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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, 2000
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number 0-23426
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REPTRON ELECTRONICS, INC.
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(Exact name of registrant as specified in its charter)
Florida 38-2081116
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
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
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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. ( )
The aggregate market value of shares of the registrant's common stock held by
non-affiliates of the registrant as of March 26, 2001 was approximately
$40,396,939.
The number of shares of the registrant's common stock issued and outstanding as
of March 26, 2001 was 6,371,757.
Documents Incorporated by Reference:
Parts of Reptron's definitive proxy statement for the Annual Meeting of
Reptron's Shareholders to be held on May 15, 2001 are incorporated by reference
into Part III of this Form.
1
REPTRON ELECTRONICS, INC.
FORM 10-K
Fiscal Year ended December 31, 2000
Item Number in
Form 10-K PART I Page
- -------------- -------
1. Business..................................................................................... 3
2. Properties................................................................................... 13
3. Legal Proceedings............................................................................ 13
4. Submission of Matters to a Vote of Security Holders.......................................... 13
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters................................................................. 14
6. Selected Financial Data..................................................................... 15
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................................... 16
7a. Quantitative and Qualitative Disclosures about Market Risk.................................. 20
8. Financial Statements and Supplementary Data................................................. 20
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................................................... 20
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, Schedules
and Reports on Form 8-K.................................................................... 22
2
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 a 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 two business segments, Electronic
Component Distribution ("ECD") and Electronic Manufacturing Services ("EMS").
The ECD segment is comprised of Reptron Distribution, Reptron Computer Products,
and Reptron Logistic Services. The EMS segment is comprised of Reptron
Manufacturing Services, Reptron Display and Systems Integration, and Reptron
Engineering Services. These business units, although operated independently, are
complementary, enabling Reptron to provide customers with a wide range of
products and value-added services, as well as a single source for 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
$223.0 million in 1995 to $576.0 million in 2000.
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 Electronic Component Distribution and Electronic Manufacturing Services
Industry
Electronic Component Distribution. Most manufacturers of electronic
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 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.
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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 printed circuit board assemblies and display
product integration and assembly to electronics manufacturing specialists such
as Reptron Manufacturing Services and Reptron Display and System Integration. As
a result of outsourcing manufacturing services, industry sources estimate that
the electronics manufacturing industry has grown at an average annual rate of
25% during the previous three years. 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 an 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 Complementary 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. Reptron Manufacturing Services provides turnkey manufacturing,
including materials management, board assembly and post-production
testing. Reptron Display and System Integration provides design
engineering and 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
4
products and value-added services, as well as a single source for
product, material, logistics, engineering, 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 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 and electronics 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 2000, approximately
34% of Reptron Distribution sales were generated through value-added
services.
. Target Manufacturing Customers in Specific Market Segments. Reptron
Manufacturing Services follows a well-defined strategy in its EMS
business. Reptron Manufacturing Services focuses on complex assemblies
in low-to-medium volumes for commercial and industrial customers.
Additionally, Reptron Manufacturing Services 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"). Reptron
Manufacturing Services also seeks customer relationships in which
Reptron Manufacturing Services is the primary source and avoids
engagements requiring an overflow supplier. Reptron Manufacturing
Services targets customers in a variety of industries to establish
diversity among the 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 manufacturing facilities can accommodate
approximately $300 million in annual contract manufacturing net sales
based on the types of business currently transacted by Reptron
Manufacturing Services. Reptron Manufacturing Services' 2000 combined
sales totaled approximately $230 million. Consequently, Reptron
believes there is adequate 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.
Certain Considerations
Current adverse economic environment. During the first quarter of the
current year, the Company experienced an unexpected increase in the rate of
order cancellations and requests for extended deliveries resulting in reduced
revenues and earnings. The Company believes that these cancellation and delivery
delays were the result of the general deterioration of economic conditions in
the United States economy and in particular in the electronics industry. In
response to these events, the Company has initiated a series of operating cost
reductions. There can be no assurance however, that these cost cutting measures
will be effective or adequate to compensate for the effect of these factors on
the Company's revenues and earnings. If the current economic conditions continue
for an extended period of time, the Company will experience a material adverse
effect on its operating results and its financial condition.
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 41%
and 34% of Reptron Distribution's net sales in 2000 and 1999, respectively (25%
and 19% of Reptron's total 2000 and 1999 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 to 90 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."
5
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 27% and 25% of its net sales in 2000 and in 1999 (16%
and 14% of Reptron's total net sales in 2000 and 1999, respectively). Reptron
Manufacturing Services' three largest customers accounted for approximately 16%,
9% and 8% of its net sales in 2000, respectively, and 11%, 8% and 7% of its net
sales in 1999, respectively, (6%, 4% and 3% of Reptron's total net sales in
2000, respectively, and 5%, 3% and 3% of Reptron's total net sales in 1999,
respectively). 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. Reptron Manufacturing
Services' operating results are affected by a number of factors, including fixed
plant utilization, price competition, Reptron Manufacturing Services' 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 Reptron
Manufacturing Services in managing inventories and fixed assets, the timing of
orders 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 Reptron
Manufacturing Services' 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 "Reptron Manufacturing Services - Marketing and Customers."
The Volume and Timing of Customer Sales May Vary- Reptron Distribution.
The results for Reptron Distribution may vary widely based upon customer demand
and general economic conditions. In particular, during periods of economic
downturn in the electronics industry, Reptron Distribution has experienced a
significant reduction in orders and increases in order cancellations and
requests for delayed deliveries as well as increases in instances of customers
being unable to pay for product. There can be no assurance that Reptron
Distribution's contractual arrangements will adequately compensate it for the
loss of sales due to these factors. Any sustained economic downturn in the
electronics industry will result in a material adverse effect on Reptron
Distribution's operating results and financial condition.
The Volume and Timing of Customer Sales May Vary - Reptron
Manufacturing Services. The volume and timing of purchase orders placed by
Reptron Manufacturing Services' 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. Reptron
Manufacturing Services 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, Reptron
Manufacturing Services 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 variety 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 or product completed and, in certain circumstances, payment for
materials purchased and 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. Reptron Manufacturing Services and Reptron Display and System
Integration 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, Reptron
Manufacturing Services faces the potential risk that its customers may elect to
produce their products internally, thereby eliminating manufacturing
opportunities for Reptron Manufacturing Services. 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
6
allocations. If shortages of components should 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 $223.0 million in 1995 to
approximately $576.0 million in 2000. The ability to manage the effects of past
growth and 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."
Reptron Distribution
Reptron was founded in 1973 in Detroit as a distributor of electronic
components. Reptron Distribution now operates from 30 sales offices that
management believes allows Reptron to address nearly 100% 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 68% and 71% of Reptron
Distribution's net sales in 2000 and 1999, respectively. 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 32% and 29% of net sales of Reptron
Distribution in 2000 and 1999, respectively. 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 41%
and 32.9% of Reptron Distribution's net sales in 2000 and 1999, respectively
(24% and 18.9% of Reptron's total net sales in 2000 and 1999, respectively). See
"Certain Considerations-Dependence Upon Key Vendors."
Reptron's Computer Product unit is devoted solely to selling memory
modules. This business unit employs a separate sales and support staff that
focuses on a different market niche and customer base than is serviced by
Reptron Distribution. This unit sells primarily to computer integrators, retail
stores, internet retailing and value-added resellers. Sales 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 Reptron Computer Products
accounted for 8% and 13% of Reptron Distribution's net sales in 2000 and 1999,
respectively (5% and 7% of Reptron's total net sales in 2000 and 1999,
respectively).
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Services. Reptron Distribution sells to over 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, EDI, and other internet based communications. During 2000
and 1999, approximately 34% and 26%, 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 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.
8
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
company owned, 150,000-square foot facility located adjacent to Reptron's Tampa
headquarters. In October, the Company signed a lease for a new distribution
warehouse in Reno, Nevada. The Company expects to have this new 71,500
square-foot distribution center operational by June 2001. Currently, all of
Reptron Distribution's shipments originate from the Tampa warehouse. Reptron
leases 30 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.
Office
------
Atlanta, Georgia
Austin, Texas
Baltimore, Maryland
Boston, Massachusetts
Chicago, Illinois
Cleveland, Ohio
Dallas, Texas
Dayton, Ohio
Detroit, Michigan
Ft. Lauderdale, Florida
Guadalajara, Mexico
Hartford, Connecticut
Hauppauge (Long Island), New York
Huntsville, Alabama
Irvine, California
Los Angeles, California
Minneapolis, Minnesota
Philadelphia, Pennsylvania
Portland, Oregon
Raleigh, North Carolina
Rochester, New York
Sacramento, California
Salem, New Hampshire
San Diego, California
San Jose, California
Seattle, Washington
Tampa, Florida
Toronto, Canada
Reptron Manufacturing Services
Reptron entered into the electronics manufacturing services business
through an acquisition in 1986. Reptron Manufacturing Services' net sales have
grown from approximately $83.0 million in 1995 to $230.0 million in 2000.
Manufacturing Operations. Reptron Manufacturing Services 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 20% of Reptron Manufacturing Services' 2000 net sales. Reptron
Manufacturing Services 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.
9
Reptron Manufacturing Services 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. Reptron Manufacturing Services 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.
Reptron Manufacturing Services 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. Reptron Manufacturing Services obtains its
electronic components from a wide variety of manufacturers and distributors,
some of which are procured through Reptron Distribution.
Marketing and Customers. Reptron Manufacturing Services follows a well-
defined marketing strategy, which includes the following key elements:
. Target Customers Requiring Complex Printed Circuit Board Assemblies.
Reptron Manufacturing Services focuses on complex assemblies in low-to-
medium volumes for customers primarily in the telecommunications,
healthcare, industrial/instrumentation, banking and office products
industries. Reptron Manufacturing Services does not manufacture high
volume printed circuit board assemblies for the personal computer,
consumer products or automotive industries. Reptron Manufacturing
Services 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. Reptron Manufacturing Services
focuses on the low-to-medium volume batch business because of its
reduced volatility. Reptron Manufacturing Services 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, Reptron Manufacturing Services is expanding its market
and customer development through independent sales representatives.
. Target Customer Relationships where Reptron Manufacturing Services is
the Primary Source. Reptron Manufacturing Services seeks engagements
with customers that have decided to strategically outsource
substantially all circuit board assembly. Consequently, Reptron
Manufacturing Services markets its services as a "partnership" with the
customer and encourages the customer to view Reptron Manufacturing
Services as an extension of its own manufacturing capabilities. Reptron
Manufacturing Services attempts to avoid relationships where Reptron
Manufacturing Services is used as an overflow supplier to manage volume
requirements.
. Maintain a Diverse Customer and Industry Base. Reptron Manufacturing
Services targets customers primarily in the telecommunications,
medical, industrial/instrumentation, banking and office products
industries and seeks to maintain a diversity of customers among these
industries and within each industry. In addition, Reptron Manufacturing
Services 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,
Reptron Manufacturing Services' customers from time to time, experience
downturns in their respective businesses resulting in fluctuations in
demand for Reptron Manufacturing Services' 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 Reptron Manufacturing Services and the customer to
successfully launch a high number of different, complex circuit board
assemblies. Reptron Manufacturing Services 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 Reptron Manufacturing Services, management believes, promote
long-term customer loyalty. Reptron Manufacturing Services utilizes a broad
marketing approach which includes the Reptron Distribution sales force,
manufacturers' sales representatives and a direct sales force.
10
Reptron Manufacturing Services seeks to maintain diversity within its
customer base and industries served. During 2000, Reptron Manufacturing
Services' largest three customers represented 16%, 9% and 8% of Reptron
Manufacturing Services' 2000 net sales (6%, 4% and 3% of total Reptron net
sales). During 1999, Reptron Manufacturing Services' largest three customers
represented 11%, 8% and 7% of Reptron Manufacturing Services' 1999 net sales
(5%, 3% and 3% of total Reptron net sales). The following table sets forth the
principal industries and percentage of Reptron Manufacturing Services sales
derived from various industries for 2000 and 1999.
2000 1999
--------------- -------------
Industry % of Sales % of Sales
- -------------------------------------------------------------------------------------------------------
Medical 24% 22%
Semiconductor Equipment 24% 14%
Industrial/Instrumentation 16% 22%
Telecommunications 14% 20%
Banking 13% 14%
Other 9% 8%
Manufacturing Facilities. Reptron Manufacturing Services operates three
plants. These manufacturing facilities are equipped with advanced SMT assembly
equipment and PTH insertion equipment. The Gaylord, Michigan 80,000 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. Reptron Manufacturing
Services leases six buildings in Hibbing, Minnesota, which totals 125,000 square
feet. These buildings are owned in part by four individuals on Reptron
Manufacturing's senior management team. Reptron Manufacturing Services 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 Hibbing, Minnesota manufacturing plant accounted for approximately
41% of Reptron Manufacturing Services' 2000 net sales, with the Tampa, Florida
plant totaling approximately 34% of 2000 net sales, and the Gaylord, Michigan
manufacturing plant totaling approximately 25% of 2000 net sales.
On October 27, 1999, Reptron completed its acquisition of Applied
Instruments, of Fremont, California and re-branded the operations Reptron
Display and System Integration in 2000. Founded in 1987, Reptron Display and
System Integration provides display design engineering, video display solutions
(both CRT and flat panel technology) and system integration of custom turnkey
industrial computer based products, systems integration and turnkey
manufacturing services to its OEM customers. Reptron Display and System
Integration operates from a 40,000 square foot facility in Fremont, California
,and has approximately 70 employees. The unit generated approximately $18.0
million in net sales in 2000.
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
Reptron Manufacturing Services and Reptron Display and System Integration.
Reptron Manufacturing Services competes in a highly fragmented market
composed of a diverse group of EMS providers. Reptron Manufacturing Services
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
11
facilities and focus on target markets, such as the computer industry, that
Reptron Manufacturing Services does not seek to serve. Reptron Manufacturing
Services 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 Reptron
Manufacturing Services' 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 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, Reptron Manufacturing Services
competes effectively. See-"Certain Considerations--Competition; Effects on Gross
Margin."
Reptron Display and System Integration 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. Reptron believes that market reputation combined with a high degree
of technical competency, has allowed Reptron Display and System Integration to
compete effectively in the marketplace.
Management Information Systems
Reptron has made significant investments in computer hardware, software
and MIS personnel. The Reptron Distribution, Reptron Manufacturing Services and
Reptron Display and System Integration's MIS departments collectively employ
approximately 45 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 within
Reptron Distribution and Reptron Manufacturing Services with UNIX-based software
packages written in a fourth generation language.
The UNIX-based software packages used by Reptron Distribution and
Reptron Manufacturing Services 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 30 offices to the corporate headquarters.
Reptron Manufacturing Services 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 Reptron Manufacturing
Services' manufacturing plants with central administrative functions.
Reptron Display and System Integration 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 16, 2001, Reptron employed 2,142 persons, of whom 462 were
dedicated to Reptron Distribution, 1,589 were dedicated to Reptron Manufacturing
Services, 71 were dedicated to Reptron Display and System Integration and 20
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 2003.
12
Item 2. Properties
Reptron occupies a number of facilities located throughout the United
States. Currently, it operates four manufacturing facilities, 30 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 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 Reptron Manufacturing Services plant and
administrative offices and the main warehouse for Reptron Distribution occupy.
Reptron also owns a 80,000 square foot Reptron Manufacturing Services facility
in Gaylord, Michigan.
Leased facilities. Reptron leases 30 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. Additionally, in November 2000
Reptron entered into a lease for a warehouse facility in Reno, Nevada that is
approximately 71,000 square feet for Reptron Distribution. The lease terms on
the facility expire in December, 2010. The warehouse and distribution operations
are expected to be fully transferred to the Nevada facility in the first half of
2001.
Reptron also leases a total of 125,000 square feet of manufacturing and
administrative offices for the Reptron Manufacturing Services operation in
Hibbing, Minnesota. Lease terms on the buildings expire December, 2002.
Reptron also leases a total of 40,000 square feet of manufacturing and
administrative offices for the Reptron Display and System Integration operation
in Fremont, California. Lease terms on the buildings expire July 31, 2004.
Item 3. Legal Proceedings
Reptron is one of ninety-one defendants in a patent infringement action
commenced by the Lemelson Medical, Education & Research Foundation, Limited
Partnership ("Lemelson"). Lemelson alleges that Reptron and the other
co-defendants have infringed various patents that purportedly cover the use of
"machine vision" and "bar code" scanning equipment. Lemelson has asserted
similar claims against other companies in Reptron's industry, as well as against
companies in other industries. Reptron understands that Lemelson has entered
into licenses of the patents alleged to be infringed with others. If Reptron's
defenses of the alleged claims prove unsuccessful, Reptron cannot assure that it
will be offered a license of the Lemelson patents. Based on Reptron's
understanding of the terms that Lemelson has made available to other licensees,
if such a license is negotiated, 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. 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,
2000, 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, 2001.
13
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 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 $ 12 1/16 $ 7 1/2
Second Quarter $ 13 1/2 $ 8 11/16
Third Quarter $ 17 $ 11 1/4
Fourth Quarter $ 16 1/4 $ 5 7/16
Fiscal 2001 High Low
----------- ---- ---
First Quarter (through March 26, 2001) $ 11 3/4 $ 5 11/16
On March 26, 2001 the last sale price of the common stock, as reported by
The NASDAQ National Market System was $6.34 per share.
As of March 26, 2001, 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.
14
Item 6. Selected Financial Data
The following table summarizes selected financial data of Reptron and
should be read in conjunction with the Consolidated 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,
---------------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- -----------
(In thousands except share and per share data)
Operating Statement Data:
Net sales - Electronic Component Distribution........... $ 168,279 $ 187,267 $ 156,507 $ 198,132 $ 345,906
Net sales - Electronic Manufacturing Services........... 100,658 116,644 146,282 161,085 230,553
----------- ----------- ----------- ----------- -----------
Total net sales.................................. $ 268,937 $ 303,911 $ 302,789 $ 359,217 $ 576,459
=========== =========== =========== =========== ===========
Gross profit - Electronic Component Distribution........ $ 34,214 $ 35,375 $ 25,081 $ 34,525 $ 63,027
Gross profit - Electronic Manufacturing Services........ 17,382 18,780 12,847 17,249 30,535
----------- ----------- ----------- ----------- -----------
Total gross profit............................... 51,596 54,155 37,928 51,774 93,562
Selling, general and administrative expenses............ 34,770 38,154 51,206 55,902 71,543
----------- ----------- ----------- ----------- -----------
Operating income (loss).......................... 16,826 16,001 (13,278) (4,128) 22,019
Interest expense, net................................... 4,025 6,184 8,339 8,582 11,425
----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes.............. 12,801 9,817 (21,617) (12,710) 10,594
Income tax provision (benefit).......................... 5,148 3,677 (8,470) (4,703) 4,903
----------- ----------- ----------- ----------- -----------
Net earnings (loss) before extraordinary item.... 7,653 6,140 (13,147) (8,007) 5,691
Extraordinary gain on extinguishment of debt, net....... - - - 12,776 -
----------- ----------- ----------- ----------- -----------
Net earnings (loss).............................. $ 7,653 $ 6,140 $ (13,147) $ 4,769 $ 5,691
=========== =========== =========== =========== ===========
Net earnings (loss) per common share - basic............ $ 1.26 $ 1.01 $ (2.15) $ 0 .78 $ 0.91
=========== =========== =========== =========== ===========
Weighted average Common Stock shares
Outstanding - basic................................. 6,058,889 6,077,084 6,118,023 6,151,563 6,252,938
=========== =========== =========== =========== ===========
Net earnings (loss) per common share - diluted.......... $ 1.24 $ 0.98 $ (2.15) $ 0.78 $ 0.83
=========== =========== =========== =========== ===========
Weighted average Common Stock equivalent
shares outstanding - diluted........................ 6,179,458 6,247,040 6,118,023 6,151,563 6,836,911
=========== =========== =========== =========== ===========
December 31,
---------------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- -----------
Balance Sheet Data:
Working capital......................................... $ 77,231 $ 137,572 $ 101,829 $ 95,677 $ 149,569
Total assets............................................ 138,632 222,514 210,083 215,853 297,467
Long-term obligations - including current
portion.............................................. 67,345 133,693 133,163 119,797 165,322
Shareholders' equity.................................... 48,690 54,975 42,126 46,960 53,775
15
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 Reptron'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,
--------------------------------------
1998 1999 2000
---- ---- ----
Net sales - Electronic Component Distribution 51.7% 55.2 % 60.0%
Net sales - Electronic Manufacturing Services 48.3 44.8 40.0
------- ------ ------
Total net sales...................................... 100.0% 100.0 % 100.0%
======= ====== ======
Gross profit - Electronic Component Distribution 16.0% 17.4 % 18.2%
======= ====== ======
Gross profit - Electronic Manufacturing Services 8.8% 10.7 % 13.2%
======= ====== ======
Total gross profit................................... 12.5% 14.4 % 16.2%
Selling, general and administrative expenses................ 16.9 15.5 12.4
------- ------ ------
Operating income (loss)..................................... (4.4) (1.1) 3.8
Interest expense, net....................................... 2.8 2.4 2.0
------- ------ ------
Earnings (loss) before income taxes......................... (7.2)% (3.5)% 1.8%
Income tax provision (benefit) (2.9) (1.3) 0.8
------- ------ ------
Net earnings (loss) before extraordinary item............... (4.3)% (2.2)% 1.0%
Extraordinary gain on extinguishment of debt, net of tax - 3.5% -
------- ------ ------
Net earnings (loss).................................. (4.3)% 1.3% 1.0%
======= ====== ======
16
2000 Compared to 1999
Net Sales. Total net sales increased $217.3 million, or 60.5%, from
$359.2 million in 1999 to $576.5 million in 2000.
Electronic Component Distribution ("ECD") total net sales increased
$147.8 million, or 74.6%, from $198.1 million in 1999 to $345.9 million in 2000.
This increase resulted primarily from improved market conditions for the sale of
electronic components in the United States. Additionally, we have made
significant investments in personnel and infrastructure, which has aided in
sales volume growth. Sales of semiconductors, passive components and
electromechanical components accounted for 68%, 24% and 8%, respectively, of
2000 ECD net sales compared to 67%, 24% and 9%, respectively, of 1999 ECD net
sales. Sales generated from the top four ECD vendors accounted for approximately
$147 million, or 41% of 2000 ECD net sales, as compared with approximately $68.0
million or 34% of 1999 ECD net sales.
Electronic Manufacturing Services ("EMS") net sales increased $69.5
million, or 43.1%, from $161.1 million in 1999 to $230.6 million in 2000. After
adjusting for net sales of Reptron Display and System Integration, acquired in
October, 1999, 2000 net sales increased $53.5 million or 33.6% as compared with
1999 net sales. This increase is primarily attributable to increased demands
from within the existing customer base of EMS. The three largest EMS customers
accounted for approximately 16%, 9% and 8%, respectively, of 2000 EMS net sales
(6%, 4% and 3%, respectively, of total Company 2000 net sales) as compared to
11%, 8% and 7%, respectively, of 1999 EMS net sales (5%, 3% and 3%,
respectively, of total Company 1999 net sales). Sales from the Hibbing,
Minnesota; Tampa, Florida; Gaylord, Michigan and Fremont, California
manufacturing facilities accounted for approximately 37%, 32%, 23% and 8%
respectively, of EMS 2000 net sales as compared with 26%, 30%, 43% and 1%,
respectively, of EMS 1999 net sales.
Gross Profit. Total gross profit increased $41.8 million or 80.7%,
from $51.8 million in 1999 to $93.6 million in 2000. The gross margin increased
from 14.4% in 1999 to 16.2% in 2000.
ECD gross profit increased $28.5 million, or 82.6%, from $34.5 million
in 1999 to $63.0 million in 2000. ECD gross margin increased from 17.4% in 1999
to 18.2% in 2000. This increase in gross margin is due primarily to improved
selling and pricing practices and stronger electronic component market
conditions experienced in 2000 as compared with market conditions in 1999.
EMS gross profit increased $13.3 million, or 77.0%, from $17.2 million
in 1999 to $30.5 million in 2000 and its gross margin increased from 10.7% in
1999 to 13.2% in 2000. This increase in gross margin is primarily attributable
to the improvements in asset utilization and manufacturing processes.
Additionally, the Fremont plant generated higher gross margins than the other
EMS facilities in 2000.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $15.6 million, or 28.0%, from $55.9 million in
1999 to $71.5 million in 2000. Selling, general and administrative expenses of
Reptron Display and System Integration were approximately $3.7 million. After
adjusting for the effects of Reptron Display and System Integration, the
increase in selling, general and administrative expenses is primarily
attributable to increased variable expenses associated with increased sales
volumes. These expenses, as a percentage of net sales, decreased from 15.6% in
1999 to 12.4% in 2000.
Interest Expense. Net interest expense increased $2.8 million, or
33.1%, from $8.6 million in 1999 to $11.4 million in 2000. This increase in net
interest expense resulted primarily from an increase in average outstanding debt
of $16.1 million, from $126.5 million during 1999 to $142.6 million during 2000.
In addition, our overall average interest rate increased from 6.8% during 1999
to 8.0% during 2000.
17
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.
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 Reptron Display and System Integration, acquired on October 27,
1999, were approximately $2.2 million in 1999. New customers accounted for an
increase of $8.1 million in net sales. Reptron Manufacturing Services 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
---- ----
Percent of Reptron
Industry Manufacturing Services 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 Reptron Display and System Integration plant accounted
for approximately 26.2%, 29.5%, 43.0%, and 1.4% 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 was 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 from 8.8% in 1998 to 10.7%
in 1999. This increase in gross margin was 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. Reptron Display and System Integration accounted
for approximately
18
$549,000 of the increase in 1999. The remaining increase was primarily due to
investments in sales operations, management information systems and engineers.
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.
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,
bank credit lines, capital equipment leases, and short-term financing through
supplier credit lines.
Net cash provided by or used in operating activities has historically
been driven by net income (loss) levels combined with fluctuations in inventory,
accounts receivable and accounts payable. Operating activities for 2000 used
cash of approximately $37.6 million. This decrease in liquidity resulted
primarily from an increase in inventories of $42.1 million and an increase in
accounts receivable of $37.6 million. These items were offset by an increase in
accounts payable of $23.1 million and an increase in accrued expenses of $3.6
million. Days sales in accounts receivable as of December 31, 2000 were
approximately 53 days. Annualized inventory turns for 2000 were 4.5 times.
Capital expenditures totaled approximately $8.3 million in 2000. These
capital expenditures were primarily for the acquisition of manufacturing
equipment and building improvements. These purchases were funded by our working
capital credit facility and a three-year, fixed rate capital lease for
approximately $2.0 million.
Five lenders have made available to the Company a $120 million revolving
credit facility ("Credit Agreement") through January 8, 2004. Borrowings under
the Credit Agreement are collateralized by all 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 retained earnings. The Credit Agreement provides for, upon
notice to the lender, advancement of funds pursuant to either a Domestic Rate
Loan (variable at the prime rate, 9.0% at December 31, 2000) or a Eurodollar
Rate loan based on the LIBOR rate plus an indexed spread (8.71% at December 31,
2000). Upon notice to the lenders, advances may be converted from one type of
loan to the other. As of December 31, 2000, the Company was in compliance with
all covenants under the Credit Agreement. Under borrowing advance formulas
provided for under the Credit Agreement, as of December 31, 2000, the Company
was able to borrow the full credit facility available under the Credit
Agreement. Amounts outstanding under the Credit Agreement as of December 31,
2000 were approximately $80.3 million.
Management believes that available credit facilities will be sufficient
to meet our capital expenditures and working capital needs of our operations as
presently conducted. However, 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. While there can
be no assurance that such financing will be available in amounts and on
acceptable terms, management believes that such financing would likely be
available on acceptable terms.
New Accounting Pronouncements
On December 3, 1999 the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements. This SAB was
effective during the fourth quarter of 2000 for the Company. The Company's
adoption of SAB No. 101 did not have a material impact on revenue or earnings.
19
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
While we had no holdings of derivative financial or commodity
instruments at December 31, 2000, we are exposed to financial market risks,
including changes in interest rates. Approximately half of our borrowings bear a
fixed interest rate. However, borrowings under our bank Credit Facility bears
interest at a variable rate based on the prime rate or the London Interbank
Offered Rate. Based on the average floating rate borrowings outstanding
throughout 2000, a 90 basis point change in the interest rates would have caused
Reptron's interest expense, net of the income tax effect, to change by
approximately $350,000. Reptron believes that this amount is not significant to
the 2000 results of operations.
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
20
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 15, 2001.
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 15, 2001.
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 15, 2001.
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 15, 2001.
21
PART IV
Item 14. Exhibits, Financial Statements, Schedule, and Reports on Form
8-K
(a) The following documents are filed as part of the report:
1. and 2. The financial statements and schedule filed as part of
this report are listed separately in the Index to Financial
Statements and Schedule beginning on page F-1 of this report.
3. For Exhibits see Item 14(c), below.
(b) No reports on Form 8-K have been filed during the period ended
December 31, 2000, by Reptron.
(c) List of Exhibits:
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation*
3.2 Bylaws*
10.1 Revolving Credit and Security Agreement Second Amendment between
PNC Bank, National Association and Reptron, dated February 28,
2000.**
10.2 Distribution Agreement between Applied Data Systems, Inc. and
Reptron Electronics, Inc. dated April 3, 2000. ***
10.3 Distribution Agreement between Tyco Electronics Corporation and
Reptron Electronics Inc., dated April 27, 2000.***
10.4 Mortgage Agreement between GE Capital Asset Finance Corporation
and Reptron Electronics, Inc. dated February 29, 2000.****
10.5 Revolving Credit and Security Agreement Fourth Amendment between
PNC Bank, National Association and Reptron, dated July 20, 2000.
10.6 Employment agreement between Paul Plante and Reptron
Electronics, Inc., dated January 5, 1999.
23.1 Consent of Grant Thornton LLP
- ----------
*Filed with Reptron's Registration Statement on Form S-1, dated
February 8, 1994, Registration No. 33-75040 and incorporated herein by
reference.
** Filed with Reptron's 10-K for the year ended December 31, 1999.
*** Filed with Reptron's Form 10-Q for the quarter ended June 30,
2000.
**** Filed with Reptron's Form 10-Q for the quarter ended March 31,
2000.
(d) Financial Schedule: the financial statement schedule filed as part of
this report is listed separately in the Index to Financial Statements and
Schedule beginning on page F-1 of this report.
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, 1999 and 2000 F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000 F-4
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1998, 1999 and 2000 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000 F-6
Notes to Consolidated Financial Statements F-7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE F-20
Schedule II -- Valuation and Qualifying Accounts for
the years ended December 31, 1998, 1999 and 2000 F-21
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, 1999 and
2000, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of Reptron's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe 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. and subsidiaries as of December 31, 1999 and 2000, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/S/ GRANT THORNTON LLP
Tampa, Florida
January 26, 2001
F-2
REPTRON ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
-----------------
1999 2000
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 108 $ 3,049
Accounts receivable - trade, net 62,754 100,311
Inventories, net 82,553 124,695
Prepaid expenses and other 2,118 2,298
Deferred tax benefit -- 62
-------- --------
Total current assets 147,533 230,415
PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 34,997 33,051
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET 30,507 31,473
OTHER ASSETS 2,816 2,528
-------- --------
$215,853 $297,467
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 42,062 $ 65,199
Current portion of long-term obligations 3,280 2,476
Accrued expenses 6,068 11,941
Income taxes payable 446 1,230
-------- --------
Total current liabilities 51,856 80,846
NOTE PAYABLE TO BANK 37,413 80,270
LONG-TERM OBLIGATIONS, less current portion 79,104 82,576
DEFERRED TAX LIABILITY 520 --
COMMITMENTS AND CONTINGENCIES -- --
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,
6,167,119 and 6,359,257 shares, respectively 62 64
Additional paid-in capital 21,740 22,862
Retained earnings 25,158 30,849
-------- --------
46,960 53,775
-------- --------
$215,853 $297,467
======== ========
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,
-------------------------------------------
1998 1999 2000
---- ---- ----
Net sales $ 302,789 $ 359,217 $ 576,459
Cost of goods sold 264,861 307,443 482,897
---------- ---------- ----------
Gross profit 37,928 51,774 93,562
Selling, general and administrative expenses 51,206 55,902 71,543
---------- ---------- ----------
Operating income (loss) (13,278) (4,128) 22,019
Interest expense, net 8,339 8,582 11,425
---------- ---------- ----------
Earnings (loss) before income taxes (21,617) (12,710) 10,594
Income tax provision (benefit) (8,470) (4,703) 4,903
---------- ---------- ----------
Net earnings (loss) before extraordinary item (13,147) (8,007) 5,691
Extraordinary gain on extinguishment of debt, net of tax of $8,518 -- 12,776 -
---------- ---------- ----------
Net earnings (loss) $ (13,147) $ 4,769 $ 5,691
========== ========== ==========
Net earnings (loss) per common share - basic:
Earnings (loss) before extraordinary item $ (2.15) $ (1.30) $ .91
Extraordinary gain -- 2.08 --
---------- ---------- ----------
Net earnings (loss) per common share - basic $ (2.15) $ .78 $ .91
========== ========== ==========
Weighted average Common Stock shares
outstanding - basic 6,118,023 6,151,563 6,252,938
========== ========== ==========
Net earnings (loss) per common share - diluted:
Earnings (loss) before extraordinary item $ (2.15) $ (1.30) $ .83
Extraordinary gain -- 2.08 --
---------- ---------- ----------
Net earnings (loss) per common share - diluted $ (2.15) $ .78 $ .83
========== ========== ==========
Weighted average Common Stock equivalent shares
outstanding - diluted $6,118,023 $6,151,563 $6,836,911
========== ========== ==========
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, 1998 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
Exercise of stock options 192,138 2 1,122 - 1,124
Net earnings - - - 5,691 5,691
--------- --- ------- -------- --------
Balance at December 31, 2000 6,359,257 $64 $22,862 $ 30,849 $ 53,775
========= === ======= ======== ========
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,
------------------------------------
1998 1999 2000
----------- ----------- ---------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net earnings (loss) $(13,147) $ 4,769 $ 5,691
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 11,067 10,694 10,568
Extraordinary gain -- (12,776) --
Gain on sale of assets (218) -- (530)
Deferred income taxes (2,585) (6,219) (582)
Change in assets and liabilities (net of effect of acquisition):
Accounts receivable - trade 6,108 (11,115) (37,557)
Inventories 11,437 (10,831) (42,142)
Prepaid expenses and other current assets (4,298) 7,212 (180)
Other assets 50 (329) (419)
Accounts payable - trade (8,973) 15,662 23,137
Accrued expenses 2,122 (3,657) 3,627
Deferred revenue (1,210) (70) --
Income taxes payable -- 966 784
------- ------- -------
Net cash provided by (used in) operating activities 353 (5,694) (37,603)
Cash flows from investing activities:
Net cash paid for acquisitions (30,337) (8,075) --
Purchases of property, plant and equipment (3,698) (3,921) (8,339)
Proceeds from the sale of property, plant and equipment 446 101 2,234
------- ------- -------
Net cash used in investing activities (33,589) (11,895) (6,105)
Cash flows from financing activities:
Net proceeds (payments) on note payable to bank -- 37,413 42,857
Proceeds from long-term obligations -- 48 6,015
Payments on long-term obligations (12,132) (29,894) (3,347)
Proceeds from exercise of stock options 298 65 1,124
------- ------- -------
Net cash provided by (used in) financing activities (11,834) 7,632 46,649
Net increase (decrease) in cash and cash equivalents (45,070) (9,957) 2,941
Cash and cash equivalents at beginning of period 55,135 10,065 108
------- ------- -------
Cash and cash equivalents at end of period $ 10,065 $ 108 $ 3,049
======= ======= =======
The accompanying notes are an integral part of these statements.
F-6
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1999 and 2000
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, a contract manufacturer of electronic products and a display
solution provider. Our Electronic Component Distribution ("ECD") customers are
in diverse industries including robotics, telecommunications, computers and
computer peripherals, consumer electronics, healthcare, industrial controls and
contract manufacturing. Our Electronic Manufacturing Services ("EMS") segment
manufactures electronic products according to customer design, primarily for
customers in the telecommunications, healthcare, industrial/instrumentation,
banking and office products industries. As a display solution provider, we
provide 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 EMS, cost is
determined using the first-in, first-out method (FIFO). ECD uses the average
cost method to measure cost, which approximates 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, most 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 $2,276,000 and $3,556,000 at December 31,
1999 and 2000 respectively.
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 1998, 1999 or 2000.
F-7
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998, 1999 and 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 accounting principles
generally accepted in the United States of America, 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.
11. Revenue Recognition
--------------------
Revenues are recognized upon shipment of product, at which time title to goods
has transferred to the buyer. The Company performs periodic credit evaluations
of its customers' financial condition and does not require collateral on its
accounts receivable. Credit losses are provided for in the financial statements
and consistently have been within management's expectations. Accounts
receivable are presented net of an allowance for doubtful accounts of $609,000
and $1,574,000 in 1999 and 2000, respectively.
12. New Accounting Pronouncements
-----------------------------
On December 3, 1999 the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements. This SAB was
effective during the fourth quarter of 2000 for the Company. The Company's
adoption of SAB No. 101 did not have a material impact on revenue or earnings.
F-8
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998, 1999 and 2000
NOTE B - STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information (in thousands):
Year Ended December 31,
1998 1999 2000
---- ---- ----
Cash paid during the year for:
Interest $8,091 $9,207 $11,098
Income taxes $ 507 $1,090 $ 4,662
Reptron incurred approximately $0, $264,000 and $2,000,000 of obligations under
capital leases for the acquisition of equipment during 1998, 1999 and 2000,
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 a 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.
On May 29, 1998 Reptron completed the acquisition of Hibbing Electronics
Corporation ("Hibbing"). The transaction was valued at approximately $53.0
million, consisting of the sum of a cash payment of $30.0 million and the
remainder in the form of the assumption of liabilities. Reptron allocated
approximately $31.0 million of the purchase price to tangible assets. See
Note K.
NOTE C - INVENTORIES
Inventories consist of the following (in thousands):
December 31,
--------------------
1999 2000
--------------------
Electronic Component Distribution:
Inventories $45,620 $ 87,284
Electronic Manufacturing Services:
Work in process 12,270 13,101
Raw materials 26,293 27,082
Less reserve for excess and obsolete inventory (1,630) (2,772)
------ -------
$82,553 $124,695
====== =======
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
December 31,
-------------------
1999 2000
-------------------
Land and buildings $16,405 $14,873
Furniture, fixtures and equipment 43,532 50,915
Leasehold improvements 2,759 3,351
------ ------
62,696 69,139
Less accumulated depreciation and amortization 27,699 36,088
------ ------
$34,997 $33,051
====== ======
F-9
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1998, 1999 and 2000
NOTE E - NOTE PAYABLE TO BANK
Reptron is party to an amended and restated revolving credit agreement ("Credit
Agreement") dated January 8, 1999. Five lenders have made available to the
Company a $120 million revolving credit facility through January 8, 2004.
Borrowings under the Credit Agreement are collateralized by all 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 retained earnings. The Credit Agreement
provides for, upon notice to the lender, advancement of funds pursuant to either
a Domestic Rate Loan (variable at the prime rate, 9.0% at December 31, 2000) or
a Eurodollar Rate loan based on the LIBOR rate plus an indexed spread (8.71% at
December 31, 2000). Upon notice to the lenders, advances may be converted from
one type of loan to the other. As of December 31, 2000, Reptron was in
compliance with all covenants under the Credit Agreement. Amounts outstanding
under the Credit Agreement as of December 31, 2000 were approximately $80.3
million.
NOTE F - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at December 31 (in thousands):
1999 2000
------------ ------------
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. $76,315 $76,315
Notes payable collateralized by real property, due in monthly principal
installments of $39.6 and interest at a rate of 8.6% through March, 2015. -- 3,887
Capitalized lease obligations (net of interest of approximately $455)
for equipm