 723,000 233,000
Deferred income taxes. . . . . . . . . . . 250,000 250,000
------------ ------------
Total current assets . . . . . . . . . . . . . 17,132,000 17,551,000
Property, plant and equipment, net . . . . . . 3,752,000 2,155,000
Investment in affiliate. . . . . . . . . . . . 1,709,000 1,483,000
Note receivable from affiliate . . . . . . . . 2,280,000 1,066,000
Intangibles. . . . . . . . . . . . . . . . . . 2,690,000 1,208,000
------------ ------------
Total assets . . . . . . . . . . . . . . . . . $27,563,000 $23,463,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit. . . . . . . . . . . . $ 463,000 286,000
Accounts payable . . . . . . . . . . . . . 2,016,000 $ 1,569,000
Accrued expenses and other current
liabilities. . . . . . . . . . . . . . . 1,610,000 1,277,000
Current portion - long term debt . . . . . -- 45,000
------------ ------------
Total current liabilities. . . . . . . . . . . 4,089,000 3,177,000
Deferred income tax liabilities. . . . . . . . 343,000 271,000
Long term debt . . . . . . . . . . . . . . . . -- 97,000
------------ ------------
Total liabilities. . . . . . . . . . . . . . . 4,432,000 3,545,000
COMMITMENTS AND CONTINGENCIES. . . . . . . . . -- --
Stockholders' equity (a):
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 4,816,458 at December 31,
1999 and 4,834,725 at March 31, 1999 . . 48,000 48,000
Additional paid-in capital . . . . . . . . 7,934,000 7,806,000
Retained earnings. . . . . . . . . . . . . 15,012,000 12,009,000
Accumulated comprehensive income . . . . . 137,000 55,000
------------ ------------
Total stockholders' equity . . . . . . . . . 23,131,000 19,918,000
------------ ------------
Total liabilities and stockholders' equity . . $27,563,000 $23,463,000
============ ============
(a) Retroactively restated for the 3-for-2 stock split distributed September
23, 1999.
See accompanying notes to consolidated financial statements.
<PAGE> 3
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended December 31,
1999 1998
------------ ------------
Net sales . . . . . . . . . . . . . . . . . . $11,723,000 $ 6,812,000
Cost of products sold . . . . . . . . . . . . 7,117,000 4,079,000
------------ ------------
Gross profit. . . . . . . . . . . . . . . . . 4,606,000 2,733,000
Expenses:
Selling . . . . . . . . . . . . . . . . . 1,936,000 1,065,000
General and administrative. . . . . . . . 699,000 329,000
Research and development. . . . . . . . . 192,000 145,000
------------ ------------
Total expenses. . . . . . . . . . . . . . . . 2,827,000 1,539,000
------------ ------------
Income from operations. . . . . . . . . . . . 1,779,000 1,194,000
Other income (expense):
Interest expense. . . . . . . . . . . . . (8,000) (3,000)
Interest income . . . . . . . . . . . . . 113,000 108,000
Equity in income of affiliate . . . . . . 135,000 96,000
Other . . . . . . . . . . . . . . . . . . (2,000) (15,000)
------------ ------------
Total other income. . . . . . . . . . . . . . 238,000 186,000
------------ ------------
Income before provision for income taxes. . . 2,017,000 1,380,000
Provision for income taxes. . . . . . . . . . 743,000 544,000
------------ ------------
Net income. . . . . . . . . . . . . . . . . . $ 1,274,000 $ 836,000
============ ============
Basic earnings per share. . . . . . . . . . . $ 0.26 $ 0.17
============ ============
Weighted average number of common
shares - basic (a). . . . . . . . . . . . . 4,816,458 4,844,969
============ ============
Diluted earnings per share. . . . . . . . . . $ 0.25 $ 0.17
============ ============
Weighted average common and common
equivalent shares - diluted (a) . . . . . 5,177,242 4,983,768
============ ============
(a) Retroactively restated for the 3-for-2 stock split distributed September
23, 1999.
See accompanying notes to consolidated financial statements.
<PAGE> 4
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Nine months ended December 31,
1999 1998
------------ ------------
Net sales . . . . . . . . . . . . . . . . . . $33,925,000 $21,837,000
Cost of products sold . . . . . . . . . . . . 20,495,000 13,536,000
------------ ------------
Gross profit. . . . . . . . . . . . . . . . . 13,430,000 8,301,000
Expenses:
Selling . . . . . . . . . . . . . . . . . 5,635,000 3,042,000
General and administrative. . . . . . . . 2,146,000 914,000
Research and development. . . . . . . . . 650,000 379,000
------------ ------------
Total expenses. . . . . . . . . . . . . . . . 8,431,000 4,335,000
------------ ------------
Income from operations. . . . . . . . . . . . 4,999,000 3,966,000
Other income (expense):
Interest expense. . . . . . . . . . . . . (23,000) (3,000)
Interest income . . . . . . . . . . . . . 333,000 336,000
Equity in income of affiliate . . . . . . 306,000 386,000
Other . . . . . . . . . . . . . . . . . . (10,000) (35,000)
------------ ------------
Total other income. . . . . . . . . . . . . . 606,000 684,000
------------ ------------
Income before provision for income taxes. . . 5,605,000 4,650,000
Provision for income taxes. . . . . . . . . . 2,080,000 1,754,000
------------ ------------
Net income. . . . . . . . . . . . . . . . . . $ 3,525,000 $ 2,896,000
============ ============
Basic earnings per share. . . . . . . . . . . $ 0.73 $ 0.59
============ ============
Weighted average number of common
shares - basic (a). . . . . . . . . . . . . 4,808,951 4,879,590
============ ============
Diluted earnings per share. . . . . . . . . . $ 0.69 $ 0.57
============ ============
Weighted average common and common
equivalent shares - diluted (a) . . . . . 5,110,435 5,060,535
============ ============
(a) Retroactively restated for the 3-for-2 stock split distributed September
23, 1999.
See accompanying notes to consolidated financial statements.
<PAGE> 5
MITY-LITE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended December 31,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . $ 3,525,000 $ 2,896,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . 629,000 440,000
Loss (gain) on disposal of equipment . . . . (1,000) 31,000
Deferred tax expense . . . . . . . . . . . . 71,000 114,000
Equity in income of affiliate. . . . . . . . (306,000) (385,000)
Tax benefit from exercise of stock options 29,000 77,000
Changes in assets and liabilities (net of
effects from purchase of CenterCore and Broda)
Accounts receivable. . . . . . . . . . . . (1,892,000) (267,000)
Inventories. . . . . . . . . . . . . . . . 234,000 340,000
Prepaid expenses and other current assets. (247,000) 237,000
Accounts payable . . . . . . . . . . . . . 383,000 (392,000)
Accrued expenses and other current
liabilities . . . . . . . . . . . . . . . (136,000) 465,000
------------ ------------
Net cash provided by operating activities. . . . 2,289,000 3,556,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities . . . (2,324,000) (1,341,000)
Sales of available-for-sale securities . . . . . 3,890,000 314,000
Proceeds from sales of property & equipment. . . 261,000 25,000
Decrease (increase) in note receivable from
affiliate. . . . . . . . . . . . . . . . . . . 30,000 (51,000)
Investment in and cash received from affiliate . 81,000 78,000
Increase in acquisition advances . . . . . . . . (158,000) --
Purchase of CenterCore (net of cash acquired). . (5,342,000) --
Purchase of Broda (net of cash acquired) . . . . -- (2,083,000)
Purchases of property, plant and equipment . . . (2,066,000) (445,000)
------------ ------------
Net cash used in investing activities. . . . . . (5,628,000) (3,503,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase and retirement of common stock. . . . . (601,000) (833,000)
Increase (decrease) in bank operating loan. . . 163,000 (105,000)
Decrease in long term debt . . . . . . . . . . . (146,000) (7,000)
Issuance of common stock from stock options. . . 178,000 142,000
------------ ------------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . (406,000) (803,000)
------------ ------------
Effect of exchange rate changes on cash. . . . . -- 1,000
------------ ------------
Net increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . . . . (3,745,000) (749,000)
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . 8,029,000 9,266,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . $ 4,284,000 $ 8,517,000
============ ============
See accompanying notes to consolidated financial statements.
<PAGE> 6
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine months ended December 31,
1999 1998
------------ ------------
Cash paid during the period for
income taxes . . . . . . . . . . . . . . . . . $2,147,000 $1,328,000
Cash paid for interest on long term
debt . . . . . . . . . . . . . . . . . . . . . $ 1,000 $ 2,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In April of 1999, the Company acquired certain assets and obligations of The
CenterCore Group, Inc. for $5,349,000. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired. . . . . . . . . . . $4,292,000
Cost in excess of fair value of assets . . . . . . 1,545,000
Cash paid for the assets (net of cash acquired). . (5,349,000)
---------
Liabilities assumed . . . . . . . . . . . . . . $ 488,000
=========
In November of 1998, the Company purchased all of the capital stock of Broda
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 assets (net of cash acquired). . (2,099,000)
---------
Liabilities assumed . . . . . . . . . . . . . . $ 893,000
=========
For the nine months ended December 31, 1999, net change in unrealized loss on
securities available for sale of $7,000 is included in accumulated other
comprehensive income.
See accompanying notes to consolidated financial statements.
<PAGE> 7
MITY-LITE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
Interim Period Accounting Policies
In the opinion of the Company's management, the accompanying unaudited
financial statements contain all normal recurring adjustments necessary to
present fairly the Company's financial position for the interim period.
Results of operations for the three months and nine months ended December 31,
1999 are not necessarily indicative of results to be expected for the full
fiscal year ending March 31, 2000.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for annual financial
statements. Although the Company believes that the disclosures in these
unaudited financial statements are adequate to make the information presented
for the interim periods not misleading, certain information and footnote
information normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, and these financial statements should be read in
conjunction with the Company's audited financial statements included in the
Company's annual report to shareholders for the fiscal year ended March 31,
1999. Certain amounts in prior period financial statements have been
reclassified to conform with current period presentations.
2. INVENTORIES
Inventories consisted of the following:
December 31, March 31,
1999 1999
------------ ------------
Materials and supplies . . . . $ 882,000 $ 1,071,000
Work-in-progress . . . . . . . 154,000 155,000
Finished goods . . . . . . . . 371,000 318,000
------------ ------------
$ 1,407,000 $ 1,544,000
============ ============
<PAGE> 8
3. 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.
4. 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 health care 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
operations of Broda in the financial statements from November 1, 1998.
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. Up to an additional $400,000 of purchase price was
contingently payable based upon Broda obtaining certain sales and earnings
growth targets over the twelve months ended December 31, 1999. For this
period, the sales and earnings growth targets had not been met, resulting in
the elimination of this potential $400,000 increase in purchase price.
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 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 $4.8 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.
Included in the Company's prepaid expenses and other current assets are
$276,000 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.
<PAGE> 9
The preliminary allocation of the purchase price resulted in
approximately $1,545,000 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
three months and nine months ended December 31, 1999 and 1998 (assuming the
acquisition of Broda and CenterCore had occurred as of April 1, 1998) are as
follows:
Three months ended December 31,
1999 1998
------------ ------------
Net sales . . . . . . . . . . . . . . . . . . $11,722,000 $13,851,000
Net income. . . . . . . . . . . . . . . . . . 1,281,000 665,000
Basic earnings per share. . . . . . . . . . . 0.27 0.14
Diluted earnings per share. . . . . . . . . . 0.25 0.13
Nine months ended December 31,
1999 1998
------------ ------------
Net sales . . . . . . . . . . . . . . . . . . $33,925,000 $40,621,000
Net income. . . . . . . . . . . . . . . . . . 3,553,000 2,387,000
Basic earnings per share. . . . . . . . . . . 0.74 0.49
Diluted earnings per share. . . . . . . . . . 0.70 0.47
5. 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 an unrealized holding gain on
available-for-sale securities. For the nine months ended December 31, 1999,
comprehensive income exceeded net income by $82,000. Of this amount, $(7,000)
was related to a holding loss on available-for-sale securities, and $89,000
was related to foreign currency adjustments. For the three months ended
December 31, 1999, comprehensive income exceeded net income by $21,000. Of
this amount, $(4,000) was related to a holding loss on available-for-sale
securities, and $25,000 was related to foreign currency adjustments. For the
nine months and three months ended December 31, 1998, comprehensive income
exceeded net income by $16,000 related to a gain on the foreign currency
translation adjustment.
<PAGE> 10
6. 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: commercial furniture and health care seating with the former being
the principal business segment. The commercial furniture business segment
manufactures and markets lightweight, durable, folding leg tables, stacking
chairs, office systems and seating, and other related products. The Company's
health care seating segment manufactures and markets health care chairs and
related products.
Reportable segment data reconciled to the consolidated financial
statements for the nine months ended December 31, 1999 and 1998 is as follows:
Nine months ended December 31,
1999 1998
----------- -----------
Net sales:
Commercial furniture. . . . . . . . . . $31,411,000 $21,309,000
Health care seating . . . . . . . . . . 2,514,000 528,000
----------- -----------
$33,925,000 $21,837,000
=========== ===========
Income from operations:
Commercial furniture. . . . . . . . . . $ 4,703,000 $ 3,998,000
Health care seating . . . . . . . . . . 296,000 (32,000)
----------- -----------
$ 4,999,000 $ 3,966,000
=========== ===========
Total assets:
Commercial furniture. . . . . . . . . . $24,484,000 $18,866,000
Health care seating . . . . . . . . . . 3,079,000 2,956,000
----------- -----------
$27,563,000 $21,822,000
=========== ===========
Depreciation & amortization expense:
Commercial furniture. . . . . . . . . . $ 502,000 $ 412,000
Health care seating . . . . . . . . . . 127,000 28,000
----------- -----------
$ 629,000 $ 440,000
=========== ===========
Capital expenditures, net:
Commercial furniture. . . . . . . . . . $ 2,042,000 $ 444,000
Health care seating . . . . . . . . . . 24,000 1,000
----------- -----------
$ 2,066,000 $ 445,000
=========== ===========
Because of Mity-Lite's acquisition of Broda Enterprises in November 1998
segment information for the period ending December 31, 1998 includes only two
months of information for the health care seating segment.
<PAGE> 11
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company designs, manufactures and markets innovative commercial
furniture and health care seating created to meet the efficiency needs of its
customers. The Company focuses on providing premium quality furniture
products to niche markets. The Company's product lines include multipurpose
room furniture, specialty office seating and systems and health care seating.
Mity-Lite sells its line of multipurpose room furniture both domestically and
internationally in educational, recreational, hotel and hospitality,
government, office, health care, church and other public assembly markets.
The Company sells its specialty office seating and systems products
domestically and internationally in the call center, high density office use,
corporate and dispatch markets. Mity-Lite sells its health care seating
mainly in Canada and the U.S. in the long term health care market. In
addition, the Company continues to actively 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 and consists of lightweight, durable, folding leg tables, stacking
chairs, folding chairs and other related products. The stacking chairs are
marketed under the MityTuff(R) MityStack(TM), MityFlex(TM), MityDeluxe(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. The Company's folding chairs are marketed under the
SwiftSet(TM) trade name and are manufactured in the Company's Orem, Utah
facility. Historically, Mity-Lite's growth in this segment of the business
has come from an expanding base of new customers and from increasing sales to
existing customers. 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 the multipurpose
room market.
The Company's health care seating operations were acquired in November
1998. The Company acquired all of the outstanding stock of Broda Enterprises
Inc. for $2.1 million. Broda's products are marketed under the Broda trade
name and 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 panel systems furniture marketed to
call centers and other high density office use environments.
<PAGE> 12
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 $4.8 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. Included in the
Company's prepaid expenses and other current assets are $276,000 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 $0.5 million. The outstanding subordinated debt obligations of CenterCore
totaled approximately $2.0 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 $1.5 million 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 Company also owns a 49.9 percent equity interest in DO Group, Inc., 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.
Mity-Lite holds an option to put back its investment in DO Group to the DO
Group officers at any time until May 15, 2000. At the conclusion of the put
option period and if the put option has not been exercised, the majority
owners of DO Group will have the right to convert their 50.1 percent interest
in DO Group into 115,000 shares of Mity-Lite common stock, at which time DO
Group will become a wholly-owned subsidiary of Mity-Lite.
Net sales of the Company's commercial furniture products have increased
during the nine months ended December 31, 1999 and 1998. Management expects,
but cannot assure, that this trend will continue and no assurance can be given
that these results will be realized.
The board of directors approved a 3-for-2 stock split to be effected as a
stock dividend on August 25, 1999. 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.
<PAGE> 13
On August 31, 1999, the Company announced the purchase of approximately
nine acres of undeveloped land located directly north of its Orem, Utah
headquarters and manufacturing facility. Initial development of the land will
involve building a 30,000 square foot facility. The Company intends to
manufacture its new folding chair in this facility as well as provide space
for additional sales representatives and staff. As of December 31, 1999, $1.2
million has been spent on the land and facility. The Company anticipates
additional spending of approximately $0.5 million for a total of $1.7 million
in capital expenditures to complete the 30,000 square foot facility. These
additional expenditures are anticipated to be completed in the next two
quarters. The new property will also allow for future expansion and growth of
the Company.
Comparison of the Three Months and Nine Months Ended December 31, 1999 and
1998
NET SALES. The Company's third quarter fiscal 2000 net sales of
$11,723,000 were up 72 percent as compared with the third quarter net sales in
the prior fiscal year. Multipurpose room sales increased 31 percent and
represented 70 percent and 92 percent of net sales for the third quarter ended
December 31, 1999 and 1998, respectively. Specialty office seating and
systems sales, related to CenterCore's operations, represented 22 percent of
net sales for the third quarter ended December 31, 1999. Health care chair
and accessories sales, related to Broda's operations, represented 8 percent
and 8 percent of net sales for the third quarter ended December 31, 1999 and
1998, respectively. International sales represented 9 percent and 12 percent
of net sales for the third quarter ended December 31, 1999 and 1998,
respectively. The overall sales increase has resulted from increased
penetration into the multipurpose room market as well as sales from the recent
Broda and CenterCore acquisitions.
For the nine months ended December 31, 1999, the Company's net sales of
$33,925,000 represented an increase of 55 percent over the same period in the
prior fiscal year. Multipurpose room sales increased 18 percent and
represented 75 percent and 98 percent of net sales for the nine month period
ended December 31, 1999 and 1998, respectively. Specialty office seating and
systems sales, related to CenterCore's operations, represented 18 percent of
net sales for the nine month period ended December 31, 1999. Health care
chair and accessories sales, related to Broda's operations, represented 7
percent and 2 percent of net sales for the nine month period ended December
31, 1999 and 1998, respectively. International sales represented 10 percent
and 11 percent of net sales for the nine month period ended December 31, 1999
and 1998, respectively. The overall sales increase has resulted from
increased penetration into the multipurpose room market as well as sales from
the recent Broda and CenterCore acquisitions.
GROSS PROFIT. Gross profit as a percentage of net sales decreased over
the prior year by 1 percentage point, to 39 percent for the quarter ended
December 31, 1999. The majority of the decrease was the result of lower gross
margins associated with CenterCore's products as well as a comparatively
higher number of shipments of the Company's multipurpose room chair products
which have a lower gross margin than the Company's other products. These
lower margins were partially offset by a higher gross margin associated with
health care seating products.
<PAGE> 14
Gross profit as a percentage of net sales increased over the prior year
by 2 percentage points to 40 percent for the nine month period ended December
31, 1999. The majority of the increase was the result of a higher average
sales price on multi-purpose room products, lower material costs and higher
labor efficiencies as well as a higher gross margin associated with health
care seating products. The increase in gross profit was partially offset by
transition and relocation costs associated with the CenterCore purchase as
well as a lower gross profit due to writing off the inventory purchase
adjustment. Also offsetting the increased gross margin was the lower gross
margin associated with CenterCore's products.
SELLING EXPENSES. Selling expenses were 17 percent of net sales in the
third quarter of fiscal 2000 as compared to 16 percent for the third quarter
of the prior fiscal year. Actual expenses increased by $871,000 or 82
percent. The increase was primarily due to increased selling costs for health
care seating and call center systems products resulting from the recent
acquisitions, higher commissions and salaries due to the higher sales volume,
and increased costs for sales samples. This increase was partially offset by
lower advertising costs.
Selling expenses were 17 percent of net sales in the nine months ended
December 31, 1999 as compared to 14 percent for the same period in the prior
fiscal year. Actual expenses increase by $2,593,000 or 85 percent. The
increase in selling expenses as a percentage of net sales resulted primarily
from increased selling costs for health care seating and call center systems
products resulting from the recent acquisitions, one-time transition costs
associated with CenterCore, higher commissions and salaries due to the higher
sales volume as well as increased costs for sales samples. This increase was
partially offset by lower outside services costs.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were 6 percent of net sales for the third quarter of fiscal 2000 as compared
to 5 percent for the third quarter of the prior fiscal year. Actual spending
increased by $370,000. This increase was primarily due to increased general
and administrative costs associated with Broda and CenterCore.
General and administrative expenses were 6 percent of net sales in the
nine months ended December 31, 1999, as compared to 4 percent for the same
period in the prior fiscal year. Actual spending increased 135 percent, or
$1,232,000, resulting mainly from increased general and administrative costs
associated with Broda and CenterCore.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
were 2 percent of net sales for the third quarter of fiscal 2000 as compared
to 2 percent for the third quarter of the prior fiscal year. Actual spending
increased by 32 percent, or $47,000. The increase was due to increased costs
associated with Broda and CenterCore as well as legal fees associated with
patents on new products in the multipurpose room furniture operations. This
increase was partially offset by lower costs for outside services.
Research and development expenses were 2 percent of net sales in the nine
months ended December 31, 1999, as compared to 2 percent from the same period
in the prior fiscal year. Actual spending increased by 72 percent or
$271,000. The increase was due to increased costs associated with Broda and
CenterCore as well as additional product development, prototyping and outside
services costs in the multipurpose room furniture operations.
<PAGE> 15
OTHER INCOME AND EXPENSE. Other income and expense netted to $238,000
for the third quarter of fiscal 2000. Third quarter interest income was
$113,000, an increase of $5,000 from the third quarter of the prior fiscal
year. The Company had interest expense of $8,000 for the third quarter of
fiscal 2000, an increase of $5,000 from the third quarter of the prior fiscal
year. The Company also recognized income of $135,000 from its investment in
DO Group, Inc. The Company bought a 49.9 percent interest in the DO Group on
March 31, 1997. The Company's proportionate share of DO Group's net income
for the three months ended December 31, 1999 was an increase of $39,000 over
the same prior year period. In addition, the Company recognized a loss of
$2,000 on currency exchange.
Other income and expense netted to $606,000 in the nine months ended
December 31, 1999. Nine month interest income was $333,000, a decrease of
$3,000 from the same period in the prior fiscal year. The Company had
interest expense of $23,000 for the nine months ended December 31, 1999, an
increase of $20,000 from the third quarter of the prior fiscal year. The
Company also recognized income of $306,000 from its investment in DO Group,
Inc. The $306,000, a decrease of $80,000 over the same period last year,
represents Mity-Lite's proportionate share of DO Group's net income for the
nine month period. In addition, the Company recognized a gain of $1,000 on
the disposal of certain fixed assets and a loss of $11,000 on currency
exchange.
NET INCOME. For reasons stated above, the Company's fiscal 2000 third
quarter net income of $1,274,000 increased $438,000, or 52 percent over third
quarter net income in the prior fiscal year. The Company's net income of
$3,525,000 for the nine month period ended December 31, 1999 increased
$629,000, or 22 percent over the same period in the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which consist primarily of high-quality
municipal bonds and tax-advantaged money market instruments, totaled $4.28
million at December 31, 1999 as compared to $8.03 million at March 31, 1999.
The Company also holds available-for-sale securities totaling $2.33 million at
December 31, 1999 as compared to $3.90 million at March 31, 1999. The
decrease in cash and cash equivalents was due primarily to the CenterCore
acquisition ($5.34 million) in April 1999, the purchase and retirement of
common stock ($0.60 million), an increase in acquisition advances ($0.16
million), purchases of property, plant and equipment ($2.07 million) and the
pay off of long term debt associated with Broda ($0.15 million). This
decrease was partially offset by cash generated from operations ($2.29
million), net sales of available-for-sale securities ($1.57 million), proceeds
from sales of property and equipment ($0.26 million), an increase in bank
operating loan associated with Broda ($0.16 million) and net proceeds related
to the exercise of stock options ($0.18 million).
Historically, the Company has financed its growth through cash from
operations. The Company's subsidiary, Broda Enterprises, has a line of
credit. The limit on this facility is $670,000. As at December 31, 1999,
$463,000 of this line was outstanding. This credit facility requires the
maintenance of certain financial ratios and levels of working capital, all of
which were met as of December 31, 1999.
<PAGE> 16
The Company believes that cash flow from its current operations together
with existing cash reserves will be sufficient to support its working capital
requirements for its existing operations for at least the next 12 months. The
Company is pursuing acquisitions of product lines or companies with
complementary product lines. The Company's working capital requirements may
significantly increase following consummation of an acquisition. No
assurances are or can be given that the Company's capital resources will be
sufficient to fund the future needs of the Company and its affiliates
following any such acquisition. If the existing cash reserves, cash flow from
operations and debt financing are insufficient or if working capital
requirements are greater than 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 December 31, 1999, the proceeds which
would have been received by the Company upon exercise of outstanding options
which were exercisable on that date were approximately $1.0 million. There is
no assurance that such options will be exercised.
The Company's material cash commitments at December 31, 1999 include
current liabilities of $4.09 million to be repaid from funds generated from
operations. Current liabilities consist of $0.46 million in a bank line of
credit, $2.02 million in accounts payable, $1.12 million in accrued payroll,
$0.04 million in income tax payable, $0.29 in accrued expenses and $0.16
million in other accruals. The Company has also entered into a lease
agreement from a related party for its production and office facility under
which it is obligated to pay $17,100 per month through March 2000. 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. In October 1998 the
Company was authorized by the board of directors to repurchase up to 150,000
shares of Mity-Lite common stock. In October 1999, after the Company had
repurchased approximately 130,000 shares of Mity-Lite common stock, the board
of directors canceled any future purchases under the repurchase program.
On August 31, 1999, the Company announced the purchase of approximately
nine acres of land located directly north of its Orem, Utah headquarters and
manufacturing facility. The Company is in the process of building a new
facility with office and manufacturing space. As of December 31, 1999, $1.2
million has been spent on the land and facility. The Company anticipates
additional spending of approximately $0.5 million for a total of $1.7 million
in capital expenditures. These additional expenditures are anticipated to be
completed in the next two quarters and will be funded with cash from
operations.
INFORMATION SYSTEMS AND THE YEAR 2000
The year 2000 problem is the result of computer programs being written
using two digits rather than four digits to define an applicable year. This
could result in a system failure or miscalculation causing disruptions of
operations, including, but not limited to, a temporary inability to process
transactions, send invoices, track supplies and status of manufacturing
activities, or engage in similar business activities.
<PAGE> 17
The Company completed a comprehensive project to upgrade its information,
technology, manufacturing and facilities computer software to programs that
will consistently and properly recognize the Year 2000. Many of the Company's
systems include new hardware and packaged software purchased from large
vendors who represented that these systems are already Year 2000 compliant.
The Company obtained assurances and will continue to obtain assurances from
vendors that timely updates will be made available to make all purchased
software and upgrades Year 2000 compliant.
The Company utilized internal resources to test all of its software for
Year 2000 compliance and, where necessary, upgrade or replace noncompliant
systems. For existing systems, this project has been completed. The cost of
this project, including the cost of new systems which are being capitalized,
was $30,000. Of this amount, $25,000 was expensed, and $5,000 was
capitalized. No additional costs are anticipated. This cost has been funded
though operating cash flows. As of the date of this filing, the Company has
not experienced any adverse results or significant business disruptions
related to the Year 2000 problem. Also, no additional spending has been
required to remedy any Year 2000 problems. As of the date of this filing, the
Company has not had any material effects on its business due to failures by
customers or vendors to address the Year 2000 problem.
Year 2000 problems may yet arise that are not apparent currently. We
will continue to monitor the Year 2000 problem as we reach critical dates such
as the end of the first month processing and "leap year " occurring on
February 29, 2000, but at this time we have no indications that any problems
will arise. However, we cannot give any assurances that no Year 2000 problem
or leap year issues will arise. If we have failed to properly assess and
remedy Year 2000 problems, our business could be harmed. Failure by vendors
and customers to complete Year 2000 compliance work in a timely manner could
have a material adverse effect on certain of the Company's operations. In the
event of such failure, the Company may lose certain customers, vendors and
suppliers, and such third parties may not be able to perform their obligations
to the Company in a timely and efficient manner. The Company may also suffer
a decrease in manufacturing efficiency and manufacturing and inventory control
efficiency.
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.
<PAGE> 18
Forward-looking statements contained herein include plans and objectives
of management for future operations, including plans and objectives relating
to the 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 quarterly 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, including the
successful integration of the Broda Enterprises Inc. and the CenterCore
acquisitions into the Company's operations, (v) the Company's expectations
that it will be able to successfully address and remedy any remaining issues
relating to the Year 2000 problem in a manner that will not materially affect
the Company's financial condition or results of 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 views or
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 adverse economic or business conditions or the Company's inability,
for any reason, to introduce new products or implement its marketing
strategies, (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 health care seating and seating accessories market, (d) import
restrictions and economic conditions in the Company's foreign markets, (e)
increased competition in the Company's existing and future markets, (f)
increased expenditures required to address any remaining Year 2000 issues and
a material adverse impact on the Company's material suppliers, customers or
manufacturing partners resulting from any remaining Year 2000 problems, (g)
the market's acceptance of additional products such as multipurpose room
furniture, (h) the Company's ability to maintain relatively low cost labor
rates in a period of lower unemployment, (i) the Company's ability to source
acceptable raw materials at current prices, (j) increased product warranty
<PAGE> 19
service costs if warranty claims increase as a result of the Company's new
manufacturing bonding process or for any other reason, (k) 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, (l) the Company's ability to manufacture and
market at current margins high quality, high performance products at
competitive prices, and (m) 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 or plans
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> 20
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11.1 Computation of Net Income per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MITY-LITE, INC.
Date: February 2, 2000 /s/ Gregory L. Wilson
Gregory L. Wilson
Chairman of the Board, President,
and Director (Principal Executive
Officer)
Date: February 2, 2000 /s/ Bradley T Nielson
Bradley T Nielson
Chief Financial Officer
(Principal Financial and Accounting
Officer)
