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United States Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2003
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
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MITY ENTERPRISES, 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, zip code)
Registrant's telephone number, including area code: (801) 224-0589
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
Common Stock, par value $.01
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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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ x ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No x
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The aggregate market value of the registrant's voting Common Stock held
by non-affiliates of the registrant was approximately $28,052,000 (computed
using the closing price of $10.63 per share of Common Stock on May 19, 2003 as
reported by Nasdaq). Shares of Common Stock held by each officer and director
(and their affiliates) and each person who owns 5 percent or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
affiliates for purposes of this calculation. The determination of affiliate
status is not necessarily a conclusive determination for other purposes.
There were 4,136,266 shares of the registrant's Common Stock, par value
$.01 per share, outstanding on May 19, 2003.
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on August 19, 2003, which Proxy
Statement will be filed no later than 120 days after the close of the
registrant's fiscal year ended March 31, 2003, are incorporated by reference
in Part III of this Annual Report on Form 10-K.
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FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K, in particular "Item 1. Business" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations," contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. These statements
represent the Company's expectations or beliefs concerning, among other
things, future revenue, earnings and other financial results, new products,
marketing, operations and manufacturing. The Company wishes to caution and
advise readers that these statements involve risks and uncertainties that
could cause actual results to differ materially from the expectations and
beliefs contained herein. For a summary of certain risks related to the
Company's business see "Item 1. Business-Risk Factors That May Affect Future
Results" beginning on page 7 and "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Forward-Looking Statements
and Factors That May Affect Future Results of Operations" beginning on page
24.
Unless the context otherwise requires, references to the Company or MITY
Enterprises are to MITY Enterprises, Inc. and its subsidiaries. Mity-Lite(R),
MityTuff(R), MityStack(R), MityHost(TM), SwiftSet(R), Xpeditor(TM), Xtreme
Edge(TM), Summit(TM) Lectern, MitySnap(TM), and BRODA(TM) are trademarks or
trade names of the Company.
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PART I
ITEM 1. BUSINESS
BACKGROUND
MITY Enterprises, Inc. designs, manufactures and markets premium quality,
innovative institutional furniture created to meet the efficiency needs of its
customers. The Company's product lines include multipurpose room furniture
and healthcare seating. Its line of multipurpose room furniture is sold both
domestically and internationally in educational, recreational, hotel and
hospitality, government, office, healthcare, church and other public assembly
markets. Its healthcare seating is sold mainly in Canada and the U.S. in the
long-term healthcare market.
INSTITUTIONAL FURNITURE PRODUCTS
MULTIPURPOSE ROOM FURNITURE. The Company's multipurpose room furniture
consists of lightweight, durable, folding leg tables, stacking chairs, folding
chairs, lecterns and other related products used in multipurpose rooms.
LIGHTWEIGHT, HIGHLY DURABLE TABLES. The Company has developed and currently
manufactures and markets more than 50 different plastic table sizes. These
tables are made with several different folding leg and custom color options.
The Company has successfully applied engineering grade plastics and
sophisticated manufacturing and assembly methods to the production of tables
that weigh less and are more durable than competing particle board or plywood
table products of similar size. The Company's plastic tables are manufactured
using abrasion, stain and water resistant materials. The Company's cornered
tables are constructed using its proprietary high-impact corners which can
withstand a two-foot drop without sustaining debilitating damage. All of the
Company's plastic tables include reinforced edging. Cornered tables are
equipped with non-skid pads which facilitate stacking and storage. Management
believes the Company's plastic table products appeal to its customers because
they are durable, lightweight, easy to handle and attractive.
FOLDING AND STACKING CHAIRS. The Company currently offers four lines of
stacking chairs and a line of folding chairs: MityTuff, MityStack, MityHost,
and SwiftSet stacking chair lines and the SwiftSet folding chair line. The
MityHost and SwiftSet stacking chair lines are manufactured in-house while the
Company's other stacking chair lines are purchased from suppliers and marketed
under the Mity-Lite name. The SwiftSet folding chair is manufactured in-house
and has a plastic seat and back designed to be more comfortable, durable and
lightweight than other folding chairs.
OTHER MULTIPURPOSE ROOM PRODUCTS. The Company markets the Summit lectern, a
new line of lightweight, durable lecterns. The lecterns are made of high
quality polyethylene and can withstand abusive environments. They are
offered in a variety of colors, with custom inserts that allow customers to
match decor. In addition to lightweight, durable tables, chairs, and
lecterns, the Company manufactures and/or markets accessory products including
table and chair carts, tablecloths, skirting and skirt clips.
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HEALTHCARE SEATING. Through its wholly owned subsidiary, Broda Enterprises,
Inc., the Company designs, manufactures and markets healthcare seating and
accessories used in long-term healthcare facilities located primarily in the
United States and Canada. The Company also markets its healthcare seating
products through distributors in Germany, Australia and Japan. Broda has
developed and manufactures a line of premium wheeled and stationary specialty
chairs. Most chair models come in two standard seat widths and six standard
colors. The Company also manufactures chairs with custom seat widths, seat
depths, and seat heights to accommodate special needs of residents including
bariatric sizes. Heavy gauge steel tube chair frames and large wheels and
casters allow for greater weight capacity and maneuverability. In addition, a
powder coated finish provides a scratch-resistant surface. Broda's high end
seating products offer a combination of features that differentiate them from
the competition. Broda chairs have been tested for interface pressures and
stability that, combined with their rigid and durable design, make Broda
chairs suitable seating for long-term care residents including those with
Huntington's Chorea Disease, Alzheimer's or Acquired Brain Injury. In
addition, nursing home residents susceptible to skin breakdown, suffering from
loss of upper body strength, or with other conditions that might otherwise
restrict them to bed or place them at risk of self injury or falls, can be
safely and comfortably seated in a Broda chair.
MARKET OVERVIEW
Based upon management's analysis of companies known to sell multipurpose room
furniture and based upon management's experience and contacts in its industry,
management estimates that the domestic market for multipurpose room furniture
exceeds $1.5 billion annually. It is estimated that folding tables alone make
up more than $400 million of this domestic market. Chairs and other related
seating products are estimated to account for approximately $1 billion of the
domestic multipurpose room furniture market. Other products such as staging,
risers, partitions, lecterns, and flooring account for the balance of the
estimated domestic market.
In the healthcare seating market, management estimates that in the United
States and Canada there are more than 28,000 nursing homes with over 1.8
million beds. Nursing homes and their residents represent the typical Broda
customer. In addition, Broda's market also includes chronic care, psychiatric
care or long-term care facilities. Management estimates that the North
American market for its current healthcare seating products is approximately
$60 million.
SALES AND MARKETING
MULTIPURPOSE ROOM FURNITURE. The Company primarily markets its multipurpose
room products directly to end users in the educational, recreational, hotel
and hospitality, governmental, office products, healthcare, public assembly
and church markets. This strategy enables the Company to manage selling costs
more effectively and maintain direct contact with its customers. The Company
currently employs 53 full-time in-house sales and customer service employees.
The Company's sales and customer service personnel are compensated on a
commission basis and may qualify for other incentive bonuses based on
individual, sales team and Company performance. Each sales and customer
service employee receives training in product attributes, customer service,
use of the Company's computerized sales management system and all aspects of
the sales cycle.
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The Company typically markets its products by first identifying customers
through internal market research, referrals, trade shows, customer networking
and test marketing. Once a market has been identified, the Company's sales
and marketing staff will attempt to generate leads for prospective purchasers
in such markets by attending trade shows, performing mass mailings and using
lead-oriented advertising. The Company uses a proprietary, computer-based
sales management system to qualify, track and manage sales leads for
prospective and existing customers and to compile customer feedback. While
each sales and customer service employee maintains some in-person contact with
such employee's assigned customers, most of the Company's sales efforts are
pursued using the telephone, fax machine, e-mail, internet, videotapes and
overnight mail services. The Company also uses a reference list of customers
in each geographical sales territory to promote sales of its products. The
Company provides some prospective purchasers with product samples for 30-day
trial periods.
The Company's plastic table and lectern products are sold with a twelve-year
pro-rata warranty covering materials and workmanship. The MityTuff is sold
with a seven-year warranty covering materials and workmanship. The MityStack
and SwiftSet are sold with a ten-year warranty covering materials and
workmanship. The MityHost is sold with a ten-year warranty covering the
structural integrity of the metal frame and a one-year warranty covering the
upholstery.
HEALTHCARE SEATING. The Company markets its healthcare seating products to
end users and care givers in healthcare markets through its own sales
representatives and independent manufacturer's representatives, distributors
and retailers of durable medical equipment. The Company currently employs 22
full-time sales and customer service employees and 21 independent
manufacturing representatives and distributors in its healthcare seating
operations. The Company's internal sales and customer service employees are
compensated with a base salary and may qualify for commission, incentive or
bonus pay. The Company promotes its products through print advertising, trade
shows, mass mailings and telephone solicitations targeted to healthcare
professionals. The Company has a sampling program and provides many
prospective purchasers with product samples for 14-day trial periods. All of
Broda's chairs carry a limited three-year warranty on the steel frame and a
limited one year warranty on the other components for defects and failure in
normal use.
INTERNATIONAL SALES
Since its inception in 1987, the Company has focused its marketing efforts
primarily on domestic markets. The Company has, however, sold its products in
Canada, South America, Europe, Asia, Middle East and Australia. For the
fiscal years ended March 31, 2001, 2002, and 2003, the Company's international
sales accounted for 11.1 percent, 12.6 percent and 11.1 percent of the
Company's total net sales, respectively. The Company has been successful in
establishing distributor relationships in Canada, Australia, Mexico, United
Kingdom, France, Spain, and the United Arab Emirates. Approximately 36
percent of healthcare seating sales are in Canada with all but 5 percent of
the remaining sales in the United States.
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MANUFACTURING AND MATERIALS
MULTIPURPOSE ROOM FURNITURE. The Company's manufacturing process for its
plastic table products consists principally of bonding a thermoformed ABS
plastic shell to a wood core frame. Metal legs, which are manufactured and
painted in-house, and edge trim are then attached to the table to complete the
process. Since its inception, the Company has implemented a number of changes
to its manufacturing process and product design which have resulted in
increased production volumes, improved production quality and increased
on-time shipping performance. The Company has designed and manufactured
certain proprietary equipment used in its manufacturing process. The Company
believes that its manufacturing innovations give it a competitive advantage,
allowing the Company to reduce production costs and increase productivity.
The Company's typical order to delivery lead time is between three and five
weeks.
The Company's manufacturing process for its multipurpose chair products
consists principally of the manufacturing and painting of legs and frames,
upholstering seat and back cushions for the MityHost chair, injection molding
the seat and back for the SwiftSet chair, and final assembly of the
components. The MityTuff and MityStack chairs are distributed by the Company
under original equipment manufacturer (OEM) arrangements with the chair
manufacturers. The MityHost stacking chair, SwiftSet folding chair, and
SwiftSet stacking chair are manufactured in-house at the Company's facility in
Orem, Utah. The Company's manufacturing process for its lectern products
consists primarily of assembling electronic components, attaching the
laminated insert to the shell, and final assembly of the components.
HEALTHCARE SEATING. The Company's manufacturing process for its healthcare
seating products includes such metal fabricating processes as welding,
bending, punching, drilling and painting. The Company also performs cut and
sew operations to produce its chair cushions and accessories. Metal
components are typically powder coated or painted for corrosion protection.
Components purchased for assembly into chairs includes casters, gas springs,
cables, vinyl fabric and strapping, and plastic parts.
Raw materials used in all of the Company's products such as plastic, wood,
metal and fabric are generally available from a number of suppliers. The
plastic used in the Company's multipurpose room products and tubing used in
the metal legs are manufactured according to the Company's specifications.
The multipurpose room operations operate without a substantial raw materials
inventory by depending on certain key suppliers to provide raw materials on a
"just-in-time" basis. Component parts are provided by a number of suppliers
to the Company's specifications. The Company's other raw materials such as
wood, formed metal, laminate, fabric and certain welding compounds are
commodity items. The Company believes that most of its raw materials are
available from alternative suppliers. However, any significant interruption
in delivery of such items could have a material adverse effect on the
Company's operations.
COMPETITION
The markets in which the Company participates are highly competitive. The
institutional furniture industry consists of a fragmented group of large
manufacturers and a host of smaller manufacturers. The healthcare seating
industry also includes a fragmented group of major medical device
manufacturers and many small manufacturers.
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MULTIPURPOSE ROOM FURNITURE. The Company markets its table products based
primarily on product performance (lightweight and durable) and reputation, not
price. The Company's average table price is generally higher than the average
price of competing particle board, plywood, plastic or metal table products of
its competitors. The Company believes that it has a respected reputation for
product quality, convenience and customer service and that for these reasons,
end users often choose its table products over competitors' lower cost table
products. Because only certain elements of the Company's table design are
patented, the Company's tables may be reverse engineered and duplicated by
competitors who are able to develop the manufacturing equipment and processes
to do so. In the past few years, several competitors have introduced other
thermoformed plastic tables with many similar characteristics to the Company's
products. More recently, other competitors have introduced blow molded
plastic tables that, although not currently as durable, are cheaper than the
Company's table products. These introductions have increased price and profit
margin pressures on the Company's products. Further improvements in these
products or introductions of new competing products by lower cost producers
would put additional price and profit margin pressure on the Company which
could have a material adverse effect on the Company's results of operations.
During the past few years, the Company has been developing new products
including a new generation of multipurpose room tables. If these efforts
prove successful, the Company currently believes that these new products will
help to relieve some of the Company's pricing and profit margin pressure.
Among the Company's primary competitors in the table market are Palmer-Snyder,
Inc., McCourt Manufacturing, Inc., Midwest Folding Products, Alltrista
Coporation, Krueger International, Inc., Falcon Products, Inc., SICO and Virco
Manufacturing Corporation which market a thermoformed plastic table; Southern
Aluminum, Inc., which produces an aluminum table; Lifetime Products which
markets a blow molded plastic table, Krueger International, Inc., Bevis Custom
Furniture, Inc., Globe Business Furniture and Virco Manufacturing Corporation,
Inc. which produce particle board tables; and Falcon Products, Inc., Midwest
Folding Products, and Palmer-Snyder, Inc., which produce plywood tables.
Management believes that customers purchase the Company's multipurpose room
chair products primarily because of product performance, reputation, warranty
service and convenience. The market for institutional chairs is highly
competitive and fragmented. The Company believes that its SwiftSet folding
chair and stacking chair lines have technological and performance advantages
over its competitors. Although the Company's other chair lines do not offer
the same advances as the Company's table and SwiftSet chair products, the
Company believes they do have distinct selling features. Among the Company's
primary competitors in the multipurpose chair market are Steelcase Inc.,
Falcon Products, Inc., Virco Manufacturing Corporation, Artco-Bell
Corporation, Globe Business Furniture, Shelby Williams Industries, Inc., MTS
Seating, Krueger International, Inc., Clarin, a division of Greenwich
Industries, and Meco Corporation.
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HEALTHCARE SEATING. Management believes that customers purchase the Company's
healthcare seating products primarily because of product performance,
reputation and service, not price. The Company's average healthcare chair
price is generally higher than the average price of competing chairs. The
Company's chairs generally offer significantly greater performance in terms of
function and durability and for these reasons are chosen over lower cost
competitors' products. Among the Company's primary competitors in the
healthcare seating market are Invacare Corp., L.P.A. Medical Inc.,
Graham-Field Inc., Maple Leaf Wheelchair Manufacturing Inc., Sunrise Medical
Inc., Hillenbrand Industries Inc., Winco Inc., Dolomite and Homecrest
Industries Incorporated.
INTELLECTUAL PROPERTY
The Company has been granted two utility patents relating to the construction
of its table tops. A design patent and six utility patents have been granted
on the SwiftSet chair. Utility patents are pending on both the Host chair as
well as the manufacturing process for the Company's next generation of table.
The Company has chosen not to apply for international patent protection for
the two table concepts or the SwiftSet chair concepts. The Company does not
believe this will have a material adverse effect on the Company.
Utility patents relating to the function of its newest most functional
healthcare chair model have been granted to the Company in the United States
and Canada. A utility patent on its flipdown footrest has been granted in the
United States and is pending in Canada. Utility patents on the Company's new
mobility oriented healthcare chair and commode chair are pending in the United
States and Canada. The Company does have international patents pending on
healthcare chairs in Canada, Japan, Germany, United Kingdom, and France. The
Company has been granted design patents on its geriatric accessory tray,
healthcare chair back, flipdown footrest, and healthcare chair for Canada and
the United States. A design patent has also been granted in the United States
for the Company's commode chair and is pending in Canada. The stylized word
BRODA has been trademarked for Canada and the United States and trademark
registration has been applied for in Europe. Broda's Comfort Tension Seating
has been trademarked in Canada and the U.S. The Pedal Chair trademark has
been applied for in the U.S. and Canada.
The Company believes that aspects of its manufacturing processes are trade
secrets of the Company. The Company relies on trade secret law and
nondisclosure agreements to protect its trade secrets. The Company believes
that its patents and trade secrets provide it with competitive advantages.
REGULATORY AND ENVIRONMENTAL COMPLIANCE
The Company is subject to various local, state, provincial and federal laws
and regulations including, without limitation, regulations promulgated by
federal, state and provincial environmental and health agencies, the Federal
Occupational Safety and Health Administration, the Food and Drug
Administration, North American Free Trade Agreement, and laws pertaining to
the hiring, treatment, safety and discharge of employees. The Company's
manufacturing operations must also meet federal, state, provincial and local
regulatory standards in the areas of labor, safety and health. Historically,
the cost of regulatory compliance has not had a material adverse effect on the
Company's sales or operations. The Company believes it is in material
compliance with applicable laws including laws related to the handling and use
of environmentally hazardous materials.
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EMPLOYEES
As of March 31, 2003, the Company had approximately 306 full-time and 12
part-time employees. No employees have union representation. The Company
believes that its relationship with its employees is good.
RISK FACTORS THAT MAY AFFECT FUTURE OPERATIONS
DOWN-TURN IN FURNITURE INDUSTRY. Beginning in fiscal 2002, and continuing in
fiscal 2003, the Company faced one of the most significant down-turns ever in
the global furniture industry. Industry experts reported a decline in the
U.S. office furniture market of 18% for calendar year 2001 and further
declines of 19% in calendar year 2002. The experts expect further declines of
approximately 8% in calendar year 2003. If shipments do decline for the
current calendar year, this would constitute an unprecedented third
consecutive year of decline for an industry that only had three down years
between 1971 and 2000. Companies throughout the world have reduced their
spending across many capital goods categories, including furniture. Revenue
and order rates across the industry fell throughout calendar 2001 and 2002 as
customers delayed and canceled orders. Demand for furniture products has
continued to soften as corporate profits have remained under pressure during
recent years. Demand for the Company's products was also adversely impacted
by declines after September 11, 2001 in the hospitality and recreational
markets, terror threats, economic uncertainty, and more recently by war
concerns. The near term outlook for the institutional furniture industry
remains uncertain. Though some economic indicators show evidence that the
U.S. economy may be starting to recover, it is uncertain when the recovery
will be reflected in increased orders for institutional furniture products.
If demand for the Company's products does not increase, the Company will
become subject to increased price competition and the Company's margins will
decline if it is unable to reduce costs. The Company is likely not going to
be able to off-set the effects of price competition solely through cost
reductions. The effects of the events of September 11, 2001, the related
terror threats, the military actions that followed, and a sluggish economy on
the institutional furniture market will likely be magnified if any further
acts of terrorism or war occur.
PRODUCT LINE EXPANSION STRATEGIES; ENTRY INTO NEW MARKETS. The Company's
expansion of its current product lines is contingent, among other things, upon
the Company's ability to develop and/or acquire additional lines of
complementary institutional furniture which can be purchased or manufactured
in a cost efficient manner and sold at competitive prices in the Company's
markets. Developing viable new products requires capital and takes time. The
Company may not be able to develop new products at a speed or cost that allow
us to timely capitalize on market opportunities or counter competition. The
Company recently increased the amount of spending on research and development
in developing a new generation of multipurpose room table, a stacking chair,
and other products. The Company believes that it will be successful in
launching these products, but cannot guarantee that it will be successful or
that it will not incur additional costs to launch the products.
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COMPETITION. The Company is facing increased competition because of
innovations in competitors' products and lower pricing brought on by the
general down-turn in the furniture industry. More of the Company's
competitors have begun introducing high quality products that directly compete
with the products offered by the Company. The Company's products are
sometimes more expensive than products sold by the Company's competitors in
the same markets. The Company believes that competition for its products is
generally based on product quality and characteristics, service and price.
Unless the Company adapts and responds to these competitive threats, the
Company will face margin pressure from low cost producers. Only certain
elements of the Company's products are patented so unpatented elements could
be reverse engineered and duplicated by competitors who are able to develop
the manufacturing equipment and processes to do so. The Company is not as
well known nor does it have the depth of financial resources as some of its
competitors. The Company's continued success will depend upon, among other
things, its ability to continue to manufacture and market high quality, high
performance products at prices competitive in the markets served by the
Company. Although the Company is developing new products, including a new
generation of multipurpose room tables, it is uncertain at this time what the
marketplace acceptance will be for this product.
POTENTIAL DECREASE IN DEMAND FOR HEALTHCARE SEATING PRODUCTS. During fiscal
2003, our Broda operations continued to become a more significant part of our
consolidated results of operations and contributed significantly to our net
income. Sales of our healthcare seating products will decline if insurance
funding for the purchase of such products is limited or eliminated or if
regulatory changes occur that adversely affect the funding or demand for such
products. In addition, the Company may be unable to expand its geographic
markets for healthcare seating products.
LOSS OF KEY CUSTOMERS. The loss of any key customers of the Company would
decrease the Company's revenue. Given the current environment in the
furniture industry, the Company cannot assure that it would be able to replace
such revenue or reduce its costs and therefore, the Company's profitably would
be adversely impacted.
RAW MATERIAL PRICES AND SOURCES. Both the plastic used in the Company's
products and the tubing used in its table and chair legs are manufactured
according to Company specifications. The Company's multipurpose room
operations operate without substantial inventory levels of raw materials by
depending on certain key suppliers to provide raw materials on a
"just-in-time" basis. The Company believes that necessary materials are
generally available from alternate suppliers. However, any shortages or
significant interruptions in the delivery of raw materials could have a
material adverse effect on the Company's production schedule and operations.
Price increases for raw materials used in the Company's products and increases
in labor costs would put pressure on the Company's profit margins if the
Company were unable to pass such price increases through to customers.
WARRANTY SERVICE COSTS. The Company intends to continue to offer warranties
covering materials and workmanship on its existing products and anticipates
providing a warranty covering materials and workmanship for all complementary
product lines developed or acquired by the Company. While the Company has
implemented improved quality control measures that it expects will reduce
warranty claims, it is possible that warranty servicing costs will increase in
future periods. Furthermore, the Company is not in a position to anticipate
the additional warranty service costs that may be incurred as a result of the
Company's expansion into new or complementary product lines.
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FUTURE VARIATIONS IN OPERATING RESULTS. The Company's short-term
profitability could be adversely affected by its decision to develop or
acquire complementary product lines, hire additional sales staff, and pursue
additional acquisitions. Various factors, including acquisition related
expenses, the ability to find and train qualified personnel, operational
transitions, timing of new product introductions and the cost of penetrating
new markets and changes in product mix, may have an adverse effect on the
Company's results of operations. While the Company believes that the addition
of new product lines will increase the Company's long-term profitability,
there can be no assurance that the Company will continue to experience
profitability at historical rates. The Company may experience temporary
fluctuations in operations and quarterly variations in the future.
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS. 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,
warranty expense, and cost reductions to preserve margins. 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.
All forward-looking statements involve predictions and are subject to known
and unknown risks and uncertainties, including, without limitation, those
discussed above as well as general economic and business conditions, that
could cause actual results to differ materially from historical results 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 described above 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 those
factors referenced above and in "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Forward Looking Statements
and Factors That May Affect Future Operating Results."
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ITEM 2. PROPERTIES
The Company's corporate headquarters and multipurpose room furniture
manufacturing facilities are located in Orem, Utah (approximately 40 miles
south of Salt Lake City). The Company's headquarters and multipurpose room
table and cart manufacturing facility consists of approximately 71,000 square
feet of manufacturing, office, research and development and storage space
located on approximately four acres of land. The Company purchased this
facility and real estate from the uncle of Gregory L. Wilson, the Company's
Chairman in the first quarter of fiscal 2003 for $2.0 million. This price was
based on an independent appraisal. The facility and real estate had been
leased by the Company for the past 15 years. In addition, the Company owns
approximately nine acres of land across the street from its corporate
headquarters. On a portion of this property, the Company has built a 57,000
square foot office and manufacturing facility to house its sales force and
multipurpose room chair operations. The Company is currently completing the
construction of a new 63,000 square foot facility which will be used for the
manufacturing of its next generation of multipurpose room tables. The Company
estimates this property includes enough real estate to build approximately an
additional 140,000 square feet of facility to support the future growth of the
Company. The Company also owns an adjacent 2,400 square foot building that
sits on approximately one acre of land. The Company believes that by adding
additional equipment and production shifts, its existing facilities will serve
its current product lines for the next year. However, if the operation adds
additional product lines and/or significantly modifies its existing products
lines, additional facilities may need to be constructed on the Company's
existing land.
The Company's healthcare seating manufacturing facilities are located in
Waterloo, Ontario, Canada (approximately 60 miles west of Toronto). These
facilities consist of two adjacent buildings with approximately 30,000 square
feet of leased manufacturing, office, research and development and storage
space. The facilities and related real estate are leased under an agreement
for a two-year term expiring in August 2004. The base monthly lease payment
is approximately $11,000. The Company pays all maintenance costs, taxes and
insurance. The Company believes that these facilities will serve its
healthcare seating manufacturing needs for the term of the lease.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company maintains
insurance coverage against potential claims in an amount which it believes to
be adequate. The Company has certain alleged obligations of up to $1 million
related to a defined benefit pension plan resulting from exiting and selling
its specialty office seating and systems business. The Company does not
believe that it is liable for this amount and plans to vigorously defend its
position. At this time, the Company is unable to determine what its liability
will be if any. There are no material pending legal proceedings against the
Company, other than routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 2003.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market System
under the symbol "MITY". The Company's common stock first began trading on
April 29, 1994.
HIGH LOW
---------- ----------
Fiscal Year Ended March 31, 2003:
First Quarter . . . . . . . . . . . . . $13.05 $10.55
Second Quarter. . . . . . . . . . . . . 12.50 10.02
Third Quarter . . . . . . . . . . . . . 14.25 9.90
Fourth Quarter. . . . . . . . . . . . . 12.76 9.60
Fiscal Year Ended March 31, 2002:
First Quarter . . . . . . . . . . . . . $ 9.84 $ 7.51
Second Quarter. . . . . . . . . . . . . 8.70 7.00
Third Quarter . . . . . . . . . . . . . 8.40 7.25
Fourth Quarter. . . . . . . . . . . . . 14.99 8.00
There were 147 security holders of record as of May 19, 2003. In addition,
management estimates that there were approximately 1,900 beneficial
shareholders. Since the closing of its public offering, the Company has not
declared dividends and does not currently anticipate paying dividends.
ITEM 6. 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, 2003, 2002 and 2001 and the balance sheet
data at March 31, 2003 and 2002 are derived from, and should be read in
conjunction with the audited Financial Statements included in this Form 10-K.
The statement of income data set forth below with respect to the fiscal year
ended March 31, 2000 and 1999 and the balance sheet data at March 31, 2001,
2000 and 1999 are derived from audited financial statements not included in
this Form 10-K. Certain reclassifications have been made to be consistent
with the 2003 presentation including the reclassifications of discontinued
operations.
15
STATEMENT OF INCOME DATA
Year Ended March 31, 2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(in thousands, except per share data)
Net sales $40,210 $40,094 $42,203 $37,395 $29,468
Cost of products sold 23,702 23,738 25,504 22,286 18,122
-------- -------- -------- -------- --------
Gross profit 16,508 16,356 16,699 15,109 11,346
Expenses:
Selling 6,172 6,363 6,595 5,547 4,234
General and administrative 2,504 2,028 1,960 1,781 1,333
Research and development 1,541 1,158 874 799 549
-------- -------- -------- -------- --------
Income from continuing
operations 6,291 6,807 7,270 6,982 5,230
Interest and other, net 132 368 117 231 394
-------- -------- -------- -------- --------
Income before provision for
income taxes 6,423 7,175 7,387 7,213 5,624
Provision for income taxes 2,367 2,772 2,836 2,667 1,996
-------- -------- -------- -------- --------
Net income from continuing
operations before minority
interest 4,056 4,403 4,551 4,546 3,628
Minority interest 7 - - - -
-------- -------- -------- -------- --------
Net income from continuing
operations 4,063 4,403 4,551 4,546 3,628
Earnings (loss) from
discontinued operations, net
of income tax - (271) (4,547) 154 302
Estimated gain (loss) on
disposal, net of applicable
income tax 745 (3,256) - - -
-------- -------- -------- -------- --------
Net income $4,808 $ 876 $ 4 $4,700 $3,930
======== ======== ======== ======== ========
Basic earnings per share from
continuing operations* $0.90 $0.86 $0.90 $0.95 $0.75
Basic earnings (loss) per share
from discontinued operations* - (0.05) (0.90) 0.03 0.06
Basic gain (loss) per share on
disposal of discontinued
operations* 0.17 (0.64) - - -
-------- -------- -------- -------- --------
Basic earnings per share* $1.07 $0.17 $0.00 $0.98 $0.81
======== ======== ======== ======== ========
Weighted average common
shares outstanding
basic* 4,501,342 5,071,125 5,076,456 4,812,610 4,868,375
16
Diluted earnings per share
from continuing operations* $0.86 $0.85 $0.87 $0.89 $0.72
Diluted earnings (loss) per
share from discontinued
operations* - (0.05) (0.87) 0.03 0.06
Diluted gain (loss) per share
on disposal of discontinued
operations* 0.16 (0.63) - - -
-------- -------- -------- -------- --------
Diluted earnings per share* $1.02 $0.17 $0.00 $0.92 $0.78
======== ======== ======== ======== ========
Weighted average common
and common equivalent
shares outstanding
diluted* 4,711,420 5,208,924 5,216,604 5,120,247 5,037,680
* Retroactively restated for the 3-for-2 stock split distributed September 23,
1999.
BALANCE SHEET DATA
MARCH 31, 2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(in thousands)
Working capital $ 8,069 $18,365 $16,300 $13,574 $14,374
Total assets 25,402 33,369 32,287 29,432 23,463
Current portion of
long-term debt - - - - 45
Long-term debt less current
portion - - - - 97
Stockholders' equity 21,454 27,319 27,469 24,385 19,918
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company designs, manufactures, and markets institutional furniture. The
Company's current product lines consist of multipurpose room furniture and
healthcare seating. In addition, the Company continues to pursue development
of new products and the acquisitions of product lines or companies that will
be complementary to the Company's businesses.
MULTIPURPOSE ROOM FURNITURE. The Company's multipurpose room furniture line
consists of lightweight, durable, folding leg tables, stacking chairs, folding
chairs, lecterns, 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. Historically, growth in this segment has come from an expanding
base of new customers, from increasing sales to existing customers and from
expansion of the Company's multipurpose room product line. The current and
future growth of the Company's multipurpose room furniture operations is
largely dependent upon its ability to successfully introduce and market new
product lines of multipurpose room furniture and its ability to profitably
increase its market penetration into existing and new markets.
MULTIPURPOSE ROOM FURNITURE OUTLOOK. The downturn in the domestic and
international economy, particularly the downturn in the furniture industry and
some of the Company's target markets such as education and recreation, has
negatively impacted the Company's historical sales growth rates in fiscal 2003
and 2002. The events of September 11, 2001 as well as the subsequent terror
threats and military conflicts have also negatively impacted many of the
Company's markets, particularly travel related markets such as the hotel and
hospitality, recreational and public assembly markets. Industry experts
reported a decline in the U.S. office furniture market of 19% for calendar
year 2002 and are predicting further declines of 8% in calendar year 2003.
The Company has also seen significant competitive pressure in its multipurpose
room table markets from lower-priced thermo-formed and blow-molded tables and
expects this pressure to continue. Although the Company's multipurpose room
operations for fiscal 2003 performed better than industry estimates, sales
volumes still were 1 percent lower compared to the prior year. The Company
anticipates that weakness in furniture demand will continue until overall
business conditions improve. Recently, order rates have improved and the
Company anticipates that sales volumes during the quarter ending June 30, 2003
may be as much as 5 to 10 percent higher than the prior year's first quarter.
Still, the Company has been reducing costs to preserve margins and maintain
its ability to generate high levels of positive cash flow. Despite these
efforts, the Company, for a variety of reasons including those described
elsewhere herein, may not be successful in achieving this sales level in the
first quarter or increasing its margins and generating high levels of positive
cash flow.
HEALTHCARE SEATING. Through Broda, the Company markets a line of healthcare
seating products to customers in Canada and the United States. Broda's
operations are based in Waterloo, Ontario, Canada. Broda focuses on providing
products which assist long-term care patients with advanced needs due to a
debilitating condition or disease, and has developed a line of premium-priced
geriatric seating products. Broda chairs are serving a very specific niche in
the healthcare market and thus are not competing in the commodity-oriented
general healthcare seating market.
18
HEALTHCARE SEATING OUTLOOK. The Company believes that the specialty
healthcare seating market is less subject to economic pressures than the
Company's multipurpose room furniture operations. During the year ended March
31, 2003, the Company's healthcare seating operations were not negatively
impacted by the downturn in the U.S. economy. However, the medical and
healthcare industry is more subject to regulatory changes that could affect
the demand for Broda's products. The Company is not aware of any regulatory
changes in the near future that would have a substantial and negative impact
on this business. The Company's healthcare seating operation's future growth
is largely dependent upon increasing its market penetration into the U.S.
market and other foreign markets and new products.
DISCONTINUED OPERATIONS. On November 8, 2002, the Company completed its plan
for exiting and selling the assets of the specialty office seating and systems
segment of its business (the CenterCore and DO Group businesses). This plan
was originally approved by the Company's Board of Directors on June 29, 2001.
Since that time and in accordance with Accounting Principles Board (APB)
Opinion No. 30, Reporting the Results of Operations Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary Unusual and
Infrequently Occurring Events and Transactions, the Company treated the DO
Group and CenterCore segment of its operations as a discontinued operation.
At the time that the plan was originally formulated, an estimated $3,256,000
loss was accrued for in the three months ended June 30, 2001 to account for
the expected losses on disposal and estimated operating losses through the
disposal date. After the completion of the plan, the actual net loss, after
tax was determined to be $2,511,000. Since the amount of loss that was
originally estimated and accrued for in the June 2001 quarter of $3,256,000
was higher than this amount, the Company recognized a gain, net of tax, of
$745,000, in the three month period ended December 31, 2002. The sale of the
assets of this segment was completed in three transactions. The first two
transactions took place on September 12, and October 2, 2001. The final
transaction occurred on November 8, 2002.
On September 12, 2001, the Company completed the sale of its JG auditorium
seating line, a product line of DO Group. The Company sold its inventory,
intellectual property, tooling, and limited machinery and equipment related to
this product line for $88,000. The book value of these assets at the time of
sale was approximately $20,000.
On October 2, 2001, the Company completed the sale of its Domore seating line,
a product line of DO Group. The Company sold inventory, intellectual
property, tooling, machinery and equipment, and limited furniture and fixtures
related to this product line and its Elkhart headquarters for $150,000 in cash
and $350,000 of notes from the buyer. The first note, totaling $100,000, bore
interest at the prime rate (adjusted monthly) as published by the Wall Street
Journal, requires monthly payments of interest only. The principal amount of
this note was due in April 2003. The second note, totaling $250,000, which
also bears interest at the prime rate, required monthly payments of interest
only from November 2001 through January 2002 and has required monthly
principal and interest payments since February 2002. This note is being
amortized over a five-year period with a balloon payment for the remaining
unpaid principal balance due at the end of three years in January 2005. The
notes are secured by a subordinated security interest in all of the assets of
the buyer. Both of these notes were discounted using a 20% interest rate and
valued on the balance sheet at $82,000 and $185,000 respectively. Due to the
uncertainty of the collectability of the notes, the Company established a
19
reserve for the entire notes receivable balance and any accrued interest
receivable. As of March 31, 2003, the buyer had paid off the first note and
is current on the second note.
On November 8, 2002, the Company completed the sale of its specialty office
systems line. The Company sold inventory, property, plant, tooling,
machinery, equipment, and intellectual property related to the systems line
for a net $250,000 in cash. The Company retained existing accounts
receivable, deferred tax assets and certain liabilities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of financial condition and results of operations
is based upon the Company's consolidated financial statements which have been
prepared in accordance with accounting principles generally accepted in the
United States. These principles require the use of estimates and assumptions
that affect amounts reported and disclosed in the financial statements and
footnotes. The critical accounting policies for the Company which require
management to make judgments and assumptions about matters that are uncertain
at the time of the estimate include the allowance for doubtful accounts
receivable, the reserve for obsolete inventory, accruals for warranty expense,
values for the discontinued operations, intangible assets, notes receivable,
and income taxes.
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE: The Company exercises considerable
judgment in determining the ultimate collectability of its accounts
receivable. Several factors are used in making these judgments including the
customer credit quality, historical write-off experience and current economic
trends. The Company reviews these factors quarterly, and the allowance is
adjusted accordingly. If the financial condition of the Company's customers
were to deteriorate, an additional allowance may be required.
RESERVE FOR OBSOLETE INVENTORY: Inventories are stated at the lower of cost,
on a first in, first out basis, or market. Additionally, the Company
evaluates its inventory reserves in terms of excess and obsolete exposures.
This evaluation includes such factors as anticipated usage, inventory turnover
and ultimate product sales value.
ACCRUALS FOR WARRANTY EXPENSE: The Company's warranty service costs for
fiscal years ended March 31, 2001, 2002, and 2003 totaled 1.4 percent of net
sales or $590,000, 1.4 percent of net sales or $525,000 and 1.0 percent of net
sales or $417,000, respectively. The Company provides for the estimated cost
of product warranties at the time revenue is recognized. This warranty
obligation is affected by failure rates, the introduction of new products, and
the costs of material and labor to repair or replace the product. The Company
regularly assesses the adequacy of its accrual for warranty expense based upon
historical warranty rates and anticipated future warranty rates.
20
VALUES FOR THE DISCONTINUED OPERATIONS: On November 8, 2002, the Company
completed its plan for exiting and selling the assets of the specialty office
seating and systems segment of its business. This plan was originally
approved by the Company's Board of Directors on June 29, 2001. During the
quarter ended June 30, 2001, the Company developed and approved a plan for
exiting and selling the specialty office seating and systems furniture segment
of its operations. Since that time and in accordance with APB 30, the Company
has treated the DO Group and CenterCore segment of its operations as a
discontinued operation. At the time that the plan was originally formulated,
an estimated $3,256,000 loss was accrued for in the three months ended June
30, 2001 to account for the expected losses on disposal and estimated
operating losses through the disposal date. After the completion of the plan,
the actual net loss, after tax has been determined to be $2,511,000. Since
the amount of loss that was originally estimated and accrued for in the June
2001 quarter of $3,256,000 was higher than this amount, the Company is
recognizing a gain, net of tax, of $745,000, in the period ended December 31,
2002. The Company did retain certain assets and liabilities of the segment
after completion of the sales plan. Considerable judgment was used to
estimate the value of these assets and liabilities based on many factors
including the net expected realizable value of the remaining accounts
receivable, the realization of tax benefits, and potential remaining expenses.
GOODWILL AND OTHER INTANGIBLE ASSETS: The Company reviews annually the
carrying value of its goodwill and other intangible assets. The goodwill
arose from the Broda acquisition and the other intangible asset is
intellectual property related to a startup development company in which the
Company has invested. During the last fiscal year, the Company reviewed the
goodwill related to the Broda acquisition. This review is performed using
estimates of future cash flows. If the carrying value of the intangible asset
is considered impaired, an impairment charge is recorded for the amount by
which the carrying value of the intangible asset exceeds its fair value. No
impairment charges have been recorded related to Broda goodwill or the
intellectual property related to the startup development company.
NOTES RECEIVABLE: The Company reviews its notes receivable to determine likely
collectability. Since the notes are with entities without a history of an
ability to create future cash flows, the Company bases its belief in their
collectability upon its understanding of the potential future success of the
products being developed or on the Company's belief of what the liquidation
value of the operation would be. At this time, the Company has created
reserves on some of these notes receivable. Due to the high level of
uncertainty in the success of these products, these notes receivable may not
be ultimately realized.
INVESTMENT IN AFFILIATE: The Company has an investment in a startup
development company of $132,000. The Company consolidates this entity within
its financial statements and eliminates the other owner's 50 percent share in
the net profits or losses in the income statement. For the year ended March
31, 2003, a net loss of $14,000 was realized by this entity of which 50
percent or $7,000 was eliminated as a minority interest.
INCOME TAXES: The Company has not provided a valuation allowance against the
deferred tax assets recorded in the financial statements. The Company
evaluates quarterly the realizability of its deferred tax assets based upon
expected future taxable income. Management believes that it is more likely
than not that future earnings will be sufficient to recover deferred tax
assets.
21
PENSION LIABILITY: The Company has certain alleged obligations of up to $1
million related to a defined benefit pension plan resulting from exiting and
selling its specialty office seating and systems business. The Company does
not believe that it is liable for this amount and plans to vigorously defend
its position. At this time, the Company is unable to determine what its
liability will be, if any.
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, 2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold 58.9 59.2 60.4 59.6 61.5
-------- -------- -------- -------- --------
Gross profit 41.1 40.8 39.6 40.4 38.5
Operating expenses:
Selling 15.4 15.8 15.6 14.8 14.4
General and administrative 6.3 5.1 4.7 4.8 4.5
Research and development 3.8 2.9 2.1 2.1 1.8
-------- -------- -------- -------- --------
Income from continuing
operations 15.6 17.0 17.2 18.7 17.8
Interest and other, net 0.4 0.9 0.3 0.6 1.3
-------- -------- -------- -------- --------
Income before tax 16.0 17.9 17.5 19.3 19.1
Provision for income taxes 5.9 6.9 6.7 7.1 6.8
-------- -------- -------- -------- --------
Net income from continuing
operations 10.1% 11.0% 10.8% 12.2% 12.3%
======== ======== ======== ======== ========
COMPARISON OF FISCAL YEARS 2003, 2002 AND 2001
NET SALES
The Company's fiscal 2003 net sales of $40.2 million were up $116,000 as
compared to net sales in fiscal 2002. The small increase in sales in the
current year resulted primarily from increased sales in the Company's
healthcare seating segment as well as the Company's multipurpose room chair
markets. This increase was offset by decreased sales in the Company's
multipurpose room table markets due largely to a continued downturn in the
domestic and international economy and significant competitive pressures. For
fiscal 2003, the multipurpose room furniture segment experienced a sales
decrease of less than 1 percent and the healthcare seating segment experienced
sales growth of almost 7 percent. International sales for all product lines
represented 11 percent and 13 percent of net sales for fiscal 2003 and 2002,
respectively.
22
The Company's fiscal 2002 net sales of $40.1 million decreased 5 percent
compared to net sales in fiscal 2001. The decrease in sales in fiscal 2002
resulted primarily from the downturn in the domestic and international economy
and significant competitive pressures in the Company's multipurpose room table
markets. This decrease was partially offset by increased sales in the
Company's healthcare seating segment. For fiscal 2002, the multipurpose room
furniture segment experienced a sales decrease of 7 percent and the healthcare
seating segment experienced sales growth of 9 percent. International sales
for all product lines represented 13 percent and 11 percent of net sales for
fiscal 2002 and 2001, respectively.
GROSS PROFIT
Fiscal 2003 gross profit as a percentage of net sales stayed relatively flat
at 41 percent, as compared to the prior year. The gross profit margin on
multipurpose room furniture sales was relatively flat. Material costs were
lower by one percentage point due primarily to improved pricing and
efficiencies related to the Company's multipurpose room chair operations,
which were offset by higher overhead costs. The gross profit margin on
healthcare seating and accessories sales also stayed relatively flat as lower
labor costs were offset by slightly higher material and overhead costs.
For fiscal 2002, gross profit as a percentage of net sales increased 1
percentage point to 41 percent from 40 percent, as compared to the prior year.
The Company experienced increasing gross profit margins in both the
multipurpose room and the healthcare seating segments of the business. The
gross profit margin on multipurpose room furniture sales increased by one
percentage point due primarily to a higher average sales price on the
Company's table products as well as lower material costs, partially offset by
higher overhead costs on the Company's table and chair products. The gross
profit margin on healthcare seating and accessories sales increased by two
percentage points mainly due to lower material costs.
OPERATING EXPENSES
For fiscal 2003, selling expenses were 15 percent of net sales as compared to
16 percent in the prior year. Actual expenses decreased by $0.19 million, or
3 percent. Multipurpose room furniture selling costs decreased by $0.38
million compared to the prior fiscal year. This decrease resulted primarily
from decreased personnel and commission costs and lower trade show costs.
Selling expenses in the healthcare seating operations increased by $0.19
million compared to the prior fiscal year due primarily to increased personnel
costs. For fiscal 2002, selling expenses were 16 percent of net sales as
compared to 16 percent in the prior year. Actual expenses decreased by $0.23
million, or 4 percent. Multipurpose room furniture selling costs decreased
by $0.47 million compared to the prior fiscal year. This decrease resulted
primarily from decreased personnel and commission costs resulting from lower
sales and lower trade show costs. Selling expenses in the healthcare seating
operations increased by $0.24 million compared to the prior fiscal year due
primarily to increased personnel costs.
23
General and administrative expenses were 6 percent of net sales in fiscal 2003
compared to 5 percent in fiscal 2002 and 2001. Actual expenses increased by
23 percent, or $0.48 million in fiscal 2003 over fiscal 2002 mainly due to a
charge of $0.74 million fully reserving a note receivable to a startup
development company as well as higher professional fees. The reserve was made
due to concerns about the collectability of the note. This increase was
partially offset by lower personnel costs as well as the collection of the
first note receivable from the sale of the Company's discontinued specialty
seating operations which had previously been fully reserved. Actual expenses
increased by 3 percent, or $0.07 million in fiscal 2002 over fiscal 2001
mainly due to increases in the allowance for bad debt on receivables of $0.14
million for the multipurpose room operations. This increase was partially
offset by lower travel costs and professional fees.
Research and development expenses were 4 percent of net sales in fiscal 2003,
3 percent in fiscal 2002, and 2 percent of net sales in fiscal 2001. For
fiscal 2003, actual spending increased by 33 percent, or $0.38 million, as
compared to fiscal 2002. This increase in actual spending resulted mainly
from higher expenditures for personnel, outside services, and supplies related
to the Company's development of a new generation of multipurpose room tables
as well as increased research and development expenses related to new products
at the Company's healthcare seating segment. For fiscal 2002, actual spending
increased by 33 percent, or $0.28 million, as compared to fiscal 2001. This
increase in actual spending resulted mainly from increased research and
development expenses related to new products in the Company's multipurpose
room and healthcare seating segments.
OTHER INCOME/EXPENSE
Other income and expenses netted to $0.13 million in fiscal 2003. Investment
income was $0.23 million, a decrease of $0.12 million from the prior fiscal
year due to a lower average balance of cash and cash equivalents and
available-for-sale securities in the current fiscal year as well as lower
rates of return. Other expenses in fiscal 2003, which totaled $0.09 million,
consisted of $0.08 million in realized foreign currency exchange losses and
$0.03 million in a net loss on asset disposal which were partially offset by
$0.02 million in other income.
Other income and expenses netted to $0.37 million in fiscal 2002. Investment
income was $0.35 million, an increase of $0.25 million from the prior fiscal
year due to a higher average balance of cash and cash equivalents and
available-for-sale securities in the current fiscal year resulting from cash
flow from operations and liquidating assets related to the discontinued
operations. The Company incurred no interest expense for the year ended March
31, 2002 as compared to $0.02 million in the prior fiscal year. Other income
in fiscal 2002, which totaled $0.02 million, consisted of $0.04 million of
other income offset by net loss on asset disposal and realized foreign
currency exchange losses of $0.02 million.
NET INCOME FROM CONTINUING OPERATIONS
For reasons stated above, the Company's net income from continuing operations
for fiscal 2003 was $4.06 million, a decrease of $0.34 million or 8 percent
compared to fiscal 2002. For fiscal 2002, net income from continuing
operations was $4.40 million, a decrease of $0.15 million compared to net
income in fiscal 2001.
24
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 2001 Q2 2001 Q3 2001 Q4 2001
--------- --------- --------- ---------
Net sales $10,931 $10,815 $ 9,322 $11,135
Gross profit 4,243 4,191 3,772 4,493
Income before provision for
income tax 2,021 1,785 1,541 2,040
Net income from continuing
operations 1,249 1,106 953 1,243
Basic earnings per share* 0.25 0.22 0.19 0.24
Diluted earnings per share* 0.24 0.21 0.18 0.24
Q1 2002 Q2 2002 Q3 2002 Q4 2002
--------- --------- --------- ---------
Net sales $11,050 $10,132 $10,094 $ 8,818
Gross profit 4,623 4,072 4,131 3,530
Income before provision for
income tax 2,079 1,762 1,812 1,522
Net income from continuing
operations 1,275 1,087 1,108 933
Basic earnings per share* 0.25 0.21 0.22 0.19
Diluted earnings per share* 0.24 0.21 0.21 0.18
Q1 2003 Q2 2003 Q3 2003 Q4 2003
--------- --------- --------- ---------
Net sales $10,559 $10,777 $10,375 $ 8,499
Gross profit 4,491 4,505 4,243 3,269
Income before provision for
income tax 1,649 1,978 1,627 1,169
Net income from continuing
operations 1,005 1,203 1,004 851
Basic earnings per share* 0.20 0.25 0.24 0.21
Diluted earnings per share* 0.19 0.24 0.23 0.20
*Basic and diluted earnings per share information are for earnings from
continuing operations.
25
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 may experience quarterly variations in operating
results in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, which consist primarily of high-quality commercial
paper and repurchase agreements collateralized with U.S. Treasury securities,
totaled $2.20 million at March 31, 2003 which compared to $8.93 million at
March 31, 2002. In addition, the Company held available-for-sale securities
which totaled $2.34 million at March 31, 2003 as compared to $4.59 million at
March 31, 2002.
The following table highlights certain key cash flow and capital information
pertinent to the discussion that follows:
YEAR ENDED MARCH 31, 2003 2002
----------- -----------
Net cash provided by continuing operations $ 5,177,000 $ 7,000,000
Net cash provided by discontinued operations 2,902,000 3,217,000
Net sales (purchases) of available-for-sale
securities 2,273,000 (3,432,000)
Purchases of property and equipment (6,577,000) (1,198,000)
Decrease (increase) in notes receivable 232,000 (436,000)
Net cash provided by (used in) discontinued
operations investing activities 250,000 (36,000)
Net proceeds from exercise of stock options
and issuance of shares to the 401(k) plan 379,000 418,000
Purchase and retirement of common stock (11,302,000) (1,419,000)
The decrease in cash and cash equivalents for fiscal 2003 as compared to
fiscal 2002 was due primarily to $6.58 million of cash used in the purchases
of property, plant and equipment, and $11.30 million of cash used to buy back
shares of the Company's common stock. This decrease was partially offset by
cash of $5.18 million generated from continuing operations, cash of $2.90
million generated from discontinued operations, net sales of
available-for-sale securities for $2.27 million, a decrease in notes
receivable of $0.23 million, net cash provided by discontinued operations in
investing activities of $0.25 million, and net proceeds related to the
exercise of stock options of $0.38 million.
The increase in cash and cash equivalents for fiscal 2002 as compared to
fiscal 2001 was due primarily to $7.00 million of cash generated from
continuing operations, $3.22 million of cash generated from discontinued
operations, and $0.42 million in net proceeds related to the exercise of stock
options. This increase was partially offset by $1.20 million of cash used in
the purchases of property, plant and equipment, net purchase of
available-for-sale securities of $3.43 million, buying back shares of the
Company's common stock of $1.42 million, and an increase in note receivable of
$0.44 million.
26
Historically, the Company has financed its growth primarily through cash from
operations. The Company's subsidiary, Broda Enterprises, has a line of
credit. The limit on this facility is $0.67 million. As of March 31, 2003,
no amount was drawn under this facility. Among other restrictions, this
credit facility requires the maintenance of certain financial ratios and
levels of working capital. As of March 31, 2003, the Company was in full
compliance with the loan covenants related to this credit facility. The
Company's liquidity is partially dependent upon the availability of this
credit facility.
The Company currently 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. The Company cannot guarantee that
its working capital will be sufficient 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,
2003, the proceeds which would have been received by the Company upon exercise
of outstanding options which were exercisable on that date were approximately
$3.29 million. There is no assurance that such options will be exercised.
The Company's material cash commitments at March 31, 2003 consisted primarily
of current liabilities of $3.82 million to be paid from funds generated from
operations. Current liabilities consisted of the following:
YEAR ENDED MARCH 31, 2003 2002
----------- -----------
Accounts payable $2,184,000 $1,649,000
Accrued payroll 931,000 1,044,000
Accrued warranty expense 365,000 375,000
Reserve for loss at discontinued operation - 2,534,000
Other accruals 343,000 448,000
----------- -----------
Total current liabilities $3,823,000 $6,050,000
=========== ===========
The Company has entered into two lease agreements for Broda's production and
office facilities under which it is obligated to pay $16,000 Canadian
(approximately US $11,000) per month through August 2004. As of March 31,
2003, future minimum payments under noncancellable operating leases with terms
in excess of one year are approximately as follows:
YEAR ENDED MARCH 31,
2004 $ 131,000
2005 54,000
Thereafter -
----------
Total $ 185,000
==========
27
During the quarter ended March 31, 2002, the Company paid $50,000 as a good
faith deposit for technology to be used in a separate startup development
company to investigate the commercial development of a new technology. During
the quarter ended December 31, 2002, the Company paid an additional $82,000.
This technology investment of $132,000 was contributed to a startup
development company for a 50 percent equity ownership in this company. The
other 50 percent interest in the technology was contributed by the other 50
percent owner. The Company has entered into a royalty agreement with the
shareholder owning the other 50 percent share of the startup development
company on some of the materials sold by the startup company. The Company has
also extended a line of credit of $125,000 to the shareholder owning the other
50 percent share of the startup development company which is secured by the
shareholder's ownership in the company and future royalty payments. The line
of credit, which bears interest at the prime rate (adjusted monthly) as
published by the Wall Street Journal, requires an initial payment of the
accrued interest six months after the line was extended. Thereafter, monthly
payments of interest only are required from June 1, 2003 until November 30,
2004 at which time, the full amount of the outstanding line is due and
payable. As of March 31, 2003, the full credit line of $125,000 was
outstanding.
On September 24, 2001, the Company announced its intention to repurchase up to
125,000 shares of the Company's common stock. On February 14, 2002, the
Company announced its intention to repurchase up to an additional 150,000
shares, bringing the total number of shares approved for repurchase to
275,000. As of March 31, 2003, approximately 254,000 shares had been
repurchased. Additional repurchases will reduce the Company's liquidity.
The Company is in the process of developing new products including a new
generation of multipurpose room tables. During the fiscal year ended March
31, 2003, the Company invested approximately $3.6 million for building and
capital equipment to be used in producing the new generation of multipurpose
room tables. The Company anticipates that capital expenditures of an
additional approximately $2.5 million will be required over the next three to
six months. The Company anticipates funding these capital expenditures using
existing capital reserves as well as cash from operations. However, there is
no assurance that such resources will be sufficient and that the Company will
not need to raise additional capital. Additional capital, either in the form
of equity or debt, may not be available.
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.
28
FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS OF
OPERATIONS
Certain statements made above in this filing that are not historical facts 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 in this Annual Report on Form 10-K
include plans and objectives of management for future operations, including
plans and objectives relating to the products, marketing, customers, product
line expansions, liquidity and capital resources, and cost reductions to
preserve margins. 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 filing relate to:
- references to predicted declines in the institutional furniture and U.S.
office furniture markets and the Company's belief that weakness in furniture
demand will continue;
- statements that the Company anticipates that its sales volumes during the
first quarter of fiscal 2003 may increase by as much as 5 to 10 percent as
compared to the sales levels of the prior year's first quarter;
- references to anticipated continued competitive pressure in multipurpose
room table markets;
- references to the Company's efforts to reduce costs to preserve margins
and continue generating high levels of positive cash flows;
- the statement that the Company's healthcare seating operations are less
subject to economic pressures than its multipurpose room furniture operations
but more subject to changes in the regulatory environment;
- statements related to the Company's expectation that capital expenditures
related to the development of the Company's next generation table will be
approximately $2.5 million over the next three to six months;
- statements related to the Company's belief that if efforts to develop a
new generation of multipurpose room table is successful that it will help to
relieve some of the pricing and profit margin pressures;
- statements relating to the Company's belief that cash flow from its
current operations, existing cash reserves, and available line of credit will
be sufficient to support its working capital requirements to fund existing
operations for at least the next 12 months;
- statements relating to the Company's possible need to raise additional
capital if its cash flow from operations and debt financing are insufficient
to fund the Company's working capital requirements; and
- statements related to anticipated capital expenditures.
29
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 results 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 continued downturn in domestic and international economies and business
conditions specifically in the institutional furniture industry;
- continued global tension related to the events of September 11, 2001,
terror threats, war and threats of war;
- increased competition in the Company's core businesses;
- loss of important customer contracts through increased price-based and
product quality competition especially in the Company's multipurpose room
furniture segment;
- limited management and key employee resources;
- declines in sales volumes and profit margins in the Company's core
businesses;
- lower than expected revenue, revenue growth, cash flow and gross margins
from the multipurpose room and healthcare seating operations, higher materials
and labor costs, or the Company's inability, for any reason, to profitably
introduce new products or implement its marketing strategies in the healthcare
seating and multipurpose room markets;
- management's inability for any reason to manage effectively the Company's
operations;
- the Company's inability for any reason to develop new products and expand
successfully into new markets;
- the market's acceptance of products currently being developed by the
Company including its next generation multipurpose room table product;
- the Company's ability to manufacture and market at current margins high
quality, high performance products at competitive prices;
- import restrictions and economic conditions in the Company's foreign
markets and foreign currency risks associated therewith;
- the Company's ability to maintain relatively low cost labor rates;
- the Company's ability to source a sufficient volume of acceptable raw
materials at current prices;
- 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;
30
- the Company's ability to refine and enhance the quality and productivity
of its manufacturing process;
- the Company's ability to locate and successfully consummate and integrate
acquisitions, if any, of complementary product lines or companies on terms
acceptable to the Company;
- the Company's ability to retain and maintain relationships with key
customers;
- the Company's ability to raise capital, if needed;
- the availability of insurance funding for the Company's healthcare
seating products;
- regulatory developments that adversely affect demand for the Company's
products, particularly the Company's healthcare seating products; and
- other factors noted in "Item 1. Business-Risk Factors That May Affect
Future Results of 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.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company manufactures its products in the United States and Canada and
sells its products in those markets as well as in other countries. The
majority of the Company's sales and expenses are transacted in U.S. dollars
with limited transactions occurring in Canadian dollars or other foreign
currencies. For the year ended March 31, 2003, approximately 8.0 percent of
the Company's net sales, 7.1 percent of the Company's cost of products sold,
and 13.9 percent of the Company's operating expenses were denominated in
currencies other than the U.S. dollar. For the year ended March 31, 2002,
approximately 5.9 percent of the Company's net sales, 6.8 percent of the
Company's cost of products sold, and 10.4 percent of the Company's operating
expenses were denominated in currencies other than the U.S. dollar. Foreign
currency exchange rate fluctuations did not have a material impact on the
financial results of the Company during fiscal 2003. The Company's healthcare
chair operations have occasionally entered into forward contracts for specific
US dollar denominated accounts receivable. As of March 31, 2003, no forward
contracts were outstanding.
The economic impact of foreign exchange rate movements on the Company is
complex because such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other factors. The
Company estimates that a 10 percent adverse change in foreign exchange rates
could have reduced operating profit by as much as $10,000 and $30,000 for the
fiscal years ended March 31, 2003 and 2002. As mentioned above, this
quantitative measure has inherent limitations and the sensitivity analysis
disregards the possibility of other effects that may offset such adverse
change.
31
MANAGEMENT'S STATEMENT
The Company's financial statements were prepared by management. Management is
responsible for the integrity and objectivity of the financial information
presented, including amounts that must necessarily be based on judgments and
estimates. The Company's financial statements were prepared in accordance
with accounting principles generally accepted in the United States.
The Company's independent auditors, Deloitte & Touche LLP, have audited these
financial statements in accordance with generally accepted auditing standards.
The Audit Committee of the Board of Directors is composed of directors who are
free of any relationship or personal interest that, in the opinion of the
Board of Directors, would interfere with their ability to exercise sound
judgment as a committee member. The purpose of the Audit Committee is to
provide assistance to the overall Board of Directors in fulfilling the Board's
responsibility to the shareholders, potential shareholders, and investment
community relating to corporate accounting, reporting practices of the
corporation, and the quality and integrity of the financial reports of the
corporation. In so doing, it is the responsibility of the Audit Committee to
establish and maintain free and open means of communication between the
directors, the independent auditor, and the financial management of the
Company.
Based on a review and discussions of the Company's 2003 audited consolidated
financial statements with management and discussions with the independent
auditors, the Audit Committee recommended to the Board of Directors that the
Company's fiscal 2003 audited financial statements be included in the
Company's annual report on Form 10-K. The Board of Directors concurred.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of MITY Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of MITY
Enterprises, Inc. (formerly Mity-Lite, Inc.) and subsidiaries as of March 31,
2003 and 2002, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 2003. These financial statements are the responsibility of
MITY Enterprises' management. Our responsibility is to express an opinion on
these financial statements based on our audits.
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 audit 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 provide a reasonable basis for our opinion.
In our opinion, based on our audits, such consolidated financial statements
present fairly, in all material respects, the financial position of MITY
Enterprises, Inc. and subsidiaries at March 31, 2003 and 2002, and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective
April 1, 2002, MITY Enterprises, Inc. adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
May 15, 2003
33
CONSOLIDATED BALANCE SHEETS
March 31, 2003 2002
ASSETS ------------ ------------
Current assets:
Cash and cash equivalents $ 2,203,000 $ 8,926,000
Available for sale securities 2,336,000 4,593,000
Accounts receivable, less allowances
of $235,000 at March 31, 2003 and
$346,000 at March 31, 2002 3,792,000 4,382,000
Inventories 1,368,000 1,235,000
Tax receivable 1,284,000 164,000
Prepaid expenses and other current assets 274,000 435,000
Deferred income tax assets 635,000 3,117,000
Net current assets of discontinued
operations - 1,563,000
------------ ------------
Total current assets 11,892,000 24,415,000
Property and equipment, net 11,656,000 6,286,000
Deferred income tax assets 376,000 405,000
Goodwill, net 1,010,000 932,000
Other intangible assets, net 264,000 -
Notes receivable, net 204,000 486,000
Net noncurrent assets of discontinued
operations - 845,000
------------ ------------
$ 25,402,000 $ 33,369,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,184,000 $ 1,649,000
Accrued expenses and other current
liabilities 1,639,000 4,401,000
------------ ------------
Total current liabilities 3,823,000 6,050,000
Minority interest 125,000 -
------------ ------------
Total liabilities 3,948,000 6,050,000
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 4,115,181 shares at March 31,
2003 and 5,000,343 shares at March 31, 2002 41,000 50,000
Additional paid-in capital 9,925,000 11,755,000
Retained earnings 11,376,000 15,615,000
Accumulated other comprehensive income (loss) 112,000 (101,000)
------------ ------------
Total stockholders' equity 21,454,000 27,319,000
------------ ------------
$ 25,402,000 $ 33,369,000
============ ============
(See accompanying notes to consolidated financial statements)
34
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31, 2003 2002 2001
------------ ------------ ------------
Net sales $ 40,210,000 $ 40,094,000 $ 42,203,000
Cost of products sold 23,702,000 23,738,000 25,504,000
------------ ------------ ------------
Gross profit 16,508,000 16,356,000 16,699,000
Operating expenses:
Selling 6,172,000 6,363,000 6,595,000
General and administrative 2,504,000 2,028,000 1,960,000
Research and development 1,541,000 1,158,000 874,000
------------ ------------ ------------
Total operating expenses 10,217,000 9,549,000 9,429,000
------------ ------------ ------------
Income from continuing operations 6,291,000 6,807,000 7,270,000
------------ ------------ ------------
Other income (expense):
Interest expense - - (24,000)
Investment income 229,000 348,000 94,000
Other (97,000) 20,000 47,000
------------ ------------ ------------
Total other income, net 132,000 368,000 117,000
------------ ------------ ------------
Income before provision for income
taxes and minority interest 6,423,000 7,175,000 7,387,000
Provision for income taxes 2,367,000 2,772,000 2,836,000
------------ ------------ ------------
Net income before minority
interest 4,056,000 4,403,000 4,551,000
Minority interest 7,000 - -
------------ ------------ ------------
Net income from continuing
operations 4,063,000 4,403,000 4,551,000
Discontinued operations (Note 4):
Loss from discontinued operations
(net of applicable income tax
benefit of $166,000 and
$2,750,000 for the periods ended
March 31, 2002, and 2001,
respectively) - (271,000) (4,547,000)
Gain (loss) on disposal (net of
applicable income tax expense
(benefit) of $457,000 and
($1,545,000)) 745,000 (3,256,000) -
------------ ------------ ------------
Net income $ 4,808,000 $ 876,000 $ 4,000
============ ============ ============
35
Basic earnings per share from
continuing operations $0.90 $0.86 $0.90
Basic loss per share from
discontinued operations - (0.05) (0.90)
Basic gain (loss) per share on
disposal of discontinued
operations 0.17 (0.64) -
------------ ------------ ------------
Basic earnings per share $1.07 $0.17 $0.00
============ ============ ============
Weighted average number of
common shares - basic 4,501,342 5,071,125 5,076,456
============ ============ ============
Diluted earnings per share from
continuing operations $0.86 $0.85 $0.87
Diluted loss per share from
discontinued operations - (0.05) (0.87)
Diluted gain (loss) per share on
disposal of discontinued
operations 0.16 (0.63) -
------------ ------------ ------------
Diluted earnings per share $1.02 $0.17 $0.00
============ ============ ============
Weighted average number of
common and common equivalent
shares - diluted 4,711,420 5,208,924 5,216,604
============ ============ ============
(See accompanying notes to consolidated financial statements)
36
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Stockholders'
Stock Capital Earnings Income (Loss) Equity
-------- ----------- ----------- ----------- -----------
Balance at April 1, 2000 $48,000 $ 8,015,000 $16,187,000 $135,000 $24,385,000
Comprehensive income (loss):
Net income 4,000
Unrealized gains on available-for-sale
securities 2,000
Foreign currency translation (201,000)
-----------
Total comprehensive loss (195,000)
Issuance of 40,905 shares used to acquire
DO Group, Inc. 1,000 677,000 678,000
Issuance of 220,324 shares of common
stock from the exercise of options 2,000 2,126,000 2,128,000
Issuance of 26,765 shares of common
stock to the Company's 401(k) plan 290,000 290,000
Purchase and retirement of 27,780
shares of common stock (55,000) (395,000) (450,000)
Tax benefit of employee stock options 633,000 633,000
-------- ----------- ----------- ----------- -----------
Balance at March 31, 2001 51,000 11,686,000 15,796,000 (64,000) 27,469,000
Comprehensive income (loss):
Net income 876,000
Unrealized losses on available-
for-sale securities (19,000)
Foreign currency translation (18,000)
-----------
Total comprehensive income 839,000
Issuance of 32,192 shares of common
stock from the exercise of options 195,000 195,000
Issuance of 38,955 shares of common
stock to the Company's 401(k) plan 223,000 223,000
Purchase and retirement of 154,600
shares of common stock (1,000) (361,000) (1,057,000) (1,419,000)
Tax benefit of employee stock options 12,000 12,000
-------- ----------- ----------- ----------- -----------
Balance at March 31, 2002 50,000 11,755,000 15,615,000 (101,000) 27,319,000
Comprehensive income:
Net income 4,808,000
Unrealized gains on available-
for-sale securities 16,000
Foreign currency translation 197,000
-----------
Total comprehensive income 5,021,000
Issuance of 42,698 shares of common
stock from the exercise of options 227,000 227,000
Issuance of 17,913 shares of common
stock to the Company's 401(k) plan 152,000 152,000
Purchase and retirement of 945,773
shares of common stock (9,000) (2,246,000) (9,047,000) (11,302,000)
Tax benefit of employee stock options 37,000 37,000
-------- ----------- ----------- ----------- -----------
Balance at March 31, 2003 $41,000 $9,925,000 $11,376,000 $112,000 $21,454,000
======== =========== =========== =========== ===========
(See accompanying notes to consolidated financial statements)
37
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 2003 2002 2001
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,808,000 $ 876,000 $ 4,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Net loss (earnings) from discontinued
operations (745,000) 3,527,000 4,547,000
Depreciation and amortization 1,191,000 1,178,000 965,000
Deferred taxes 2,511,000 (1,234,000) (875,000)
Loss (gain) on disposal of property
and equipment 27,000 4,000 (2,000)
Tax benefit from exercise of stock options 37,000 12,000 633,000
Changes in assets and liabilities:
Accounts receivable 666,000 469,000 (466,000)
Inventories (99,000) 285,000 (156,000)
Tax receivable (1,120,000) 865,000 (989,000)
Prepaid expenses and other current
assets 165,000 (221,000) 761,000
Accounts payable 511,000 (768,000) (2,026,000)
Accrued expenses and other current
liabilities (2,775,000) 2,007,000 (1,656,000)
---------- ---------- ----------
Net cash provided by continuing operations 5,177,000 7,000,000 740,000
Net cash provided by discontinued
operations 2,902,000 3,217,000 5,349,000
---------- ---------- ----------
Net cash provided by operating activities 8,079,000 10,217,000 6,089,000
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (2,787,000)(10,673,000) (1,200,000)
Sales and maturities of available-for-sale
securities 5,060,000 7,241,000 21,000
Proceeds from sale of property and equipment 14,000 4,000 17,000
Purchases of property and equipment (6,577,000) (1,198,000) (2,990,000)
Decrease (increase) in notes receivable 232,000 (436,000) 19,000
Purchase of intellectual property (82,000) (50,000) -
Purchase of DO Group (net of cash acquired) - - (2,127,000)
---------- ---------- ----------
Net cash used in continuing operations (4,140,000) (5,112,000) (6,260,000)
Net cash provided by (used in)
discontinued operations 250,000 (36,000) (198,000)
---------- ---------- ----------
Net cash used in investing activities (3,890,000) (5,148,000) (6,458,000)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of
stock options and issuance of shares to
the 401(k) plan 379,000 418,000 2,418,000
Minority interest (7,000) - -
Purchase and retirement of common stock (11,302,000) (1,419,000) (450,000)
Decrease in bank line of credit - - (313,000)
---------- ---------- ----------
38
Net cash provided by (used in) continuing
operations (10,930,000) (1,001,000) 1,665,000
Net cash used in discontinued operations - - (2,573,000)
---------- ---------- ----------
Net cash used in financing activities (10,930,000) (1,001,000) (908,000)
---------- ---------- ----------
Effect of exchange rate changes on cash 18,000 1,000 (7,000)
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (6,723,000) 4,069,000 (1,284,000)
Cash and cash equivalents at beginning of
year 8,926,000 4,857,000 6,141,000
---------- ---------- ----------
Cash and cash equivalents at end of year $2,203,000 $8,926,000 $4,857,000
========== ========== ==========
(See accompanying notes to consolidated financial statements)
(continued)
39
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
YEAR ENDED MARCH 31, 2003 2002 2001
---------- ---------- ----------
Cash paid during the year for income taxes $1,395,000 $1,693,000 $1,247,000
Cash paid for interest - - 24,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the quarter ended March 31, 2002, the Company paid $50,000 as a good
faith deposit for technology to be used in a separate startup development
company to investigate the commercial development of a new technology. During
the quarter ended December 31, 2002, the Company paid an additional $82,000.
This technology investment of $132,000 was contributed to a startup
development company for a 50 percent equity ownership in this company (see
Footnote 5).
In April of 2000, the Company acquired the remaining 50.1 percent interest in
DO Group, Inc. for $2,127,000 in cash and 40,905 shares of the Company's
common stock valued at the date of purchase at $678,000. These amounts, when
added to its previous net investment of $1,412,000, brought the Company's
total investment to $4,217,000. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ 12,101,000
Cost in excess of fair value of assets 1,376,000
Cash and stock paid for the capital stock (4,217,000)
------------
Liabilities assumed $ 9,260,000
============
(See accompanying notes to consolidated financial statements)
(concluded)
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For each of the three years in the period ended March 31, 2003
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MITY Enterprises, Inc. (formerly Mity-Lite, Inc. and referred to as the
"Company") designs and manufactures multipurpose room 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.
DISCONTINUED OPERATIONS
During the quarter ended June 30, 2001, the Company developed and approved a
plan for exiting and selling the specialty office seating and systems
furniture segment of its operations. This segment consists of the CenterCore
and DO Group businesses. As a result of these actions, the Company has
treated DO Group and CenterCore as a discontinued operation. On November 8,
2002, the Company completed the sale of the assets of the specialty office
seating and systems furniture segment of its operations (See Note 4.
Discontinued Operations).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
MITY Enterprises, Inc. and all wholly owned and partially owned subsidiaries
for which the Company exercises control. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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 and are
recorded at their fair value. When the fair value of available-for-sale
securities differs from the amortized cost, the resulting unrealized gain or
loss is recorded as a component of comprehensive income (loss). 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. For the years ended March 31, 2003, 2002, and
2001 the Company had unrealized holding gains (losses) on available-for-sale
securities of ($3,000), ($19,000), and $2,000, respectively.
The contractual maturities of the available-for-sale securities held at March
31, 2003 and 2002 are summarized below:
FISCAL YEAR ENDED MARCH 31, 2003 2002
--------------------- ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ----------- ----------
Due in one year or less $ 570,000 $ 558,000 $1,011,000 $1,007,000
Due after one through two years 1,769,000 1,778,000 3,601,000 3,586,000
---------- ---------- ---------- ----------
$2,339,000 $2,336,000 $4,612,000 $4,593,000
========== ========== ========== ==========
41
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. Leasehold improvements are
amortized over the shorter of the useful life of the asset or the lease term.
Depreciation and amortization on the Company's property and equipment are
provided on a straight-line basis over the estimated useful lives of the
related assets as follows:
Estimated Useful
Life (in years)
----------------
Machinery and equipment 5 to 10
Furniture and fixtures 3 to 5
Leasehold improvements 5 to 15
Buildings and improvements 30
GOODWILL AND OTHER INTANGIBLE ASSETS
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and
Other Intangible Assets," was issued in June 2001. SFAS No. 142 addresses,
among other things, the financial accounting and reporting for goodwill
subsequent to an acquisition. According to the new standard, amortization of
goodwill was replaced by a requirement to test goodwill for impairment at
least yearly or sooner if a specific triggering event occurs. Other
intangible assets will continue to be amortized over their useful lives. The
Company adopted the provisions of SFAS No. 142 as of April 1, 2002, and
performed transitional impairment tests as of that date. This transitional
impairment test resulted in no impairment of goodwill as of April 1, 2002.
The Company has elected to perform its annual impairment test for goodwill
during the first quarter of each fiscal year. Additionally, the Company
reviews goodwill and identifiable intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
The Company's reported net income and earnings per share information,
exclusive of amortization expense related to goodwill required under previous
accounting standards on an after-tax basis is as follows:
42
YEAR ENDED MARCH 31, 2003 2002 2001
---------- ---------- ----------
Reported net income $4,808,000 $ 876,000 $ 4,000
Goodwill amortization - 42,000 48,000
---------- ---------- ----------
Adjusted net income $4,808,000 $ 918,000 $ 52,000
Basic earnings per share:
Reported: $1.07 $0.17 $0.00
Adjusted: $1.07 $0.18 $0.01
Diluted earnings per share
Reported: $1.02 $0.17 $0.00
Adjusted: $1.02 $0.18 $0.01
The intangible asset of $264,000 in intellectual property relates to a startup
development company in which the Company has invested. The startup
development company is investigating the commercial development of a new
technology. At this time, the Company does not believe that this $264,000 is
impaired.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product.
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 approximate their book value at March
31, 2003 and 2002. The amortized cost of available-for-sale securities
exceeds fair value by $3,000 and $19,000 as of March 31, 2003 and 2002,
respectively. The carrying amount reported in the balance sheets for cash and
cash equivalents, accounts receivable, and accounts payable approximates fair
value because of the immediate or short-term maturity of these financial
instruments.
INCOME TAXES (SEE NOTE 10)
The Company 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.
43
STOCK-BASED COMPENSATION
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure
- - an amendment of FASB Statement No. 123" which provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS No. 148 is effective for fiscal years
ending after December 15, 2002 and for financial reports containing financial
statements for interim periods beginning after December 15, 2002. The Company
has decided to continue applying APB Statement No. 25 (as permitted by SFAS
No. 123 and SFAS no. 148). The required disclosure of the effects of SFAS No.
123 and SFAS No. 148 are included in the consolidated financial statements.
Accordingly, no compensation cost has been recognized for its stock option
plans. Had compensation cost of the Company'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, the Company's net income and
earnings per share would have changed to the pro forma amounts indicated
below:
YEAR ENDED MARCH 31, 2003 2002 2001
---------- ---------- ----------
Net income (loss):
As reported $ 4,808,000 $ 876,000 $ 4,000
Pro forma 4,590,000 624,000 (187,000)
Earnings (loss) per share - basic:
As reported $1.07 $0.17 $0.00
Pro forma $1.02 $0.12 ($0.04)
Earnings (loss) per share - diluted:
As reported $1.02 $0.17 $0.00
Pro forma $0.98 $0.12 ($0.04)
USE OF ESTIMATES
The preparation of these consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
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. Significant estimates
subject to change include the allowance for doubtful accounts receivable, the
reserve for obsolete inventory, accruals for warranty expense, and litigation
reserves. Actual results could differ from these estimates.
44
LONG-LIVED ASSETS
On April 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," but retains its fundamental provision
for recognizing and measuring impairment of long-lived assets to be held and
used. This Statement requires that all long-lived assets to be disposed of by
sale be carried at the lower of carrying amount or fair value less cost to
sell, and that depreciation cease to be recorded on such assets. Fair market
value is determined primarily using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Long-lived assets to be disposed of
other than by sale are considered held and used until disposed of. SFAS No.
144 standardizes the accounting and presentation requirements for all
long-lived assets to be disposed of by sale, and supersedes previous guidance
for discontinued operations of business segments.
COMPREHENSIVE INCOME (LOSS)
In accordance with SFAS 130, "Reporting Comprehensive Income," the Company's
comprehensive income (loss) consists of foreign currency adjustments and
unrealized holding gains and losses on available-for-sale securities and net
income.
ACCRUED WARRANTY
The Company's warranty service costs for fiscal years ended March 31, 2001,
2002, and 2003 totaled $590,000, $525,000 and $417,000, respectively. The
accrued warranty at March 31, 2002 and 2003 was $375,000 and $365,000
respectively. The Company provides for the estimated cost of product
warranties at the time revenue is recognized. This warranty obligation is
affected by failure rates, the introduction of new products, and the costs of
material and labor to repair or replace the product. The Company regularly
assesses the adequacy of its accrual for warranty expense based upon
historical warranty rates and anticipated future warranty rates.
RECLASSIFICATIONS
Certain reclassifications have been made to be consistent with the 2003
presentation, including the reclassification of discontinued operations as
discussed in footnote 4.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
With Exit or Disposal Activities," which requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability
is incurred and nullifies EITF No. 94-3. SFAS No. 146 is effective for any
exit or disposal activities occurring after December 31, 2002. The adoption
of SFAS No. 146 did not impact our consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, including
Indirect Guarantees of Indebtedness of Other," which clarifies the disclosures
about certain guarantees to be made by a guarantor in its financial
statements. Also, FIN 45 clarifies that a guarantor is required to recognize,
at the inception of certain guarantees, a liability for the fair value of the
obligation undertaken in issuing the guarantee, but does not prescribe a
specific approach for subsequently measuring the liability over its life.
Recognition provisions of FIN 45 are to be applied prospectively for
guarantees issued or modified after December 31, 2002. Management does not
believe that his statement will have an effect on its consolidated financial
statements.
45
2. INVENTORIES
Inventories consisted of the following:
MARCH 31, 2003 2002
----------- -----------
Materials and supplies $ 980,000 $ 747,000
Work-in-progress 268,000 174,000
Finished goods 120,000 314,000
----------- -----------
$ 1,368,000 $ 1,235,000
=========== ===========
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
MARCH 31, 2003 2002
----------- -----------
Land and improvements $ 2,156,000 $ 1,306,000
Machinery and equipment 6,717,000 4,985,000
Furniture and fixtures 1,925,000 1,865,000
Leasehold improvements 731,000 700,000
Building and improvements 3,702,000 1,925,000
Construction in progress 1,844,000 -
----------- -----------
$17,075,000 $10,781,000
Less accumulated depreciation and
amortization (5,419,000) (4,495,000)
----------- -----------
$11,656,000 $ 6,286,000
=========== ===========
4. DISCONTINUED OPERATIONS
On November 8, 2002, the Company completed its plan for exiting and selling
the assets of the specialty office seating and systems segment of its business
(the CenterCore and DO Group businesses). This plan was originally approved
by the Company's Board of Directors on June 29, 2001. Since that time and in
accordance with Accounting Principles Board (APB) Opinion No. 30, Reporting
the Results of Operations Reporting the Effects of Disposal of a Segment of
a Business, and Extraordinary Unusual and Infrequently Occurring Events and
Transactions, the Company treated the DO Group and CenterCore segment of its
operations as a discontinued operation. At the time that the plan was
originally formulated, an estimated $3,256,000 loss was accrued for in the
three months ended June 30, 2001 to account for the expected losses on
disposal and estimated operating losses through the disposal date. After the
completion of the plan, the actual net loss, after tax was determined to be
$2,511,000. Since the amount of loss that was originally estimated and
accrued for in the June 2001 quarter of $3,256,000 was higher than this
amount, the Company recognized a gain, net of tax, of $745,000, in the three
month period ended December 31, 2002. The sale of the assets of this segment
was completed in three transactions. The first two transactions took place on
September 12, and October 2, 2001. The final transaction occurred on November
8, 2002.
46
On September 12, 2001, the Company completed the sale of its JG auditorium
seating line, a product line of DO Group. The Company sold its inventory,
intellectual property, tooling, and limited machinery and equipment related to
this product line for $88,000. The book value of these assets at the time of
sale was approximately $20,000.
On October 2, 2001, the Company completed the sale of its Domore seating line,
a product line of DO Group. The Company sold inventory, intellectual
property, tooling, machinery and equipment, and limited furniture and fixtures
related to this product line and its Elkhart headquarters for $150,000 in cash
and $350,000 of notes from the buyer. The first note, totaling $100,000, bore
interest at the prime rate (adjusted monthly) as published by the Wall Street
Journal, requires monthly payments of interest only. The principal amount of
this note was due in April 2003. The second note, totaling $250,000, which
also bears interest at the prime rate, required monthly payments of interest
only from November 2001 through January 2002 and has required monthly
principal and interest payments since February 2002. This note is being
amortized over a five-year period with a balloon payment for the remaining
unpaid principal balance due at the end of three years in January 2005. The
notes are secured by a subordinated security interest in all of the assets of
the buyer. Both of these notes were discounted using a 20% interest rate and
valued on the balance sheet at $82,000 and $185,000 respectively. Due to the
uncertainty of the collectability of the notes, the Company established a
reserve for the entire notes receivable balance and any accrued interest
receivable. As of March 31, 2003, the buyer had paid off the first note and
is current on the second note.
On November 8, 2002, the Company completed the sale of its specialty office
systems line. The Company sold inventory, property, plant, tooling,
machinery, equipment, and intellectual property related to the systems line
for a net $250,000 in cash. The Company retained existing accounts
receivable, deferred tax assets and certain liabilities.
Summarized financial information of the discontinued DO Group and CenterCore
segment consist of the following:
MARCH 31, 2003 2002
----------- -----------
Current assets:
Accounts receivable $ - $ 1,478,000
Inventories - 85,000
----------- -----------
Total current assets $ - $ 1,563,000
=========== ===========
Non-current assets:
Property and equipment, net $ - $ 845,000
----------- -----------
Total non-current assets $ - $ 845,000
=========== ===========
47
5. NOTES RECEIVABLE AND INVESTMENT IN SUBSIDIARY
During the quarter ended December 31, 2001, the Company invested $250,000 in
the form of a note receivable in a startup development company that designs,
manufactures and markets caskets. The caskets are made of thermoformed ABS,
the same process and material used for making the Company's tables, and give
the appearance of polished marble or a deep laquer finished wood. During the
quarters ended June 30, September 30, and December 31, 2002, the Company
invested an additional $250,000, $183,000, and $52,000, respectively, in the
form of notes receivable for a total investment of $735,000. After review of
the collectability of the notes receivable, the Company decided to reserve
$500,000 of the notes as of June 30, 2002, an additional $183,000 during the
quarter ended September 30, 2002 and the remaining outstanding balance of
$52,000 in the quarter ended December 31, 2002. This resulted in a charge to
general and administrative expenses of $500,000 for the first quarter,
$183,000 for the second quarter, and $52,000 for the third quarter of fiscal
2003. Due to difficulties in penetrating the market, the Company does not
currently anticipate making any further investments in this startup
development company and has determined the notes to be worthless.
During the quarter ended March 31, 2002, the Company paid $50,000 as a good
faith deposit for technology to be used in a separate startup development
company to investigate the commercial development of a new technology. During
the quarter ended December 31, 2002, the Company paid an additional $82,000.
This technology investment of $132,000 was contributed to a startup
development company for a 50 percent equity ownership in this company. The
other 50 percent interest in the technology was contributed by the other 50
percent owner. The Company has entered into a royalty agreement with the
shareholder owning the other 50 percent share of the startup development
company on some of the materials sold by the startup company. The Company has
also extended a line of credit of $125,000 to the shareholder owning the other
50 percent share of the startup development company which is secured by the
shareholder's ownership in the company and future royalty payments. The line
of credit, which bears interest at the prime rate (adjusted monthly) as
published by the Wall Street Journal, requires an initial payment of the
accrued interest six months after the line was extended. Thereafter, monthly
payments of interest only are required from June 1, 2003 until November 30,
2004 at which time, the full amount of the outstanding line is due and
payable. As of March 31, 2003, the full credit line of $125,000 was
outstanding.
During the quarter ended March 31, 2002, the Company entered into an agreement
with a dealer for the Company's multipurpose room furniture in Australia and
created a note receivable for $365,000. This note, which bears interest at
the prime rate, requires monthly payments of interest and principal in the
amount of $6,000 and is being amortized over a six and one half year period.
The note is secured by all of the assets of the dealership and by personal
guarantees from the principals of the dealership. The Company has created a
reserve of $180,000 for this note receivable. At March 31, 2003, the gross
value of this note receivable was $313,000. At March 31, 2003, $54,000 was
the current portion of this note receivable, which is included in prepaid
expenses and other current assets. As of March 31, 2003, the dealer was
current on payments on this note receivable.
48
6. DEBT
The Company's wholly-owned subsidiary, Broda Enterprises had a line of credit,
bearing interest at Canadian prime (4.50 percent at March 31, 2003) which is
secured by a General Security Agreement, an assignment of insurance and
guarantees by the Company. The limit on this loan is $680,000. At March 31,
2003 and 2002, no balance was outstanding. Among other restrictions, this
credit facility requires the maintenance of certain financial ratios and
levels of working capital. As of March 31, 2003, the Company was in full
compliance with the loan covenants related to this credit facility.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following:
MARCH 31, 2003 2002
----------- -----------
Accrued payroll and payroll taxes $ 931,000 $ 1,044,000
Accrued warranty 365,000 375,000
Reserve for discontinued operation - 2,534,000
Other 343,000 448,000
----------- -----------
$ 1,639,000 $ 4,401,000
=========== ===========
8. COMMON STOCK OPTIONS
At March 31, 2003, the Company has two stock incentive plans, the 1990 Stock
Option Plan (the "1990 Plan") and the 1997 Stock Incentive Plan (the "1997
Plan"). The Company authorized and reserved 750,000 shares of common stock
for issuance under the 1990 Plan and 900,000 shares of common stock for
issuance under the 1997 Plan. 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 Stock
Exchange 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:
49
NUMBER WEIGHTED AVERAGE
OF OPTIONS EXERCISE PRICE
---------- ----------------
Outstanding at April 1, 2000 726,906 $ 8.84
Granted 229,435 7.63
Exercised (220,324) 9.66
Forfeited (46,875) 9.93
---------- ----------------
Outstanding at March 31, 2001 689,142 8.10
Granted 122,850 8.62
Exercised (32,192) 6.07
Forfeited (50,227) 10.72
---------- ----------------
Outstanding at March 31, 2002 729,573 8.09
Granted 36,025 12.14
Exercised (42,698) 5.33
Forfeited (94,152) 8.63
---------- ----------------
Outstanding at March 31, 2003 628,748 $ 8.43
========== ================
Options exercisable at March 31, 2003, 2002 and 2001 were 484,170, 432,053,
and 366,294, respectively. Options vest over a one- to four-year period and
are generally exercisable over ten-years.
The following table summarizes the combined information from the 1990 and 1997
Plans' options outstanding at March 31, 2003:
Options Outstanding Options Exercisable
-------------------------------------------------------------------- -----------------------------
Weighted Average
Range of Remaining Weighted Weighted
Exercise Number Contractual Average Number Average
Prices Outstanding Life (in years) Exercise Price Exercisable Exercise Price
------------- ------------ ----------------- -------------- ------------ --------------
$1.82 - $2.33 57,701 1.01 $ 1.97 57,701 $ 1.97
4.08 - 5.75 64,000 2.92 4.86 64,000 4.86
6.78 - 8.20 172,153 7.74 6.93 95,091 6.98
9.70 - 11.75 258,169 6.23 10.24 230,691 10.31
12.10 - 12.15 36,025 9.94 12.14 - N/A
12.96 - 15.50 40,700 6.94 14.79 36,687 14.76
------------- ------------ ----------------- -------------- ------------ --------------
$1.82 -$15.50 628,748 6.09 $ 8.43 484,170 $ 8.28
============= ============ ================= ============== ============ ==============
50
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 2003, 2002 and 2001, respectively: expected
volatility of 45 percent, 44 percent, and 44 percent, risk free interest rates
of 2.29 percent, 3.62 percent and 5.53 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, 2003, 2002 and 2001 was $4.21,
$2.96, and $2.75, respectively.
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, 2003, 2002 and 2001 were $86,000, $88,000, and $87,000,
respectively.
In October 1996, the Board of Directors reserved up to 37,500 shares of MITY
Enterprises common stock to be issued under the provisions of the 401(k) plan.
An additional 50,000 shares of common stock were reserved in January 2000 and
an additional 100,000 shares of common stock were reserved in March 2002.
Shares are issued to the plan on a quarterly basis. The amounts issued to the
plan in MITY Enterprises common stock for the years ended March 31, 2003, 2002
and 2001 were $152,000, $223,000, and $290,000, respectively. As of March 31,
2003, 111,973 shares had been issued under the provisions of the plan.
10. INCOME TAXES
Income tax expense (benefit) from continuing operations consisted of the
following components:
YEAR ENDED MARCH 31, 2003 2002 2001
---------- ---------- ----------
Current:
Federal $ (455,000) $2,121,000 $2,204,000
State (29,000) 330,000 345,000
Foreign 340,000 460,000 340,000
---------- ---------- ----------
Total current (144,000) 2,911,000 2,889,000
Deferred:
Federal 2,295,000 (101,000) (31,000)
State 204,000 (10,000) (3,000)
Foreign 12,000 (28,000) (19,000)
---------- ---------- ----------
Total deferred 2,511,000 (139,000) (53,000)
---------- ---------- ----------
$2,367,000 $2,772,000 $2,836,000
========== ========== ==========
51
The tax provisions for continuing operations were at effective rates as
follows:
YEAR ENDED MARCH 31, 2003 2002 2001
---------- ---------- ----------
Federal statutory tax rates 34.0% 34.0% 34.0%
State / provincial income taxes,
net of federal benefit 3.3 3.3 3.3
Foreign tax - 0.6 0.6
Goodwill amortization - 0.6 0.6
Meals and entertainment 0.2 0.2 0.2
Foreign sales (0.8) (0.7) (0.5)
Other 0.2 0.6 0.2
---------- ---------- ----------
36.9% 38.6% 38.4%
========== ========== ==========
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, 2003 2002
Current Long Term Current Long Term
--------- --------- --------- ---------
Deferred tax assets:
Allowance for doubtful accounts $98,000 $105,000
Inventory 2,000 374,000
Vacation accrual 47,000 49,000
Warranty reserve and accrual 165,000 219,000
Discontinued operations 201,000 2,097,000 $128,000
Net operating loss carryforward 121,000 $347,000 121,000 352,000
AMT credit 30,000 30,000
Reserve on notes receivable 72,000
Other accruals 1,000 152,000 1,000
--------- --------- --------- ---------
Total 635,000 449,000 3,117,000 511,000
Deferred tax liabilities:
Depreciation and amortization (73,000) (34,000)
Other accruals (72,000)
--------- --------- --------- ---------
Net deferred tax asset $635,000 $376,000 $3,117,000 $405,000
========= ========= ========= =========
At March 31, 2003, the Company had a net operating loss carryforward of
$1,253,000 which, if unused, expires in fiscal 2011.
11. COMMITMENTS AND CONTINGENCIES
The Company leases two buildings in its Waterloo, Ontario, Canada location
under an operating lease which expires in August 2004. The current agreement
requires lease payments of $16,000 Canadian (approximately US $11,000) per
month through the end of the lease.
52
As of March 31, 2003, future minimum payments under noncancellable operating
leases with terms in excess of one year are approximately as follows:
YEAR ENDING MARCH 31:
2004 $ 131,000
2005 54,000
Thereafter -
---------
Total $ 185,000
=========
Total rent expense was $148,000, $477,000, and $564,000 for the years ended
March 31, 2003, 2002 and 2001, respectively.
At March 31, 2003, the Company has committed to purchasing $195,000 in raw
materials inventory.
The Company has been named as defendant in certain lawsuits. While the
Company cannot predict the results of these actions, management believes,
based in part on the advice of legal counsel, that the liability, if any,
resulting from such litigation and claims will not have a material affect on
the consolidated financial statements.
The Company has certain alleged obligations of up to $1 million related to a
defined benefit pension plan resulting from exiting and selling its specialty
office seating and systems business. The Company does not believe that it is
liable for this amount and plans to vigorously defend its position. At this
time, the Company is unable to determine what its liability will be, if any.
12. BUSINESS SEGMENT INFORMATION
Management views the Company as being two business segments: multipurpose room
furniture and healthcare seating. The multipurpose room furniture business
segment manufactures and markets lightweight, durable, folding leg tables,
folding chairs, stacking chairs, lecterns, and other related products. The
Company's healthcare seating segment manufactures and markets healthcare
chairs and related products. The Company's healthcare seating segment
includes all of the Company's foreign-based sales.
Reportable segment data reconciled to the consolidated financial statements
for the fiscal year ended March 31, 2003, 2002 and 2001 are as follows:
53
FISCAL YEAR ENDED MARCH 31, 2003 2002 2001
---------- ---------- ----------
Net sales:
Multipurpose room furniture $35,140,000 $35,334,000 $37,837,000
Healthcare seating 5,070,000 4,760,000 4,366,000
---------- ---------- ----------
$40,210,000 $40,094,000 $42,203,000
========== ========== ==========
Income from continuing operations:
Multipurpose room furniture $ 5,198,000 $ 5,708,000 $ 6,351,000
Healthcare seating 1,093,000 1,099,000 919,000
---------- ---------- ----------
$ 6,291,000 $ 6,807,000 $ 7,270,000
========== ========== ==========
Depreciation & amortization expense:
Multipurpose room furniture $ 1,116,000 $ 1,027,000 $ 799,000
Healthcare seating 75,000 151,000 166,000
---------- ---------- ----------
$ 1,191,000 $ 1,178,000 $ 965,000
========== ========== ==========
Capital expenditures, net:
Multipurpose room furniture $ 6,370,000 $ 1,070,000 $ 2,910,000
Healthcare seating 207,000 128,000 80,000
---------- ---------- ----------
$ 6,577,000 $ 1,198,000 $ 2,990,000
========== ========== ==========
FISCAL YEAR ENDED MARCH 31, 2003 2002
----------- -----------
Total assets:
Multipurpose room furniture $22,364,000 $28,215,000
Healthcare seating 3,038,000 2,746,000
Discontinued operations (Specialty
office systems segment) - 2,408,000
----------- -----------
$25,402,000 $33,369,000
=========== ===========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None to report.
54
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
sections of the Company's Proxy Statement filed in connection with its 2003
Annual Meeting of Stockholders entitled "Nominees" and "Directors and
Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
section of the Company's Proxy Statement filed in connection with its 2003
Annual Meeting of Stockholders entitled "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
section of the Company's Proxy Statement filed in connection with its 2003
Annual Meeting of Stockholders entitled "Security Ownership of Management and
Others."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
sections of the Company's Proxy Statement filed in connection with its 2003
Annual Meeting of Stockholders entitled "Executive Compensation" and "Certain
Transactions."
Item 14. CONTROLS AND PROCEDURES
As of May 16, 2003, the Company's Chief Executive Officer and Chief Financial
Officer conducted an evaluation of the effectiveness of the Company's
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of March 31, 2003.
Additionally, there have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to March 31, 2003, including any corrective actions with regard to
significant deficiencies and material weaknesses.
55
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Exhibits
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NO.
2.1 Contribution Agreement dated as of March 24, 1997 by and among Estate of
Chester E. Dekko, David Kebrdle, Dennis and Mary M. Kebrdle, Domenic and
Martha S. Federico, ChiCol Group, Inc., DO Group, Inc., Sican Corp., Sican II
Corp., DO Group Holding, Inc. and Mity-Lite, Inc. incorporated by reference to
the referenced exhibit number to the Company's Form 8-K dated March 31, 1997.
2.2 Stock Purchase Agreement dated as of March 13, 1997 between Mity-Lite,
Inc. and Xaio, Inc. incorporated by reference to the referenced exhibit number
to the Company's Form 8-K dated March 31, 1997.
2.3 Stock Purchase Agreement dated as of March 13, 1997 between Mity-Lite,
Inc. and Ellman Equities, Inc. incorporated by reference to the referenced
exhibit number to the Company's Form 8-K dated March 31, 1997.
2.4 Stock Purchase Agreement dated as of March 13, 1997 between Mity-Lite,
Inc. and Key Equity Capital Corporation incorporated by reference to the
referenced exhibit number to the Company's Form 8-K dated March 31, 1997.
2.5 Stock Purchase Agreement dated as of March 13, 1997 between Mity-Lite,
Inc. and National City Capital Corporation incorporated by reference to the
referenced exhibit number to the Company's Form 8-K dated March 31, 1997.
2.6 Stock Purchase Agreement dated as of March 13, 1997 between Mity-Lite,
Inc. and Cardinal Development Capital Fund I incorporated by reference to the
referenced exhibit number to the Company's Form 8-K dated March 31, 1997.
2.7 Term Loan Agreement dated as of March 24, 1997 between Mity-Lite, Inc.
and Sican Corp. incorporated by reference to the referenced exhibit number to
the Company's Form 8-K dated March 31, 1997.
2.8 Put Agreement dated as of March 24, 1997 by and among Mity-Lite, Inc. and
Dennis Kebrdle, David Kebrdle, Domenic Federico, ChiCol Group, Inc., Sican II
Corp., and DO Group, Inc. incorporated by reference to the referenced exhibit
number to the Company's Form 8-K dated March 31, 1997.
2.9 Stock Purchase Agreement dated as of November 20, 1998, by and among
Mity-Lite Acquisition Corp. and Stephen E. Brotherston, Glenn C. Brotherston,
Ian D. Brotherston, Margaret E. Brotherston and Sandra L. Brotherston
incorporated by reference to the referenced exhibit number to the Company's
Form 8-K dated November 25, 1998.
56
2.10 Asset Purchase Agreement dated as of April 9, 1999, by and among The
CenterCore Group, Inc., a Delaware Corporation, Fleet Capital Corporation, a
Rhode Island Corporation, and C Core, Inc., a Utah Corporation and wholly
owned subsidiary of Mity-Lite, Inc. incorporated by reference to the
referenced exhibit number to the Company's Form 8-K dated April 9, 1999.
2.11 Form of Assignment Agreement by and among BOCCC, Inc., a Utah
Corporation and wholly owned subsidiary of Mity-Lite, Inc., and various
parties holding subordinated debt instruments of The CenterCore Group, Inc.
This form of Assignment Agreement is substantially the same agreement that was
signed by BOCCC, Inc. and nine different subordinated debt holders
incorporated by reference to the referenced exhibit number to the Company's
Form 8-K dated April 9, 1999.
2.12 Stock Purchase Agreement, By and Among DO Group Holding, Inc., David
Kebrdle, Mary M. Kebrdle, Martha S. Federico, Estate of Chester E. Dekko,
Dennis Kebrdle, Domenic Federico and Mity-Lite, Inc. dated March 17, 2000
incorporated by reference to the referenced exhibit number to the Company's
Form 8-K dated April 1, 2000.
3.1 Amended and Restated Articles of Incorporation of the Registrant
incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form SB-2, Reg. No. 33-76758-D.
3.2 Amended and Restated Bylaws of the Registrant incorporated by reference
to the referenced exhibit number to the Company's Registration Statement on
Form SB-2, Reg. No. 33-76758-D.
3.3 First Amendment to the Amended and Restated Bylaws of Registrant
incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form SB-2, Reg. No. 33-76758-D.
4.1 Form of Stock Certificate incorporated by reference to the referenced
exhibit number to the Company's Registration Statement on Form SB-2, Reg. No.
33-76758-D.
10.1 Revolving Note dated March 16, 1992 and Revolving Loan Agreement dated
March 16, 1992 between the Registrant and First Security Bank of Utah, N.A.
incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.2 Modification Agreement dated March 16, 1993 between the Registrant and
First Security Bank of Utah, N.A. incorporated by reference to the referenced
exhibit number to the Company's Registration Statement on Form SB-2, Reg. No.
33-76758-D.
10.3 Lease Agreement dated November 1, 1993 between the Registrant and the
Walter M. and Orpha M. Lewis Family Trust incorporated by reference to the
referenced exhibit number to the Company's Registration Statement on Form
SB-2, Reg. No. 33-76758-D.
10.4 Trademark License dated November 23, 1993 between the Registrant and
R.D. Werner Co., Inc. incorporated by reference to the referenced exhibit
number to the Company's Registration Statement on Form SB-2, Reg. No.
33-76758-D.
57
10.5 Solicitation, Offer and Award Contract between the Registrant and the
General Services Administration Federal Supply Service dated January 27, 1992
(issued March 6, 1990) and Amendments thereto dated January 27, 1992
(effective July 16, 1990), January 27, 1992 (effective December 1, 1990),
January 27, 1992 (effective December 28, 1991) and the Revision of August 24,
1992 incorporated by reference to the referenced exhibit number to the
Company's Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.6 Notice of Contract Award dated June 23, 1993 between the Registrant and
the Commonwealth of Virginia, Department of General Services Division of
Purchases and Supply incorporated by reference to the referenced exhibit
number to the Company's Registration Statement on Form SB-2, Reg. No.
33-76758-D.
10.7 Agreement dated July 26, 1990 between the Registrant and the State of
Utah, Department of Administrative Services and Revisions thereto dated March
8, 1991, June 5, 1991, and May 19, 1992 and March 10, 1993 incorporated by
reference to the referenced exhibit number to the Company's Registration
Statement on Form SB-2, Reg. No. 33-76758-D.
10.8 Agreement dated December 17, 1991 between the Registrant and the Air
Force Nonappropriated Fund Purchasing Office incorporated by reference to the
referenced exhibit number to the Company's Registration Statement on Form
SB-2, Reg. No. 33-76758-D.
10.9 Purchasing Contract effective October 1, 1993 between the Registrant and
The Corporation of the Presiding Bishop of The Church of Jesus Christ of
Latter-Day Saints incorporated by reference to the referenced exhibit number
to the Company's Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.10 Employment Agreement with attached Proprietary Information Agreement
dated effective as of May 21, 1993 between Registrant and Gregory L. Wilson
incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.11 Employment Agreement with attached Proprietary Information Agreement
dated effective as of May 21, 1993 between Registrant and Stanley L. Pool
incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.12 Employment Agreement with attached Proprietary Information Agreement
dated effective as of May 21, 1993 between Registrant and Kenneth A. Law
incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.13 Employment Agreement with attached Proprietary Information Agreement
dated effective as of February 16, 1994 between Registrant and Brent Bonham
incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.14 Employment Agreement with attached Proprietary Information Agreement
dated effective as of February 16, 1994 between Registrant and Bradley T
Nielson incorporated by reference to the referenced exhibit number to the
Company's Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.15 1990 Stock Option Plan, as amended and Form of Stock Option Agreements
incorporated by reference to the referenced exhibit number to the Company's
Registration Statement on Form SB-2, Reg. No. 33-76758-D.
58
10.16 Form of Indemnification Agreements between Registrant and officers and
directors of Registrant incorporated by reference to the referenced exhibit
number to the Company's Registration Statement on Form SB-2, Reg. No.
33-76758-D.
10.17 Form of Lock-up Agreements with Shareholders incorporated by reference
to the referenced exhibit number to the Company's Registration Statement on
Form SB-2, Reg. No. 33-76758-D.
10.18 Form of Confidentiality Agreement entered into with employees of the
Registrant incorporated by reference to the referenced exhibit number to the
Company's Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.19 Key-Man Insurance Policy between the Company and Chubb Sovereign Life
Insurance Company incorporated by reference to the referenced exhibit number
to the Company's Registration Statement on Form SB-2, Reg. No. 33-76758-D.
10.20 Distributor Agreement between the Company and Sebel Furniture Limited
dated February 14, 1994 incorporated by reference to the referenced exhibit
number to the Company's Form 10-KSB for the year ended March 31, 1994.
10.21 Lease Agreement dated March 31, 1995 between the Company and the Walter
M. and Orpha M. Lewis Family Trust incorporated by reference to the referenced
exhibit number to the Company's Form 10-KSB for the year ended March 31, 1995.
10.22 Exclusive Distributor Agreement between the Company and Mobilite
International Limited (aka Mity-Lite (Europe) Limited) incorporated by
reference to the referenced exhibit number to the Company's Form 10-KSB for
the year ended March 31, 1995.
10.23 Purchasing Contract effective October 1, 1995 between the Registrant
and The Corporation of the Presiding Bishop of The Church of Jesus Christ of
Latter-Day Saints incorporated by reference to the referenced exhibit number
to the Company's Form 10-QSB for the quarter ended December 31, 1995.
10.24 Promissory Note dated December 6, 1995 between the Registrant and Zions
First National Bank incorporated by reference to the referenced exhibit number
to the Company's Form 10-QSB for the quarter ended December 31, 1995.
10.25 Promissory Note dated October 27, 1995 between Registrant and First
Security Bank incorporated by reference to the referenced exhibit to the
Company's Form 10-KSB for the year ended March 31, 1996.
10.26 Summary Plan Description and Basic Plan Document for the 1995
Mity-Lite,Inc. Employee Retirement Plan incorporated by reference to the
referenced exhibit number to the Company's Form 10-KSB for the year ended
March 31, 1996.
10.27 Promissory Note dated January 23, 1997 between the Registrant and
Zions First National Bank incorporated by reference to the referenced exhibit
number to the Company's Form 10-KSB for the year ended March 31, 1997.
10.28 Modification Agreement (dated October 27, 1996) to Promissory Note
dated October 27, 1995 between the Registrant and First Security Bank
incorporated by reference to the referenced exhibit number to the Company's
Form 10-KSB for the year ended March 31, 1997.
59
10.29 Lease Agreement Amendment dated October 31, 1996 between the Company
and the Walter M. and Orpha M. Lewis Family Trust incorporated by reference to
the referenced exhibit number to the Company's Form 10-KSB for the year ended
March 31, 1997.
10.30 Promissory Note dated December 15, 1997 between the Registrant and
Zions First National Bank incorporated by reference to the referenced exhibit
number to the Company's Form 10-KSB for the year ended March 31, 1998.
10.31 Modification Agreement (dated October 25, 1997) to Promissory Note
dated October 27, 1995 between the Registrant and First Security Bank
incorporated by reference to the referenced exhibit number to the Company's
Form 10-KSB for the year ended March 31, 1998.
10.32 1997 Stock Incentive Plan and Form of Agreements incorporated by
reference to the referenced exhibit number to the Company's Form 10-KSB for
the year ended March 31, 1998.
10.33 Promissory Note dated November 18, 1998 between the Registrant and
Zions First National Bank incorporated by reference to the referenced exhibit
number to the Company's Form 10-K for the year ended March 31, 1999.
10.34 Promissory Note dated May 26, 2000 between the Registrant and Zions
First National Bank incorporated by reference to the referenced exhibit number
to the Company's Form 10-K for the year ended March 31, 2000.
10.35 Form of Employment Agreement between the Company and its Executive
Officers incorporated by reference to the referenced exhibit number to the
Company's Form 10-K for the year ended March 31, 2001.
11.1 Statement Regarding Computation of Per Share Earnings.
21 Subsidiaries of Registrant.
23.1 Consent of Deloitte & Touche LLP.
99.33 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.34 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(B) Reports on Form 8-K
Form 8-K filed on January 29, 2003 to report Company's third quarter
financial results.
(C) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required,
not applicable, or the information is otherwise set forth in the financial
statements or notes thereto.
60
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of MITY Enterprises, Inc.:
We have audited the consolidated financial statements of MITY Enterprises,
Inc. and subsidiaries (the Company) as of March 31, 2003 and 2002, and for
each of the three years in the period ended March 31, 2003, and have issued
our report thereon dated May 15, 2003; such financial statements and report
are included elsewhere in this Form 10-K. Our audits also included the
financial statement schedule of the Company, listed in Item 15. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as whole, presents fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
Salt Lake City, Utah
May 15, 2003
61
MITY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 2003, 2002 AND 2001
Additions
Balance Charged
at to Costs Deductions Balance
Beginning and from at End
of Period Expenses Reserves of Period
--------- --------- ---------- ----------
ACCOUNTS RECEIVABLE ALLOWANCE:
Year ended:
March 31, 2003 $ 346,000 $ 77,000 $ 188,000 $ 235,000
March 31, 2002 302,000 73,000 29,000 346,000
March 31, 2001 287,000 128,000 113,000 302,000
INVENTORY RESERVES:
Year ended:
March 31, 2003 $ 50,000 - $ 22,000 $ 28,000
March 31, 2002 25,000 $ 25,000 - 50,000
March 31, 2001 5,000 20,000 - 25,000
RESERVES ON NOTES RECEIVABLE
Year Ended:
March 31, 2003 $ 110,000 $ 805,000 $ 735,000 $ 180,000
March 31, 2002 - 110,000 - 110,000
March 31, 2001 - - - -
62
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Orem, State of Utah, on the 22nd of
May, 2003.
MITY ENTERPRISES, INC.
By:/s/ Bradley T Nielson
-----------------------------
Bradley T Nielson, President,
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature Title Date
/s/ Gregory L. Wilson Chairman of the Board and May 22, 2003
- ------------------------- Director
Gregory L. Wilson
/s/ Bradley T Nielson President and Chief Executive May 22, 2003
- ------------------------- Officer (Principal Executive
Bradley T Nielson Officer)
/s/ Paul R. Killpack Chief Financial Officer May 22, 2003
- ------------------------- (Principal Financial and
Paul R. Killpack Accounting Officer)
/s/ Ralph E. Crump Director May 22, 2003
- -------------------------
Ralph E. Crump
/s/ Peter Najar Director May 22, 2003
- -------------------------
Peter Najar
/s/ C. Lewis Wilson Director May 22, 2003
- -------------------------
C. Lewis Wilson
/s/ Hal B. Heaton Director May 22, 2003
- -------------------------
Hal B. Heaton
63
CERTIFICATIONS
I, Bradley T Nielson, certify that:
1. I have reviewed this annual report on Form 10-K of MITY Enterprises,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
aterial information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 22, 2003 /s/ Bradley T Nielson
--------------------------------
Bradley T Nielson
Chief Executive Officer
64
I, Paul R. Killpack, certify that:
1. I have reviewed this annual report on Form 10-K of MITY Enterprises,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
aterial information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 22, 2003 /s/ Paul R. Killpack
------------------------------
Paul R. Killpack
Chief Financial Officer