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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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 December 31, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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- - -----
Commission File Number 0-23426
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REPTRON ELECTRONICS, INC.
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(Exact name of registrant as specified in its charter)
Florida 38-2081116
- - ------------------------------------------ -----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
14401 McCormick Drive, Tampa, Florida 33626
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 854-2351
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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 Each Class Name of Each Exchange on Which Registered
- - ------------------- -----------------------------------------
Common Stock, $.01 par value None
6 3/4 Convertible Subordinated Notes, due 2004 None
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
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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)
The aggregate market value of shares of the registrant's common stock
held by
non-affiliates of the registrant as of March 22 2000, was
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approximately $56,202,659.
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The number of shares of the registrant's common stock issued and
outstanding
as of March 22, 2000 was 6,167,119.
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Documents Incorporated by Reference:
Parts of the Company's definitive proxy statement for the Annual
Meeting of
the Company's Shareholders to be held on May 22, 2000 are incorporated
by
reference into Part III of this Form.
REPTRON ELECTRONICS, INC.
FORM 10-K
Fiscal Year ended December 31, 1999
Item
Number in
Form 10-K PART I Page
- - --------- ----
1. Business............................................. 1
2. Properties........................................... 13
3. Legal Proceedings.................................... 14
4. Submission of Matters to a Vote of Security Holders. 14
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters......................... 15
6. Selected Financial Data............................. 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 17
7a. Quantitative and Qualitative Disclosures about
Market Risk......................................... 21
8. Financial Statements and Supplementary Data......... 21
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............. 21
PART III
10. Directors and Executive Officers of the Registrant.. 21
11. Executive Compensation.............................. 21
12. Security Ownership of Certain Beneficial Owners
and Management...................................... 21
13. Certain Relationships and Related Transactions...... 21
PART IV
14. Exhibits, Financial Statements, Schedule,
and Reports on Form 8-K............................. 22
PART I
This document contains certain forward-looking statements that
involve
a number of risks and uncertainties. Such forward-looking statements
are
within the meaning of that term in Section 27A of the Securities Act
of
1933, as amended and Section 21E of the Securities Exchange Act of
1934, as
amended. Factors that could cause actual results to differ materially
include the following: business conditions and growth in Reptron's
industry
and in the general economy; competitive factors; risks due to shifts
in
market demand; the ability of Reptron to complete acquisitions; and
the
risk factors listed from time to time in Reptron's reports filed with
the
Securities and Exchange Commission as well as assumptions regarding
the
foregoing. The words "believe", "plans", "estimate", "expect",
"intend",
"anticipate", and similar expressions and variations thereof identify
certain of such forward-looking statements, which speak only as of the
dates on which they were made. Reptron undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise. Readers are
cautioned that any such forward-looking statements are not guarantees
of
future performance and involve risks and uncertainties, and that
actual
results may differ materially from those indicated in the forward-
looking
statements as a result of various factors. Readers are cautioned not
to
place undue reliance on these forward-looking statements.
Item 1. Business
General
Reptron Electronics, Inc. ("Reptron") is one of the leading
electronics
manufacturing supply chain services company providing demand creation
distribution of electronic components, custom logistics and supply
chain
management services, engineering services, display integration
services and
electronic manufacturing services through its three business units,
Reptron Distribution, K-Byte Manufacturing and Applied Instruments.
These business units, although operated independently, are
complimentary,
enabling Reptron to provide customers with a wide range of products
and
value-added services, as well as a single source for their product,
material
logistics, engineering, assembly and test requirements. Reptron
believes
that its approach of total customer solutions serving the supply chain
needs
of its customers distinguishes it in the electronics industry,
provides a high
level of value to its customer base and enables it to obtain sole
source
relationships with an increasing number of its customers. As a result
of
Reptron's business strategy, it has increased net sales from
approximately
$164.0 million in 1994 to $359.2 million in 1999.
Reptron was incorporated under the laws of Michigan in 1973 and
reincorporated under the laws of Florida in 1993. Reptron's principal
executive offices are located at 14401 McCormick Drive, Tampa, Florida
33626, and its telephone number is (813) 854-2351.
The Electronics Distribution and Contract Manufacturing Industry
Distribution. Most manufacturers of electronics components rely
on
independent distributors, such as Reptron, to extend their marketing
operations. As a stocking, marketing and financial intermediary, a
distributor relieves the manufacturer of part of the costs associated
with the stocking and selling of its products, including otherwise
potentially sizeable investments in inventories, accounts receivable
and
personnel. At the same time, the distributor offers to a broad range
of
customers the convenience of diverse inventory, flexible deliveries
and a wide range of value-added services to help manage material
procurement requirements. The growth of the electronic component
distribution industry has been fueled by the growing number of
electronic component manufacturers that view their distributors as
essential extensions of their marketing organizations and
by customers who recognize the value that distributors add to the
total material procurement process.
In recent years, two important trends have developed recently
in the U.S. electronic component distribution industry. First,
manufacturers of electronic components are reducing the number of
distributors who are authorized to sell their products, while
maintaining or growing their respective market share. Consequently,
the reduced number of authorized distributors must be able to
service the market historically addressed by the previous and
larger pool of distributors. This trend is the result of the need
for original electronic component manufacturers to reduce their
operating costs. Engaging a smaller number of distributors allows
the manufacturer to reduce support staff.
3
A second trend in the industry is the increasing percentage of
distribution sales associated with value-added services. This trend
is the result of original equipment manufacturers ("OEMs") need
to reduce their operating costs. By interacting with distributors
through the use of in-plant stores, automated inventory replenishment
systems utilizing traditional electronic data interchange ("EDI")
or the emerging e-commerce technology and outsourcing of product
assembly, among other actions, OEMs may reduce their total materials
acquisition cost. The distributor assumes a larger role in the
management of the supply chain in these types of engagements.
Electronics Manufacturing Services ("EMS"). The EMS industry has
experienced rapid growth over the past several years as an increasing
number of OEMs have chosen to outsource to electronics manufacturing
specialists such as K-Byte Manufacturing for the assembly of printed
circuit board assemblies and Applied Instruments for display products,
integration and assembly. As a result of outsourcing manufacturing
services, industry sources estimate that the electronics manufacturing
industry has grown at an average annual rate of 25%. Factors driving
OEMs to favor outsourcing to electronics manufacturing
specialists include:
- Reduced Time to Market. Because of the intense competitive
pressures and rapidly progressing technology in the electronics
industry, OEMs are faced with increasingly short product life-cycles
and therefore have a growing need to reduce the time required to
bring a product to market. OEMs can reduce their time to market
by using a electronics manufacturer's established manufacturing
expertise and infrastructure.
- Minimized Capital Investment. As electronic products have
become more technologically advanced, the manufacturing process
has become increasingly automated and highly intricate, and
manufacturers have had to invest in new capital equipment at an
accelerated rate. By outsourcing to electronics
manufacturing specialists, OEMs are able to lower their investment
in inventory, facilities and equipment, thereby enabling them to
allocate capital to other activities such as sales and marketing
and research and development.
- Focused Resources. Because the electronics industry is
experiencing greater levels of competition and more rapid
technological change, many OEMs increasingly seek to focus
their resources on activities and technologies that add greater
value. By offering turnkey manufacturing services and comprehensive
electronic assembly, electronics manufacturing specialists permit
OEMs to focus on their core business activities, such as product
development, marketing and distribution.
- Access to Leading Edge Manufacturing Technology. Electronic
products and electronics manufacturing technology have become
increasingly sophisticated and complex. OEMs desire to work with
electronics manufacturing specialists in order to gain access to their
technological expertise in process development and control.
- Improved Inventory Management and Purchasing Power. Electronics
industry OEMs are faced with increasing difficulties in planning,
procuring and managing their inventories efficiently due to frequent
design changes, short product life-cycles, large investments in
electronic components, component price fluctuations and the need
to achieve economies of scale in materials procurement. Electronics
manufacturing specialists are able to manage both procurement and
inventory, and have demonstrated proficiency in purchasing
components at improved pricing.
Strategy
Reptron's principal business objective is to expand its presence
as a leading electronics supply chain services company. In order to
implement its objective, Reptron has formulated a strategy based upon
the following key elements:
- Continue to Leverage Complimentary Businesses. Reptron operates
as an electronics supply chain services company that provides
value-added distribution of electronic components and targeted
electronics manufacturing services. Reptron Distribution emphasizes
its value-added services as a method to lower the customer's total
material acquisition costs. K-Byte Manufacturing provides
turnkey manufacturing, including materials management, board
assembly and post production testing. Applied Instruments provides
design engineering and
4
systems integration of display solutions, including turnkey
manufacturing and testing. These three business units, although
operated independently,are complimentary, enabling Reptron to provide
customers with a wide range of products and value-added services,
as well as a single source for their product, material, logistics,
engineering, and assembly and test requirements.
- Increase Sales from Value-Added Services. Reptron seeks to
enhance sales by providing total customer solutions through its
value-added services. Reptron Distribution has developed a
comprehensive value-added service offering which includes inventory
control programs (e.g., bonded, consigned, just-in-time), in-plant
stores, automated inventory replenishment systems utilizing EDI and
other e-commerce technology, custom supply chain logistics services,
component programming, custom display solutions (through Applied
Instruments) and electronics manufacturing (through K-Byte
Manufacturing). These value-added programs allow the OEMs to reduce
their total acquisition costs for materials. An increasing percentage
of industry sales are being generated from value-added engagements and
management believes Reptron is well positioned to capitalize on this
trend. In 1999, approximately 25% of Reptron Distribution sales were
generated through value-added services.
- Target Manufacturing Customers in Specific Market Segments.
K-Byte Manufacturing follows a well-defined strategy in its EMS
business. K-Byte Manufacturing focuses on complex assemblies in
low-to-medium volumes for commercial and industrial customers.
Additionally, K-Byte Manufacturing seeks customers that will utilize
its ability to assemble customers' products by integrating printed
circuit board assemblies into other elements of the customers'
products (sometimes referred to as total "box build"). K-Byte
Manufacturing also seeks customer relationships in which K-Byte
Manufacturing is the primary source and avoids engagements requiring
an overflow supplier. K-Byte Manufacturing targets customers in a
variety of industries to establish diversity among customers and
industries served.
- Leverage Investments Made in its Manufacturing Facilities.
Reptron has invested in facilities that will allow it to expand its
business. Reptron believes its combined manufacturing facilities,
including Hibbing Electronics Corporation ("Hibbing") can accommodate
approximately $300 million in annual contract manufacturing net sales
based on the types of business currently transacted by K-Byte
Manufacturing. K-Byte Manufacturing's 1999 combined sales totaled
approximately $159 million. Consequently, there is
substantial capacity to support future sales growth.
- Expand Through Business Combinations and Internal Growth.
Reptron
seeks to expand its operations by further enhancing its supply chain
services offerings through the addition of services such as power
supply
integration and cable and harness assembly. Further, Reptron believes
that significant opportunities exist to expand its operations into
geographic areas that it currently does not serve and to increase its
presence in existing markets. This expansion of services and presence
can be attained through business combinations, by opening new sales
offices or by creating new business operations.
Recent Developments
On October 27, 1999, Reptron completed its acquisition of Applied
Instruments, of Fremont, California. Founded in 1987, Applied
Instruments provides display design engineering, systems integration
and turnkey manufacturing services to its OEM customers. Applied
Instruments has approximately 65 employees and generated approximately
$18 million in net sales in 1999. The transaction was recorded as an
asset purchase. At closing, Reptron paid $7.5 million cash and
assumed, among other stated liabilities, $1.4 million of bank debt.
Additional purchase consideration will be paid in annual installments
over the next three years based upon Applied Instruments performance.
Each of the annual installments cannot exceed $3.5 million.
Certain Considerations
Dependence upon Key Vendors. Many of the components distributed
by
Reptron Distribution are currently manufactured by a relatively small
number of independent vendors. Four vendors collectively accounted
for
approximately 34.2% and 32.0% of Reptron Distribution's net sales in
1999
and 1998, respectively (18.9% and 16.6% of Reptron's total 1999 and
1998
5
net sales, respectively). Reptron does not have long-term
distribution
contracts with its vendors. These contracts are non-exclusive and
typically are cancelable upon 30 days written notice.
Additionally, management believes that vendors are consolidating their
distribution relationships. Reptron's future success will depend, in
large part, on maintaining its vendor relationships. The loss of, or
significant disruptions in the relationship with, one or more of
Reptron's principal vendors could have a material adverse effect on
Reptron's future operating results. See "Reptron Distribution -
Vendors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Customer Concentration and Other Factors Affecting Operating
Results.
Reptron's business units have certain customers that account for a
significant part of their respective net sales. Reptron
Distribution's ten largest customers collectively represented 25.4%
of its net sales in both 1999 and in 1998 (14.0% and 13.2% of
Reptron's total net sales in 1999 and 1998, respectively). K-Byte
Manufacturing currently transacts business with approximately 83
customers with the largest three customers accounting
for approximately 11.1%, 7.7% and 6.9% of its net sales in 1999,
respectively, and 10.0%, 9.8% and 7.1% of its net sales in 1998,
respectively, (5.0%, 3.4% and 3.1% of Reptron's total net sales
in 1999, respectively, and 4.8%, 4.7% and 3.4% of Reptron's total
net sales in 1998, respectively). Applied Instruments transacted
business with approximately 10 customers in 1999 with total sales
less than 2% of Reptron's total net sales. The loss of one or more
of these major customers, or a reduction in their level of purchasing,
could have a material adverse effect on Reptron's business, results
of operations and financial condition. K-Byte Manufacturing's
operating results are affected by a number of factors, including
fixed plant utilization, price competition, K-Byte's ability to keep
pace with technological developments, the degree of automation that
can be used in an assembly process, efficiencies that can be achieved
by K-Byte in managing inventories and fixed assets, the timing of
rders from major customers, the timing of capital expenditures in
anticipation of increased sales, incurring substantial start-up costs
on new assemblies, customer product delivery requirements and
increased costs and shortages of components and labor. In addition,
because of the limited number of K-Byte Manufacturing's customers and
the corresponding concentration of its accounts receivable, the
insolvency or other inability or unwillingness of its customers to
pay for manufacturing services could have a material adverse effect
on Reptron's operating results. See - "Reptron Distribution -
Marketing and Customers" and "K-Byte Manufacturing - Marketing and
Customers."
Integration of Applied Instruments Acquisition. The successful
integration of Applied Instruments will depend upon several factors
including: (i) maintaining significant customers previously serviced
by Applied Instruments, (ii) maintaining key management of Applied
Instruments, and (iii) the ability to leverage the Reptron
Distribution sales force for future customers. There can be no
assurance that the expected benefits of this acquisition will be
realized or that this acquisition will not adversely affect the future
operating results of Reptron.
The Volume and Timing of Customer Sales May Vary. The volume and
timing of purchase orders placed by K-Byte Manufacturing's customers
are affected by a number of factors, including variation in demand for
customers' products, customer attempts to manage inventory and changes
in the customers' manufacturing strategies. K-Byte Manufacturing
typically does not obtain long-term purchase orders or commitments
but instead works with its customers to develop nonbinding forecasts
of future requirements. Based on such nonbinding forecasts, K-Byte
Manufacturing makes commitments regarding the level of business
that it will seek and accept, the timing of production schedules and
the levels and utilization of personnel and other resources. A
ariety of conditions, both specific to each individual customer and
generally affecting each customer's industry, may cause customers
to cancel, reduce or delay orders that were either previously
made or anticipated. Generally, customers may cancel, reduce or
delay purchase orders and commitments without penalty, except for
payment for services rendered, materials purchased and, in certain
circumstances, charges associated with such cancellation, reduction
or delay. Significant or numerous cancellations, reductions or delays
in orders by customers, or any inability by customers to pay for
services provided by Reptron or to pay for components and materials
purchased by Reptron on such customers' behalf, could have a material
adverse effect on Reptron's operating results.
Competition; Effects on Gross Margin. Reptron faces substantial
competition. Many of Reptron's competitors have international
operations and significantly greater manufacturing, financial,
marketing and research and development resources and broader name
recognition. Reptron Distribution faces competition from hundreds
of electronic component distributors of various sizes, locations
and market focuses (e.g., military, commercial, consumer) and competes
principally on the basis of product selection, reputation and customer
service. Vendor
representation and product diversity create segmentation among
distributors. Reptron Distribution has several primary competitors
that carry similar lines.
6
K-Byte Manufacturing and Applied Instruments compete in a highly
fragmented market composed of a diverse group of EMS providers.
Reptron believes that the key competitive factors in its markets are
manufacturing flexibility, price, manufacturing quality, advanced
manufacturing technology and reliable delivery. Additionally, K-Byte
Manufacturing faces the potential risk that its customers may elect
to produce their products internally thereby, eliminating
manufacturing
opportunities for K-Byte Manufacturing. There can be no assurance
that Reptron will be able to continue to compete effectively with
existing or potential competitors. In addition, gross margins in
the businesses in which Reptron compete have experienced fluctuation
depending upon market forces. See " - Competition."
Availability of Components. Reptron relies on third-party
suppliers for electronic components. Component shortages may have
a material adverse effect on Reptron's ability to service its
customers. At various times, there have been shortages of components
in the electronics industry and from time to time the supply of
certain
electronic components is subject to limited allocations. Many types
of
electronic components are currently on allocation from manufacturers
as overall demand is exceeding available supply. If shortages of
these or other components should continue to occur, Reptron may be
forced to delay shipment or to purchase components at higher prices
(that may not be able to be passed on to its customers), which may
have a material adverse effect on customer demand, Reptron's ability
to service customer needs or gross margins.
Any of these events could have a material adverse effect on Reptron's
operating results.
Dependence Upon Key Personnel. The success of Reptron to date
has been largely dependent upon the efforts and abilities of
Reptron's key managerial and technical employees. The loss of the
services of certain of these key employees or an inability to attract
or retain qualified employees could have a material adverse effect on
Reptron.
Management of Growth. Reptron has grown rapidly in recent years,
with combined net sales increasing from approximately $164.0 million
in 1994 to approximately $359.2 million in 1999. The ability to
continue this growth rate will depend upon several factors,
including Reptron's ability to recruit, train and retain a skilled
workforce to support its expanding operations. There can be no
assurance that Reptron will be able to sustain its historic rates
of net sales growth, develop the required workforce or manage any
future growth successfully. See "-Reptron
Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Volatility of Component Pricing. Reptron Distribution sells a
significant amount of commodity-type components that have
historically experienced volatile pricing. These components
include dynamic random access memory ("DRAM") and static random
access memory ("SRAM") products. If market pricing for these
components decreases significantly, Reptron may
experience periods when its investment in component inventory
exceeds the market price of such components. Such market conditions
could have a negative impact on sales and gross profit margins.
Most of the components sold through the memory module division
are not supplied under distribution agreements and consequently,
this inventory is not subject to those contractual protections
afforded under standard distribution agreements. See "-Reptron
Distribution - Vendors."
7
Reptron Distribution
Reptron was founded in 1973 in Detroit as a distributor of
electronic components. From 1973 through 1989, Reptron expanded
its operations by opening nine sales offices in the midwestern
and southeastern U.S. Additionally, sales offices were added
through a series of acquisitions: Reptron Distribution now
operates from 22 sales offices that allow Reptron to market to
over 85% of the total available electronic components market
in the U.S.
Products. Reptron Distribution represents over 60 vendor
lines and distributes more than 45,000 separate items. The products
that Reptron distributes can be broadly divided into three
main groups: semiconductors, passive products and electromechanical
components.
Semiconductors accounted for approximately 71% of Reptron
Distribution's net sales in 1999. Reptron Distribution's product
offering includes application specific integrated circuits
("ASICs"), flat panel displays, a variety of memory devices
(e.g., dynamic, static, programmable) and microprocessors and
controllers produced by over 25 vendors. Reptron represents a
number of leading semiconductor manufacturers, including
Hitachi, Sharp, OKI, and Samsung. Passive products and
electromechanical components accounted for the remaining 29% of
net sales of Reptron Distribution in 1999. Among these components
are capacitors, resistors, relays, power supplies and connectors
manufactured by over 35 vendors, such as Astec, Dale/Vishay,
Potter & Brumfield and Sprague/Vishay. Reptron Distribution's
largest four vendor lines represented 32.9% of Reptron Distribution's
net sales in 1999 (18.9% of Reptron's total net sales in 1999).
See "Certain Considerations-Dependence Upon Key Vendors."
Reptron Distribution's Memory Module division is devoted
solely to selling memory modules. This Memory Modules division
employs a separate sales and support staff that focuses on a different
market niche and customer base than is serviced by Reptron
Distribution. This division sells primarily to computer
integrators, retail stores, internet retailing and value-added
resellers. Sales in this niche are generally characterized by higher
volumes, lower gross profit margins and lower selling, general and
administrative expenses than other electronic component sales
generated by Reptron Distribution. Sales from the memory module
division accounted for 13.4% and 12.7% of Reptron Distribution's
net sales in 1999 and 1998, respectively (7.4% and 6.6% of
Reptron's total net sales in 1999 and 1998, respectively).
Services. Reptron Distribution sells to approximately 7,000
customers representing diverse industries including: robotics,
telecommunications, computers and computer peripherals, consumer
electronics, healthcare, industrial controls and contract
manufacturing. Services provided to these customers include
component sales, inventory replenishment programs, in-plant stores,
component programming and EDI, and other internet based
communications. During 1999 and 1998, approximately 26% and 31%,
respectively, of Reptron Distribution's net sales were generated
through these value-added services. Reptron believes that an
increasing percentage of Reptron Distribution's net sales will be
generated through its value-added services as customers continue
to search for ways to reduce costs. Reptron has invested
significantly in information technology and support staff to help
increase net sales from value-added services. For its vendors,
Reptron Distribution has developed product promotion and customer
identification programs that help vendors build recognition of
individual products and target and market to specific types of
customers.
Vendors. In selecting vendors to represent, Reptron Distribution
considers numerous factors, including product demand, availability
and compatibility with existing product lines. Reptron Distribution
has non-exclusive, geographically limited agreements with its
vendors for the sale of their products, which is customary in the
industry. Reptron Distribution's agreements with vendors do not
restrict Reptron from selling similar products manufactured by its
vendors competitors, and typically allow termination by either
party upon 30 to 90 days' notice.
Reptron Distribution's franchised vendors generally protect
Reptron
against potential write-downs of inventories based upon vendors' price
reductions or technological change. Under the terms of most of
Reptron
Distribution's franchised distributor agreements, if Reptron complies
with certain conditions, the vendor is required, pursuant to price
protection privileges, to credit Reptron for decreases in inventory
value resulting from reductions in the vendor's list prices of the
items. In addition, under the stock rotation terms of Reptron
Distribution's franchised distributor agreements, Reptron has the
right to return to the vendor for credit against current obligations
or future orders, a specified portion of those inventory items
purchased within a designated period. A vendor that elects to
8
terminate a distributor agreement is generally required to purchase
from Reptron the total amount of its products carried in inventory.
Reptron believes that its distributor agreements are on terms and
conditions consistent with industry standards. Most of the
components sold through the Memory Module division are not
supplied under distribution agreements with Reptron's vendors,
and consequently, this inventory is not subject to the price
protection and stock rotation privileges.
Marketing and Customers. Reptron Distribution has developed a
focused sales strategy. Large key accounts are identified in
each market and field sales personnel are assigned to serve
these accounts directly. All other customers in each market
are served by a corporate sales team which operates from Reptron's
corporate headquarters. The corporate sales team
also services customers in regions of the country where Reptron
does not have a sales office.
Reptron Distribution has approximately 7,000 customers located
throughout the United States. Reptron Distribution's customers
are in diverse industries, including robotics, telecommunications,
computers and computer peripherals, consumer electronics, healthcare,
industrial controls and contract manufacturing.
Property and Offices. Reptron owns a 77,500 square-foot
facility in Tampa, Florida, which houses centralized division
support personnel, the corporate sales team, management staff
and executive offices for Reptron Distribution. Reptron
Distribution's main warehouse is located in a portion
of a 150,000-square foot facility located adjacent to Reptron's
Tampa headquarters. Substantially all Reptron Distribution shipments
Originate from this warehouse. Reptron leases 22 office suites
serving
as sales offices for Reptron Distribution. These offices average
approximately 2,000 square feet in size and contain a small space for
warehousing of inventory and sales materials. Lease terms on
these facilities range from three to five years and expire at
various dates through August 2004. One of these facilities,
located in the Detroit area, is owned by the chief
executive officer of Reptron. The table below shows the location
of each office and the date it was established.
Office Date Established
Detroit, Michigan 1973
Chicago, Illinois 1979
Tampa, Florida 1982
Atlanta, Georgia 1985
Ft. Lauderdale, Florida 1985
Minneapolis, Minnesota 1986
Cleveland, Ohio 1988
Huntsville, Alabama 1988
Raleigh, North Carolina 1989
Philadelphia, Pennsylvania 1993
Baltimore, Maryland 1993
San Jose, California 1994
Boston, Massachusetts 1995
Hartford, Connecticut 1995
Hauppauge (Long Island), New York 1995
Irvine, California 1995
Los Angeles, California 1995
Portland, Oregon 1995
San Diego, California 1995
Seattle, Washington 1995
Salem, New Hampshire 1996
Dallas, Texas 1997
K-Byte Manufacturing
Reptron entered into the electronic manufacturing services
business through its acquisition of K-Byte Manufacturing in 1986.
K-Byte Manufacturing's net sales have grown from approximately
$2 million in 1986 to $159 million in 1999.
9
Manufacturing Operations. K-Byte Manufacturing provides turnkey
manufacturing services, including the purchase of customer-specified
components from its extensive network of component suppliers
(including Reptron Distribution), assembly of components on
printed circuit boards and performance of post production testing.
In addition, total box build assembly generated approximately
19.6% of K-Byte Manufacturing's 1999 net sales. K-Byte
Manufacturing attempts to perform as much of a given
manufacturing process as is feasible and generally does not perform
labor-only, consignment assembly functions unless management
believes that such engagements may provide a direct route to
turnkey contracts.
K-Byte Manufacturing provides design-for-manufacturability
engineering services as well as surface mount technology ("SMT")
conversion and pin through hole ("PTH") interconnection
technologies and printed circuit board layout services for existing
products. K-Byte Manufacturing also provides test process design
capabilities that include the design and development of
test fixtures and procedures and software for both in-circuit
tests and functional tests of circuit boards, components and products.
SMT is a computer-automated process that allows the placement
of a higher density of components directly on both sides of a printed
circuit board. The SMT process is more advanced than the PTH
technology which normally permits electronic components to be
attached to only one side of a printed circuit board by inserting
components into holes drilled through the board.
The SMT process allows OEMs to use advanced circuitry, while at
the same time permitting the placement of a greater number of
components on a printed
circuit board without having to increase the size of the board.
By allowing increasingly complex circuits to be packaged with the
components placed in closer proximity to each other, SMT greatly
enhances circuit processing speed and thus board and system
performance.
The SMT process allows a reduction in the number of printed circuit
boards required per system and allows the use of more fully automated
production processes.
K-Byte Manufacturing performs PTH assembly both manually and
with computer-automated component insertion and soldering equipment.
Although SMT is the leading interconnection technology, K-Byte
Manufacturing intends to continue providing PTH assembly services
for its customers. PTH is of continuing viability because most
printed circuit boards assembled using SMT require some PTH
assembly. In addition, certain current and prospective customers
have not shifted or do not wish to change their
manufacturing process to utilize SMT.
K-Byte Manufacturing is able to efficiently manage its materials
procurement and inventory management functions. The inherent
scheduling
and procurement challenges in low-to-medium volume production of a
large
number of different circuit board assemblies requires a high level of
expertise in material procurement. K-Byte Manufacturing obtains its
electronic components from a wide variety of manufacturers and
distributors, some of which are procured through Reptron Distribution.
Marketing and Customers. K-Byte Manufacturing follows a well-
defined
marketing strategy, which includes the following key elements:
- Target Customers Requiring Low-to-Medium Volume Production of
Multiple
Products. K-Byte Manufacturing focuses on complex assemblies in low-
to-
medium volumes for customers primarily in the telecommunications,
healthcare, industrial/instrumentation, banking and office products
industries. K-Byte Manufacturing does not manufacture high volume
printed
circuit board assemblies for the personal computer, consumer products
or
automotive industries. K-Byte Manufacturing targets customers
requiring a
high number of different circuit board assemblies, thereby seeking to
minimize its exposure to any one product made for a specific customer.
K-
Byte Manufacturing focuses on the low-to-medium volume batch business
because of its reduced volatility. K-Byte Manufacturing gains access
to a
significant number of these kinds of customers through its
relationship
with Reptron Distribution and the efforts of its direct sales force.
Additionally, K-Byte Manufacturing is still expanding its market and
customer development through independent sales representatives.
- Target Customer Relationships where K-Byte Manufacturing is the
Primary Source. K-Byte Manufacturing seeks engagements with customers
that have decided to strategically outsource substantially all circuit
board assembly. Consequently, K-Byte Manufacturing markets its
services
as a "partnership" with the customer and encourages the customer to
view
K-Byte Manufacturing as an extension of its own manufacturing
capabilities.
10
K-Byte Manufacturing attempts to avoid relationships where K-Byte
Manufacturing is used as an overflow supplier to manage volume
requirements.
- Maintain a Diverse Customer and Industry Base. K-Byte
Manufacturing
targets customers primarily in the telecommunications, healthcare,
industrial/instrumentation, banking and office products industries and
seeks to maintain a diversity of customers among these industries and
within each industry. In addition, K-Byte Manufacturing believes that
the
industries that it targets make products that generally have longer
life
cycles, more stable demand and less price pressure compared to
consumer
oriented products. Nevertheless, K-Byte Manufacturing's customers
from
time to time, experience downturns in their respective businesses
resulting
in fluctuations in demand for K-Byte Manufacturing's services. See
"-Certain Considerations - The Volume and Timing of Customer Sales may
Vary."
The marketing cycle for customers meeting these criteria typically
spans six-to-twelve months. Additionally, the start-up phase for an
engagement may run an additional six months. Typically, during this
phase,
significant investments are made by K-Byte Manufacturing and the
customer
to successfully launch a high number of different, complex circuit
board
assemblies. K-Byte Manufacturing works closely with its customers in
all
phases of design, start-up and production, and through this
cooperative
effort develops a close working relationship with the customer. These
relationships, and the investments made both in time and financial
resources by the customer and K-Byte Manufacturing, promote long-term
customer loyalty. K-Byte Manufacturing intends to deploy a broad
marketing
approach which includes the Reptron Distribution sales force,
manufacturers' sales representatives and a direct sales force.
K-Byte Manufacturing seeks to maintain diversity within its
customer
base and industries served. During 1999, K-Byte Manufacturing had
approximately 83 principal customers, with the largest three customers
representing 11.1%, 7.6% and 6.8% of K-Byte Manufacturing's 1999 net
sales (5.0%, 3.4% and 3.1% of total Reptron net sales). During 1998,
K-Byte Manufacturing had 89 principal customers, with the largest
three
customers representing 10.0%, 9.8% and 7.1% of K-Byte Manufacturing's
1998 net sales (4.8%, 4.7% and 3.4% of total Reptron net sales). The
following table sets forth the number of principal customers and
percentage
of K-Byte Manufacturing sales derived from various industries for 1998
and 1999.
1998 1999
Industry Customers % of Sales Customers % of
Sales
- - ------------------------- --------- ---------- --------- --------
- - --
Telecommunications 15 27.1% 19 16.9%
Healthcare 17 27.0% 17 22.1%
Industrial/Instrumentation 39 24.5% 41 31.0%
Banking 2 12.1% 2 9.4%
Office Products 9 5.6% 10 15.3%
Other 7 3.7% 4 5.3%
Manufacturing Facilities. K-Byte Manufacturing operates three
plants.
The Gaylord, Michigan 72,000 square foot manufacturing facility is
owned by
Reptron and was constructed in 1988. The Tampa, Florida 150,000
square
foot manufacturing and warehouse facility is owned by Reptron and was
completed in the first quarter of 1997. Hibbing leases a five
building
manufacturing campus in Hibbing, Minnesota, which totals 110,000
square
feet. These buildings are owned in part by four individuals on the
Hibbing's senior management team. These manufacturing facilities are
equipped with advanced SMT assembly equipment and PTH insertion
equipment.
K-Byte Manufacturing has a variety of automated and manual test
equipment
capable of performing in-circuit and functional testing, as well as a
skilled staff of technicians who perform customer-specific or
product-specific testing requirements.
The Tampa, Florida manufacturing plant accounted for approximately
26%
of K-Byte Manufacturing's 1999 net sales, with the Gaylord, Michigan
plant
totaling approximately 29% of 1999 net sales and the Hibbing
manufacturing
plant accounting for the remaining 43% of 1999 net sales.
11
Applied Instruments
On October 27, 1999, Reptron completed its acquisition of Applied
Instruments, of Fremont, California. Founded in 1987, Applied
Instruments
provides display design engineering, systems integration and turnkey
manufacturing services to its OEM customers. Applied Instruments has
approximately 65 employees and generated approximately $2.2 million in
net
sales in 1999 since the acquisition.
Manufacturing Operations. Applied Instruments provides superior
display design engineering and system integration of custom turnkey
industrial computer based products, system integration, video display
solutions (both CRT and flat panel technology) and outsource
manufacturing
resources to OEM clients.
Applied Instruments has extensive resources and capabilities for
the
design of custom turnkey products and solutions as well as in-depth
expertise of flat panel display video interfacing with both analog and
digital LCDs. Applied Instruments has introduced its new "Raptor II"
microprocessor-based LCD interface board. This board is used in
Applied's
own integration projects and is also marketed through several of the
larger distributors of flat panel displays in the United States.
Manufacturing Facilities. Applied Instruments operates from a
40,000
square foot facility in Fremont, California. This facility houses the
production staff, engineering group and senior staff of Applied
Instruments. Additionally, within this facility are both custom clean
rooms and burn-in chambers necessary to accommodate various customer
needs.
Marketing and Customers. Applied Instruments is committed to
providing
the highest quality design, manufacturing and system integration of
custom
turnkey products through their professional engineering personnel and
highly trained production staff. This group of dedicated people is
trained
to design quality into the manufacture of their customers' products.
Applied Instruments' customers include major corporations in the
medical
diagnostics, semiconductor robotic equipment, industrial automation,
and
in-flight entertainment markets.
During 1999, Applied Instruments had approximately 13 principal
customers with the largest three customers representing 33.3%, 24.2%
and 15.7% of Applied Instruments' 1999 net sales (and less than 2% in
total of Reptron's total net sales).
Competition
Reptron faces substantial competition. Many of Reptron's
competitors
in each division have international operations and significantly
greater
manufacturing, financial, marketing and research and development
resources
and broader name recognition than Reptron. Reptron Distribution faces
competition from hundreds of electronic component distributors of
various
sizes, locations and market focuses (e.g. military, commercial,
consumer)
and competes principally on the basis of product selection and value-
added
customer service. Vendor representation and product diversity create
segmentation among distributors. Reptron Distribution has several
primary
competitors that carry similar significant Asian semiconductor
vendors,
as well as competitors who manufacture electronic components
domestically.
Reptron Distribution attempts to differentiate itself from these
competitors through its wide offering of value-added services,
including
electronics manufacturing services through K-Byte Manufacturing and
Applied Instruments.
K-Byte Manufacturing competes in a highly fragmented market
composed
of a diverse group of EMS providers. K-Byte Manufacturing
believes that the key competitive factors in its markets are
manufacturing flexibility, price, manufacturing quality, advanced
manufacturing technology and reliable delivery. Many EMS providers
operate high-volume facilities and focus on target markets, such as
the computer industry, that K-Byte Manufacturing does not seek to
serve.
K-Byte Manufacturing considers its key competitive advantages to
include
its expertise in low-to-medium volume, flexible batch processing, its
provision of value-added services and its material management
techniques.
Reptron believes that K-Byte Manufacturing's expertise in flexible,
batch processing differentiates it from its high-volume competitors
because of the relative complexity of economically fulfilling a large
number of batch contracts. Reptron believes that by focusing on
12
low-to-medium volume production runs, by manufacturing products using
Reptron Distribution's product line and by leveraging Reptron
Distribution's sales force and customer base, K-Byte Manufacturing
competes effectively.
See "- Certain Considerations-Competition; Effects on Gross Margin."
Applied Instruments competes in a highly fragmented market
composed
of a diverse group of display integration and electronic component
distributors that have strategic alliances with display integration
companies. Most of these competitors do not possess the engineering
capability and manufacturing expertise of Applied Instruments.
Reptron
believes that market reputation combined with a high degree of
technical
competency, has allowed Applied Instruments to compete very
effectively
in the marketplace.
Management Information Systems
Reptron has made significant investments in computer hardware,
software and MIS personnel. The Reptron Distribution, K-Byte
Manufacturing and Applied Instruments's MIS departments employ
approximately 32 individuals who are responsible for hardware
upgrades, maintenance of current software and related databases and
augmenting software packages with custom programming. Reptron
currently maintains an internet web page that provides a wide variety
of information, as well as, links to vendors and customers. Reptron's
expanded use of web based technologies include enhanced e-mail and
interactive use of the Reptron intranet for data warehouse
applications
such as quality documentation, human resources documentation,
MIS systems documentation and interactive corporate forms. Reptron
operates MIS departments within Reptron Distribution and K-Byte
Manufacturing with UNIX-based software packages written in a fourth
generation language.
The UNIX-based software packages used by Reptron Distribution and
K-Byte Manufacturing may be operated on a variety of hardware
platforms.
Therefore, neither division is restricted to the use of computer
hardware from any one supplier and do not have the constraints
associated with proprietary hardware or software.
Reptron Distribution operates an integrated distribution software
package that has been greatly enhanced with custom programming. This
system allows management to direct the entire Reptron Distribution
operation by connecting all 22 sales offices to the corporate
headquarters
K-Byte Manufacturing operates an integrated MRP II package which
has
also been greatly enhanced by its MIS staff through custom
programming.
This system is used to operate and integrate K-Byte's manufacturing
plants
with central administrative functions and is currently being
implemented
into the MIS system of Hibbing Electronics.
Applied Instruments operates on a newly acquired integrated
software
package, MAS90. This client-server software has minimal hardware
performance requirements and interfaces with a number of database
formats, allowing the flexibility of utilizing third-party reporting
tools.
Employees
As of March 15, 2000, Reptron employed 2,109 persons, of whom 412
were dedicated to Reptron Distribution, 1,620 were dedicated to K-Byte
Manufacturing, 65 were dedicated to Applied Instruments and 12 were
corporate employees. Hourly employees at the manufacturing plant in
Hibbing, Minnesota are covered under a collective bargaining agreement
with the International Brotherhood of Electrical Workers. The current
term of the collective bargaining agreement expires in September 2000.
Item 2. Properties
Reptron occupies a number of facilities located throughout the
United
States. Currently, it operates four manufacturing facilities, 22
sales
offices, one main warehouse and a corporate headquarters facility.
Owned facilities. Reptron owns a 77,500 square foot facility in
Tampa,
Florida which houses corporate personnel, management staff and
executive
offices for Reptron Distribution. The Tampa sales office and
corporate
13
sales operations for Reptron Distribution are also located in this
facility. Reptron also owns a 150,000 square foot facility located on
property adjacent to the corporate headquarters facility which the
Tampa
K-Byte Manufacturing plant and administrative offices and the main
Warehouse for Reptron Distribution occupy. Reptron also owns a
72,000 square foot K-Byte Manufacturing facility in Gaylord, Michigan,
which is subject to a mortgage of approximately $242,000.
Leased facilities. Reptron leases 22 office suites serving as
sales offices for Reptron Distribution. These offices average
approximately 2,000 square feet in size and contain a small space for
warehousing inventory and sales materials. Lease terms on these
offices range from three to five years and expire at various dates
through August, 2004. One of these locations, in the Detroit area, I
s owned by the Chief Executive Officer of Reptron.
Reptron also leases a total of 110,000 square feet of
manufacturing and administrative offices for the Hibbing manufacturing
operation. Lease terms on the buildings expire December, 2002.
These properties are owned, in part, by four individuals on the senior
management team of the Hibbing manufacturing operation.
Reptron also leases a total of 40,000 square feet of
manufacturing and administrative offices for the Applied Instruments
operation in Fremont, California. Lease terms on the buildings
expire July 31, 2004.
Item 3. Legal Proceedings
Reptron has received a demand alleging patent infringement from
the Lemelson Medical, Education & Research Foundation Limited
Partnership ("Lemelson"). Lemelson alleges that Reptron is infringing
upon patents held by Lemelson relating to its manufacturing processes.
Lemelson has asserted similar claims against other companies in
Reptron's industry, as well as against companies in other
industries. Lemelson has offered to license the patents alleged
to be infringed. Based on Reptron's understanding of the terms
that Lemelson has made available to other licensees, Reptron believes
that obtaining a license from Lemelson under the same or similar
terms would not have a material adverse effect on its results of
operations or financial condition. Reptron has not yet determined
whether to accept or seek such a license. However, if a license is
effectuated, Reptron cannot assure that its terms, or the ultimate
resolution of this matter, will not have a material adverse effect on
Reptron's operating results or financial condition.
Reptron is, from time to time, involved in litigation relating to
claims arising out of its operations in the ordinary course of
business.
Reptron believes that none of these claims, which were outstanding as
of
December 31, 1999, should have a material adverse impact on its
financial
condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Reptron's security holders
during the fourth quarter of the fiscal year ending December 31, 1999.
14
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Reptron's common stock is traded on The NASDAQ National Market
System
under the symbol "REPT". The following table sets forth, for the
periods
indicated, the high and low bid prices of the common stock as
reported by
the NASDAQ National Market System.
Fiscal 1998 High Low
---------- ---- ---
First Quarter $12 7/8 $10 3/8
Second Quarter $14 1/4 $ 9 1/2
Third Quarter $11 11/16 $ 4 1/2
Fourth Quarter $ 6 7/16 $ 3 7/8
Fiscal 1999 High Low
----------- ---- ---
First Quarter $ 5 1/2 $ 3 1/4
Second Quarter $ 4 3/4 $ 2 1/2
Third Quarter $ 7 1/2 $ 3 1/2
Fourth Quarter $ 8 7/8 $ 4 3/8
Fiscal 2000 High Low
----------- ---- ---
First Quarter (through March 22, 2000) $10 5/8 $ 7 5/8
On March 22, 2000 the last sale price of the common stock, as
reported
by The NASDAQ National Market System was $10 per share.
As of March 22, 2000, there were approximately 100 holders of
record
of Reptron's common stock and approximately 1,500 beneficial
shareholders.
Reptron has never declared or paid dividends on its common stock.
Reptron does not intend, for the foreseeable future, to declare or pay
any cash dividends and intends to retain earnings, if any, for the
future
operation and expansion of Reptron's business. Reptron's current line
of
credit prohibits the payment of dividends.
15
Item 6. Selected Financial Data
The following table summarizes selected financial data of the
Company
and should be read in
conjunction with Financial Statements and Notes thereto and
"Management's
Discussion and Analysis of Financial Condition and Results of
Operations"
included elsewhere herein.
Year Ended December 31,
-------------------------------------
- - ---------
1995 1996 1997
1998 1999
--------- --------- --------- ---
- - ------ ---------
(In thousands, except share and
per share data)
Operating Statement Data:
Net sales, Electronic Component
Distribution $ 140,146 $ 168,279 $ 187,267 $
156,507 $ 198,132
Net sales, Electronic Manufacturing
Services 83,198 100,658 116,644
146,282 161,085
--------- --------- --------- ----
- - ----- ---------
Total net sales $ 223,344 $ 268,937 $ 303,911 $
302,789 $ 359,217
========= ========= =========
========= =========
Gross profit, Electronic Component
Distribution $ 26,057 $ 34,214 $ 35,375 $
25,081 $ 34,525
Gross profit, Electronic Manufacturing
Services 13,531 17,382 18,780
12,847 17,249
--------- --------- --------- ---
- - ------ ---------
Total gross profit 39,588 51,596 54,155
37,928 51,774
Selling, general and administrative
expenses 26,011 34,770 38,154
51,206 55,902
--------- --------- --------- ---
- - ------ ---------
Operating income (loss) 13,577 16,826 16,001
(13,278) (4,128)
Interest expense, net 2,767 4,025 6,184
8,339 8,582
-------- --------- --------- ----
- - ----- ---------
Earnings (loss) before income
taxes 10,810 12,801 9,817
(21,617) (12,710)
Income tax provision (benefit) 4,324 5,148 3,677
(8,470) (4,703)
--------- --------- ---------
- - --------- ---------
Net earnings (loss) before
extraordinary item 6,486 7,653 6,140
(13,147) (8,007)
Extraordinary gain on extinguishment
Of debt, net - - -
- 12,776
--------- --------- ---------
- - --------- ---------
Net earnings (loss) $ 6,486 $ 7,653 $ 6,140
$
(13,147) $ 4,769
========= ========= =========
========= =========
Net earnings (loss) per share
- basic $ 1.07 $ 1.26 $ 1.01
$ (2.15) $ .78
========= ========= =========
========= =========
Weighted average number of shares
used in computing above amounts 6,046,159 6,058,889 6,077,084
6,118,023 6,151,563
========= ========= =========
========= =========
Net earnings (loss) per share
- diluted $ 1.05 $ 1.24 $ .98
$ (2.15) $ .78
========= ========= =========
========= =========
Weighted average number of shares
used in computing above amounts 6,163,094 6,179,458 6,247,040
6,118,023 6,151,563
========= ========= =========
========= =========
December
31,
---------------------------------
- - ------------------------
1995 1996 1997
1998 1999
--------- --------- ---------
- - --------- ---------
(In
thousands)
Balance Sheet Data:
Working capital $ 75,629 $ 77,231 $ 137,572
$ 101,829 $ 95,677
Total assets 133,738 138,632 222,514
210,084 215,853
Long-term obligations, including
current portion 65,110 67,345 133,693
133,163 119,797
Shareholders' equity 40,948 48,690 54,975
42,126 46,960
16
Item 7. Management's Discussion and Analysis of Financial Condition
and
Results of Operations
This document contains certain forward-looking statements that
involve a
number of risks and uncertainties. Such forward-looking statements
are
within the meaning of that term in Section 27A of the Securities Act
of
1933, as amended and Section 21E of the Securities Exchange Act of
1934, as
amended. Factors that could cause actual results to differ materially
include the following: business conditions and growth in Reptron's
industry
and in the general economy; competitive factors; risks due to shifts
in
market demand; the ability of Reptron to complete acquisitions; and
the risk
factors listed from time to time in Reptron's reports filed with the
Securities and Exchange Commission as well as assumptions regarding
the
foregoing. The words "believe", "plans", "estimate", "expect",
"intend",
"anticipate", and similar expressions and variations thereof identify
certain of such forward-looking statements, which speak only as of the
dates on which they were made. Reptron undertakes no obligation to
publicly update or revise any forward-looking statements, whether as
a result of new information, future events, or otherwise. Readers are
cautioned that any such forward-looking statements are not guarantees
of future performance and involve risks and uncertainties, and
that actual results may differ materially from those indicated in
the forward-looking statements as a result of various factors.
Readers are cautioned not to place undue reliance on these forward-
looking statements.
This Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included
elsewhere in this report.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of the Company's net sales represented by each line item
presented, except for Reptron Distribution and Electronic
Manufacturing Services gross profit, which is presented as a
percentage of net sales of the respective segments:
Year Ended December
31,
-------------------------
- - -----
1997 1998
1999
-------- -------- ---
- - -----
Net sales, Electronic Component Distribution. 61.6% 51.7%
55.2%
Net sales, Electronic Manufacturing Services. 38.4 48.3
44.8
-------- -------- ---
- - -----
Total net sales .......................... 100.0% 100.0%
100.0%
======== ========
========
Gross profit, Electronic Component Distribution 18.9% 16.0%
17.4%
======== ========
========
Gross profit, Electronic Manufacturing Services 16.1% 8.8%
10.7%
======== ========
========
Total gross profit ............................ 17.8% 12.5%
14.4%
Selling, general and administrative expenses .. 12.6 16.9
15.5
-------- -------- ---
- - -----
Operating income (loss) .................... 5.2 (4.4)
(1.1)
Interest expense, net .......................... 2.0 2.8
2.4
-------- -------- ---
- - -----
Earnings (loss) before income taxes ......... 3.2% (7.2)%
(3.5)%
======== ========
========
Net earnings (loss) before extraordinary item 2.0% (4.3)%
(2.2)%
Extraordinary gain on extinguishment of debt,net - -
3.5%
-------- -------- ---
- - -----
Net earnings (loss) .......................... 2.0% (4.3)%
1.3%
======== ========
========
1999 Compared to 1998
Net sales. Total net sales increased $56.4 million, or 18.6%,
from $302.8 million in 1998 to $359.2 million in 1999.
17
Reptron Distribution net sales increased $41.6 million, or 26.6%,
from $156.5 million in 1998 to $198.1 million in 1999. This
significant
increase in sales resulted primarily from an improving market for
sale of electronic components in the United States. Additionally,
Reptron distribution has increased its work force by approximately
21% in 1999 to help promote sales. The largest Reptron Distribution
customer accounted for approximately 5.2% and 5.3% of Reptron
Distribution net sales and 2.7% each of total Company net sales in
1999 and 1998, respectively. The highest volume sales
office accounted for 13.4% and 12.7% of Reptron Distribution net
sales in 1999 and 1998, respectively.
Sales of semiconductors, passive components and electromechanical
components accounted for 71.3%, 20.9% and 7.8%, respectively, of
Reptron Distribution 1999 net sales. Reptron Distribution's 1998
net sales were comprised of 67.3% semiconductors, 22.5% passive
components and 10.2% electromechanical components. Representation
by Reptron Distribution of its major vendor lines remained relatively
stable with sales from the top four
vendors accounting for approximately $67.9 million, or 34.2% of
Reptron Distribution 1999 net sales, as compared with approximately
$50.1 million, or 32.0% of Reptron Distribution 1998 net sales.
Electronic Manufacturing Services net sales increased $14.8
million, or 10.1%, from $146.2 million in 1998 to $161.0 million in
1999. Net sales generated by Applied Instruments, acquired on
2000. October 27, 1999, were approximately $2.2 million in 1999.
2001. New customers accounted for an increase of $8.1 million in
2002. net sales. K-Byte Manufacturing transacted
business with approximately 83 customers in 1999. The three
largest customers represented approximately 11.1%, 7.7% and 6.9%,
respectively, of the division's 1999 net sales (5.0%, 3.4% and 3.1%,
respectively, of Reptron's total 1999 net sales). Sales by industry
segment for 1999 and 1998 are as follows:
1999 1998
Industry Percent of K-Byte Sales
Industrial/Instrumentation 31.0% 24.5%
Healthcare 22.1% 27.0%
Telecommunications 16.9% 27.1%
Banking 9.4% 12.1%
Other 20.6% 9.3%
The Tampa, Florida, Gaylord, Michigan and Hibbing, Minnesota
manufacturing plants, and Applied Instruments plant accounted for
approximately 26.2%, 29.5%, 43.0% and 1.3%, respectively, of
Electronic Manufacturing Services 1999 total net sales.
Gross Profit. Total gross profit increased $13.8 million,
or 36.4% from $37.9 million in 1998 to $51.8 million in 1999.
Gross margin increased from 12.5% in 1998 to 14.4% in 1999.
Reptron Distribution's gross profit increased $9.4 million,
or 37.5% from $25.1 million in 1998 to $34.5 million in 1999 and
the gross margin increased from 16.0% in 1998 to 17.4% in 1999.
This increase in gross margin is primarily attributed to stronger
semiconductor market conditions, improving selling and pricing
practices and lower inventory write downs versus 1998.
EMS gross profit increased $4.4 million, or 34.4% from $12.8
million in 1998 to $17.2 million in 1999. Gross margin increased
rom 8.8% in 1998 to 10.7% in 1999. This increase in gross margin
is primarily attributed to the better utilization of fixed overhead
at higher sales levels, improved material pricing and lower
inventory write downs versus 1998.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased $4.7 million, or 9.2% from $51.2
million in 1998 to $55.9 million in 1999. Applied Instruments
accounted for approximately $549,000 of the increase in 1999. The
remaining increase was primarily due to investments in sales
operations, management information systems, and engineers
18
Interest Expense. Net interest expense increased $243,000, or
2.9%
from $8.3 million in 1998 to $8.6 million in 1999. This increase is
primarily attributed to a $20.6 million increase in average
outstanding
net debt, from $100.8 million during 1998 to $121.4 million during
1999.
1998 Compared to 1997
Net sales. Total net sales decreased $1.1 million, or 0.4%, from
$303.9
million in 1997 to $302.8 million in 1998.
Reptron Distribution net sales decreased $30.8 million, or 16.4%,
from $187.3 million in 1997 to $156.5 million in 1998. This decrease
was, in part, attributed to an $18.0 million decrease in sales to a
single customer from $26.3 million in 1997 to $8.3 million in 1998.
Additionally, severe price erosion, primarily due to abundant supply
of many types of electronic components sold by Reptron Distribution,
had a negative effect on net sales. The largest Reptron Distribution
customer accounted for approximately 5.3% and 14.0% of Reptron
Distribution net sales and 2.7% and 9.2% of total
Company net sales in 1998 and 1997, respectively. The highest
volume sales office accounted for 12.7% and 20.9% of Reptron
Distribution net sales in 1998 and 1997, respectively.
Sales of semiconductors, passive components and electromechanical
components accounted for 67.3%, 22.5% and 10.2%, respectively, of
Reptron Distribution 1998 net sales. Reptron Distribution's 1997
net sales were comprised of 66.8% semiconductors, 24.9% passive
components and 8.3% electromechanical components. Representation
by Reptron Distribution of its major vendor lines remained
relatively stable with sales from the top four vendors accounting for
approximately $50.1 million, or 32.0% of Reptron
Distribution 1998 net sales, as compared with approximately
$60.9 million, or 32.5% of Reptron Distribution 1997 net sales.
K-Byte Manufacturing net sales increased $29.7 million, or 25.4%,
from $116.6 million in 1997 to $146.3 million in 1998. Net sales
generated by Hibbing, acquired on May 29, 1998, were approximately
$33.1 million in 1998. New customers accounted for an increase of
$1.6 million in net sales, which was off-set by a net decrease in
net sales of $5.0 million, primarily attributable to reductions in
customer orders from the previously existing K-Byte Manufacturing
customer base. K-Byte Manufacturing transacted business with
approximately 89 customers (inclusive of 48 Hibbing customers)
in 1998. The three largest customers represented approximately
10.0%, 9.8% and 7.1%, respectively, of the division's 1998 net
sales (4.8%, 4.7% and 3.4%, respectively, of Reptron's total
1998 net sales). Sales to customers in the telecommunications
industry accounted for approximately 27.1% of K-Byte Manufacturing
1998 net sales, while sales to customers in the healthcare ,
industrial/instrumentation and banking industries accounted for
approximately 27.0%, 24.5% and 12.1%, respectively, of K-Byte
Manufacturing 1998 net sales. K-Byte Manufacturing's 1997 net
sales included 29.2%, 22.0%, 20.5%, and 19.0% from the
industrial/instrumentation, healthcare,
telecommunications and banking industries, respectively.
The Tampa, Florida, Gaylord, Michigan and Hibbing, Minnesota
manufacturing plants accounted for approximately 41.7%, 35.8% and
22.5%, respectively, of K-Byte Manufacturing 1998 total net sales.
Gross Profit. Total gross profit decreased $16.3 million, or
30.0% from $54.2 million in 1997 to $37.9 million in 1998. Gross
margin decreased from 17.8% in 1997 to 12.5% in 1998.
Reptron Distribution gross profit decreased $10.3 million, or
29.1% from $35.4 million in 1997 to $25.1 million in 1998 and
the gross margin decreased from 18.9% in 1997 to 16.0% in 1998. T
his decrease in gross margin is primarily attributed to an industry-
wide
decrease in average selling prices, sales mix shift to lower margin
products and the write down of certain inventory due to the loss
of certain vendor lines and the acceleration of industry-wide
price declines.
K-Byte Manufacturing gross profit decreased $6.0 million, or
31.6% from $18.8 million in 1997 to $12.8 million in 1998.
Gross margin decreased from 16.1% in 1997 to 8.8% in 1998. This
decrease in gross margin is primarily attributed to the under
utilization of fixed costs and overhead at current
sales levels, a change in customer demand to a sales mix of lower
margin business, the amortization of capitalized costs and the
write off of certain capitalized costs and inventory.
19
Selling, General and Administrative Expenses. Selling, general
and administrative expenses increased $13.0 million, or 34.2% from
$38.2 million in 1997 to $51.2 million in 1998. Hibbing accounted for
approximately $3.3 million of the increase in 1998. The remaining
increase was primarily due to investments in sales operations,
management information systems, engineers and senior management;
the costs associated with the aborted All American Semiconductor
transaction, the write-off of certain bad debts; the
costs of consultants used in re-engineering the manufacturing
process and employee severance costs.
Interest Expense. Net interest expense increased $2.1 million,
or 34.8% from $6.2 million in 1997 to $8.3 million in 1998.
This increase is primarily attributed to the increase in average
outstanding net debt (total debt less invested cash reserves) of
$28.1 million, or 38.7% from $72.7 million during 1997 to $100.8
million during 1998. This $28.1 million increase in average
outstanding net debt during 1998 is primarily attributed to the
decrease in cash as a result of the May, 1998 purchase of Hibbing.
Currency Fluctuation
Reptron pays for its purchases from foreign sources, including
Asian manufacturers, in U.S. dollars, which reduces the adverse
effects of currency fluctuations. Reptron has not experienced
substantial adverse effects from currency fluctuations to date.
Liquidity and Capital Resources
Reptron primarily finances its operations through subordinated
notes, operating cash flows, bank credit lines, capital equipment
leases and short-term financing through supplier credit lines.
On January 8, 1999, Reptron entered into a $50.0 million Revolving
Credit Agreement ("Credit Agreement") with PNC Bank (the "Lender") to
replace its existing $15.0 million revolving credit facility with
NationsBank (the "NationsBank Credit Facility"). In October, 1999
the Credit Agreement was increased to $60.0 million. Borrowings
under the Credit Agreement are collateralized by all of Reptron's
inventory, accounts receivable, equipment and general intangibles.
The Credit Agreement limits the amount of capital expenditures
and prohibits the payment of dividends thereby restricting the
distribution of the retained earnings of Reptron.
Reptron may, at its option, and upon notice to the lender,
request advance funds pursuant to either a Domestic Rate Loan
or a Eurodollar Rate loan. Upon notice to the Lender, Reptron may
convert advances from one type of loan to the other. Amounts
outstanding under the Credit Agreement as of December 31, 1999 were
approximately $37.4 million. As of December 31, 1999, Reptron was
in compliance with, or received waivers, on all covenants under
the Credit Agreement.
Reptron has entered into various capital lease transactions
with several financial institutions to finance capital expenditures,
primarily for the K-Byte Manufacturing operation. These leases had
an aggregate balance of $3.8 million as of December 31, 1999. The
leases bear interest at rates ranging from approximately 7.5% to
11.1% and expire at various dates through July, 2002.
Reptron's operating activities used cash of approximately $5.7
million in 1999. This decrease was primarily a result of an increase
in accounts receivable of $11.1 million, an increase in inventories
of $10.8 million, a decrease in accrued expenses of $3.7 million,
and a decrease in deferred revenue of $70,000. These items were
offset by an increase in accounts payable of $15.7 million, an
increase in income taxes payable of $966,000 and a decrease in prepaid
expenses and other current assets of $7.2 million. The increase in
inventory and accounts receivable is primarily a result of the
expansion in sales during the second half of 1999. Inventory turns
improved slightly from 3.4 to 3.5 turns in 1999 and accounts
receivable
collections improved to an average of 53 days as of December 31, 1999
from an average of 57 days as of December 31, 1998.
Reptron used cash of approximately $11.9 million in investing
activities in 1999, comprised of approximately $8.0 million in
connection with the acquisition of Applied Instruments and $3.9
million in purchase of property, plant and equipment. Reptron
redeemed
approximately $38.7 million of subordinated notes in 1999 for about
$16.2 million in cash. Additionally, the
20
Company increased its outstanding debt due under the Credit Agreement
by approximately $37.4 million. This increase was necessary to
finance rapidly growing operations.
Reptron believes that cash generated from operations, available
cash reserves and available credit facilities will be sufficient
or Reptron to meet its capital expenditures and working capital needs
for its operations as presently conducted. Reptron's future liquidity
and cash requirements will depend on a wide range of factors,
including the level of business in existing operations, expansion
of facilities and possible acquisitions. In particular, if cash
flows from operations and available credit facilities
are not sufficient, it will be necessary for Reptron to seek
additional
financing. While there can be assurance that such financing would be
available in amounts and on terms acceptable to Reptron, Reptron
believes that such financing would likely be available on acceptable
terms.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Reptron entered into an interest rate swap agreement during 1997.
The swap agreement effectively converts a portion of Reptron's
floating interest rate debt to fixed interest rate debt. Notional
amounts of interest rate swap agreements are used to measure interest
to be paid or received relating to such agreements and do not
represent
an amount of exposure to credit loss. Under the terms of the
agreement,
Reptron is obligated to pay interest on a notional amount to the
extent that the fixed rate of 6.99%, under the interest rate
swap agreement, exceeds the LIBOR rate, as measured pursuant to
the agreement. Furthermore, Reptron will receive interest to
the extent that the LIBOR rate exceeds the fixed rate. As of
December 31, 1999, the notional amount of the swap agreement totaled
approximately $7.7 million which will mature in March, 2004. Interest
received, if any, as a result of this agreement is netted against
interest
expense in the accompanying consolidated statements of operations.
Based
on average floating rate borrowings outstanding throughout 1999, a 100
basis
point change in LIBOR would have caused Reptron's interest expense
to change by approximately $81,000. Reptron believes that this
amount is not significant to the 1999 results of operations.
On March 27, 2000, the Company terminated the swap agreement at
no additional costs.
Item 8. Financial Statements and Supplementary Data
The financial statements required by this Item are contained
in pages F-1 through F-23 of this Report.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information required by this Item is incorporated by reference to
the definitive proxy statement to be filed by Reptron for the Annual
Meeting of Shareholders to be held May 22, 2000.
Item 11. Executive Compensation
Information required by this Item is incorporated by reference to
the definitive proxy statement to be filed by Reptron for the Annual
Meeting of Shareholders to be held May 22, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information required by this Item is incorporated by reference to
the definitive proxy statement to be filed by Reptron for the Annual
Meeting of Shareholders to be held May 22, 2000.
Item 13. Certain Relationships and Related Transactions
Information required by this Item is incorporated by reference to
the definitive proxy statement to be filed by Reptron for the Annual
Meeting of Shareholders to be held May 22, 2000.
22
REPTRON ELECTRONICS, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1998 and 1999 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999 F-4
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1997, 1998 and 1999 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE F-22
Schedule II -- Valuation and Qualifying Accounts for
the years ended December 31, 1997, 1998 and 1999 F-23
Report Of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors
Reptron Electronics, Inc.
We have audited the accompanying consolidated balance sheets of
Reptron
Electronics, Inc. and its wholly owned subsidiaries as of December 31,
1998 and 1999, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the three years in
the
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
Standards in the United States. 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 our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Reptron Electronics, Inc. as of December 31, 1998 and
1999, and the consolidated results of operations and cash flows
for each of the three years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles in the
United States.
GRANT THORNTON LLP
Tampa, Florida
February 8, 2000
F-2
REPTRON ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
December 31,
1998
1999
--------
- - --------
CURRENT ASSETS
Cash and cash equivalents $ 10,065
$ 108
Accounts receivable - trade, less allowances
for doubtful accounts of $483 and $609, respectively 49,503
62,754
Inventories, net 69,331
82,553
Prepaid expenses and other 9,296
2,118
Deferred tax benefit 2,295
- - -
-------
- - -------
Total current assets 140,490
147,533
PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 38,273
34,997
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET 25,527
30,507
OTHER ASSETS 5,794
2,816
-------
- - -------
$210,084
$215,853
=======
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 25,542
$ 42,062
Current portion of long-term obligations 3,866
3,280
Accrued expenses 9,183
6,068
Deferred Revenue 70
- - -
Income taxes payable -
446
-------
- - -------
Total current liabilities 38,661
51,856
NOTE PAYABLE TO BANK -
37,413
LONG-TERM OBLIGATIONS, less current portion 129,297
79,104
DEFERRED INCOME TAXES -
520
SHAREHOLDERS' EQUITY
Preferred Stock - authorized 15,000,000
shares of $.10 par value; no shares issued -
- - -
Common Stock - authorized, 50,000,000 shares of
$.01 par value; issued and outstanding,
6,147,119 and 6,167,119 shares, respectively 61
62
Additional paid-in capital 21,676
21,740
Retained earnings 20,389
25,158
-------
- - -------
42,126
46,960
-------
- - -------
$210,084
$215,853
=======
=======
The accompanying notes are an integral part of these
statements.
F-3
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share data)
Year Ended
December 31,
---------------------
- - -------------
1997 1998
1999
---------- ---------
- - - ----------
Net sales $ 303,911 $
302,789 $ 359,217
Cost of goods sold 249,756
264,861 307,443
--------- --------
- - - ---------
Gross profit 54,155
37,928 51,774
Selling, general and administrative expenses 38,154
51,206 55,902
--------- --------
- - - ---------
Operating income (loss) 16,001
(13,278) (4,128)
Interest expense, net 6,184
8,339 8,582
--------- --------
- - - ---------
Earnings (loss) before income taxes 9,817
(21,617) (12,710)
Income tax provision (benefit) 3,677
(8,470) (4,703)
--------- --------
- - - ---------
Net earnings (loss) before extraordinary item 6,140
(13,147) (8,007)
Extraordinary gain on extinquishment of debt,
net of tax of $8,518 -
- - -
12,776
--------- --------
- - -
- - ---------
Net earnings (loss) $ 6,140
$(13,147) $
4,769
=========
========= =========
Net earnings (loss) per common share - basic
And diluted:
Loss before extraordinary item $ 1.01 $
(2.15) $ (1.30)
Extraordinary gain -
- - -
2.08
--------- --------
- - -
- - ---------
Net earnings (loss)per common share -
Basic and diluted $ 1.01 $
(2.15) $
.78
=========
========= =========
Weighted average Common Stock
shares outstanding - basic 6,077,084
6,118,023 6,151,563
=========
========= =========
Net earnings (loss) per common share - diluted $ .98 $
(2.15) $
.78
=========
========= =========
Weighted average Common Stock equivalent
share outstanding - diluted 6,247,040
6,118,023 6,151,563
=========
========= =========
The accompanying notes are an integral part of these
statements.
F-4
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Total Additional
Shares Par Paid-In
Retained Shareholders'
Outstanding Value Capital
Earnings Equity
----------- ----- -------- ------
- - -- --------
Balance at January 1, 1997 6,065,519 61 21,233 27,396
48,690
Exercise of stock options 22,850 - 145
- - - 145
Net earnings - - -
6,140 6,140
--------- --- ------ -----
- - -- -------
Balance at December 31, 1997 6,088,369 61 21,378
33,536 54,975
Exercise of stock options 58,750 - 298
- - - 298
Net loss - - -
(13,147) (13,147)
--------- --- ------ -----
- - -- -------
Balance at December 31, 1998 6,147,119 61 21,676
20,389 42,126
Exercise of stock options 20,000 1 64
- - -
65
Net earnings - - -
4,769
4,769
--------- ---- ------ -----
- - -- ----------
Balance at December 31, 1999 6,167,119 $ 62 $21,740
$25,158 $46,960
========= === =======
======= =======
The accompanying notes are an integral part of this
statement.
F-5
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year
Ended December 31,
--------
- - ------------------
1997
1998 1999
-------
- - ------- -------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net earnings (loss) $ 6,140
$(13,147) $ 4,769
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 5,657
11,067 10,694
Extraordinary gain -
- - - (12,776)
Gain on sale of assets (44)
(218) -
Deferred income taxes 732
(2,585) (6,219)
Change in assets and liabilities
(net of effect of acquisition):
Accounts receivable-trade (5,226)
6,108 (11,115)
Inventories (10,038)
11,437 (10,831)
Prepaid expenses and other current assets (1,143)
(4,298) 7,212
Other assets (9,683)
50 (329)
Accounts payable-trade 6,443
(8,973) 15,662
Accrued expenses 3,068
2,122 (3,657)
Deferred Revenue 1,280
(1,210) (70)
Income taxes payable (246)
- - - 966
-------
- - ------- -------
Net cash provided by (used in) operating activities (3,060)
353 (5,694)
Cash flows from investing activities:
Net cash paid for acquisitions -
(30,337) (8,075)
Purchases of property, plant and equipment (6,248)
(3,698) (3,921)
Proceeds from sale of property, plant and equipment 44
446 101
-------
- - ------- -------
Net cash used in investing activities (6,204)
(33,589) (11,895)
Cash flows from financing activities:
Payments on notes payable to banks (48,550)
- - - -
Proceeds from long-term obligations 124,041
- - - 37,461
Payments on long-term obligations (11,716)
(12,132) (29,894)
Proceeds from exercise of stock options 145
298 65
-------
- - ------- -------
Net cash provided by (used in) financing activities 63,920
(11,834) 7,632
-------
- - ------- -------
Net increase (decrease) in cash and cash equivalents 54,656
(45,070) (9,957)
Cash and cash equivalents at beginning of period 479
55,135 10,065
-------
- - ------- -------
Cash and cash equivalents at end of period $ 55,135
$ 10,065 $ 108
=======
======= =======
The accompanying notes are an integral part of these statements.
F-6
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1998 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reptron Electronics, Inc. ("Reptron") is a leading electronics
manufacturing supply chain services company operating as a national
distributor of electronic components ("Reptron Distribution") and a
contract manufacturer of electronic products ("K-Byte Manufacturing")
and a display solution provider ("Applied Instruments"). Reptron
Distribution is authorized to sell over 60 vendor
lines of semiconductors, passive products and electromechanical
components to customers representing diverse industries throughout
the country. K-Byte Manufacturing produces electronic products for
a select number of customers throughout the country representing a
diverse range of industries. Applied Instruments provides display
design engineering systems integration and turnkey manufacturing
services.
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying consolidated financial
statements
follows.
1. Principles of Consolidation
---------------------------
The financial statements include the accounts of Reptron Electronics,
Inc.
and its wholly-owned subsidiaries. All significant inter-company
balances and transactions have been eliminated.
2. Cash Equivalents
----------------
For purposes of the statement of cash flows, Reptron considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
3. Inventories
-----------
Inventories are stated at the lower of cost or market. For K-Byte
Manufacturing, cost is determined using the first-in, first-out method
(FIFO). Reptron Distribution uses the average cost method to measure
cost,which approximates first-in, first-out method (FIFO).
4. Property, Plant and Equipment
-----------------------------
Depreciation is provided for, using the straight-line method, in
amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives (buildings 39 1/2 years, all other asset
categories 5 years). Leasehold improvements are amortized using the
straight-line method over the lives of the respective leases or the
service lives of the improvements, whichever is shorter. Leased
equipment under capital leases is amortized using the straight-line
method over the lives of the respective leases or over the service
lives of the assets for those
leases which substantially transfer ownership. Accelerated methods
are
used for tax depreciation.
5. Excess of Cost Over Net Assets Acquired
---------------------------------------
The excess of cost over net assets acquired is amortized over a
twenty or thirty year period, as applicable, using the straight-line
method. Accumulated amortization totaled approximately $1,257,000 and
$2,276,000 at December 31, 1998 and 1999, respectively.
F-7
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
6. Impairment of Assets
--------------------
Reptron's policy is to periodically review and evaluate whether there
has been a permanent impairment in the value of long-lived assets,
certain identifiable intangibles and goodwill. Factors considered
in the valuation include current operating results, trends and
anticipated undiscounted future cash flows. There have been no
impairment losses in 1997, 1998 or 1999.
7. Income Taxes
------------
Reptron accounts for income taxes on the liability method, as
provided by Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting For Income Taxes." Under the liability method
specified by SFAS 109, deferred tax assets and liabilities are
determined based on the difference between the financial statement
and tax bases of assets and liabilities as measured by the enacted
tax rates which will be in effect when these differences reverse.
Deferred tax expense is the result of changes in deferred tax
assets and liabilities.
8. Earnings Per Common Share
-------------------------
Earnings per share are computed using the basic and diluted
calculations, as provided by SFAS No. 128 "Earnings per Share".
SFAS No. 128 eliminates primary and fully diluted earnings per
share and requires presentation of basic and diluted earnings
per share together with disclosure of how the per share amounts
were computed.
9. Use of Estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles in the United States, management
makes estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
10. Stock Based Compensation
------------------------
Reptron presents only the disclosure provisions of SFAS No. 123
"Accounting for Stock Based Compensation" as it relates to stock
options granted to employees. As permitted by SFAS No. 123,
Reptron applies Accounting Principals Board Opinion No. 25 "Accounting
for Stock Issued to Employees" and related interpretations in
measuring
compensation for stock options
issued. See Note J.
12. New Accounting Pronouncements
-----------------------------
The Emerging Issues Task Force issued EITF 99-5 "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements" in
September 1999. The EITF requires that design and development
costs for products to be sold under long-term supply arrangements
should be expensed as incurred. This differs from the existing
policy of capitalizing set-up costs and recognizing the costs over the
contract period or two years, whichever is less. This policy is
required for all costs incurred after December 31, 1999 with earlier
application encouraged. Management does not believe that the impact
of
adopting this pronouncement will have a material effect on Reptron's
results of operations.
F-8
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE B - STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information (in thousands):
Year
Ended December 31,
------------
- - ----------------
1997
1998 1999
-------- --
- - ------ --------
Cash paid during the year for:
Interest $4,260
$8,091 $9,207
Income taxes $4,593
$ 507 $1,090
Reptron incurred approximately $2,573,000, $0, and $264,000 of
obligations under capital leases for the acquisition of equipment
during 1997, 1998 and 1999, respectively.
On October 27, 1999 Reptron completed the acquisition of Applied
Instruments ("Applied"). At closing, the assets were recorded at
approximately $9.4 million, consisting of the sum of cash payment
of $7.5 million, acquisition costs, and among the assumption of stated
liabilities, $1.4 million of bank debt. Reptron allocated
approximately $6.4 million of the purchase price to goodwill.
See Note K.
NOTE C - INVENTORIES
Inventories consist of the following (in thousands):
December 31,
------------------
1998 1999
-------- --------
Reptron Distribution:
Inventories $37,026 $45,495
K-Byte Manufacturing:
Work in process 9,043 12,277
Raw materials 23,262 24,781
------ ------
$69,331 $82,553
====== ======
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
December 31,
----------------
1998 1999
------ ------
Land and buildings $ 16,328 $16,404
Furniture, fixtures and equipment 39,650 43,534
Leasehold improvements 2,498 2,758
------ ------
58,476 62,696
Less accumulated depreciation and amortization 20,203 27,699
------ ------
$38,273 $34,997
====== ======
F-10
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE E - NOTES PAYABLE TO BANKS
The Company is party to an amended and restated revolving credit
agreement ("Credit Agreement") dated January 8, 1999. Two lenders
have made available to the Company a $60 million revolving credit
facility throughJanuary 8, 2004. Borrowings under the Credit
Agreement are collateralized by all of Reptron's inventory, accounts
receivable, equipment and general intangibles. The Credit Agreement
limits the amount of capital expenditures and prohibits the payment
of dividends thereby restricting the distribution of the retained
earnings of Reptron. Reptron may, at its option, and upon notice
to the lender, request advance funds pursuant to either a Domestic
Rate Loan (variable at the prime rate of 8.5% at December 31, 1999)
or a Eurodollar Rate loan (LIBOR, 7.70% at December 31, 1999 plus
2.25 basis points). Upon notice to the lenders, Reptron may
convert advances from one type of loan to the other. As of
December 31, 1999, Reptron was in compliance with, or received
waivers, on all covenants under the Lender. Amount outstanding under
the Credit Agreement as of December 31, 1999 was approximately
$37.4 million.
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31 (in
thousands):
1998
1999
-------
- - - --------
Convertible subordinated notes, due August, 2004, with
semi-annual interest installments at a rate of 6.75%.
The notes are unsecured obligations subordinated to
all existing indebtedness, as defined, and are
convertible at anytime prior to maturity at a conversion
price of $28.50 per share.
$115,000 $76,315
Notes payable collateralized by real property, due in
monthly principal installments of $37.5 and interest
at a rate of 8.115% through February, 2005, requiring
a ballon payment due March, 2005.
8,083
-
Capitalized lease obligations (net of interest of
approximately $823) for equipment, due in monthly
principal and interest payments of approximately
$220, through 2002.
6,442 3,797
Notes payable collateralized by certain equipment, due in
monthly principal and interest installments of $113, through
January 2003, interest rates range from 7.1% to 9.35%.
3,379 2,030
Notes payable collateralized by real property, currently due in
monthly principal and interest installments of $4, through
September 2007, at an interest rate of 10%.
259 242
------
- - - -------
$133,163 82,384
Less current maturities
3,866 3,280
-----
- - - -------
$129,297 $ 79,104
======= =======
F-11
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1997, 1998 and 1999
NOTE F - LONG-TERM OBLIGATIONS - Continued
At December 31, 1999, aggregate maturities of long-term obligations
are as
follows (in thousands):
Year ending December 31,
------------------------
2000 $ 3,280
2001 2,195
2002 475
2003 25
2004 76,342
Thereafter 67
-------
$ 82,384
=======
Reptron has entered into various capital leases for equipment,
totaling
approximately $2,573,000 in 1997 and $264,000 in 1999. No capital
leases
were entered into during 1998. At December 31, 1999, the net book
value of equipment under capital leases is approximately $6,089,000.
The
related capital lease obligations are included with long-term
obligations.
Total interest expense was $9,390,000 and $8,582,000, in 1998 and
1999,
respectively. Interest payable was $3,310,000 and $2,198,000
at December 31, 1998 and 1999, respectively.
Reptron extinguished approximately $38.7 million of its convertible
subordinated bonds during the period ended December 31, 1999. The
cash paid to extinguish these bonds was approximately $16.2 million.
This transaction generated an extraodinary gain of approximately
$12.8 million, net of income taxes. The net capitalized financing
costs of approximately $1.2 million associated with the extinguished
debt was written off during year ended December 31, 1999.
NOTE G - INCOME TAXES
The income taxe provision (benefit) for the years ended
December 31, 1997, 1998 and 1999, respectively, is as follows
(in thousands):
December 31,
------------------------------
1997 1998 1999
------ ------ ------
Current $2,945 $(5,885) $1,303
Deferred