Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

For the transition period from              to             

Commission File Number 0 - 23426

REPTRON ELECTRONICS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (813) 854 - 2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨    No  x

5,000,000 shares of common stock issued and outstanding as of August 16, 2004.

Table of Contents

REPTRON ELECTRONICS, INC.

INDEX

Table of Contents

PART I. FINANCIAL INFORMATION

     Item 1. Financial Statements

REPTRON ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these financial statements

3

Table of Contents

REPTRON ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

The accompanying notes are an integral part of these financial statements

4

Table of Contents

REPTRON ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

The accompanying notes are an integral part of these financial statements

5

Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Unaudited)

NOTE A – DESCRIPTION OF BUSINESS, SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

Reptron Electronics, Inc. (“Reptron”) is an electronics manufacturing services company providing engineering services, electronics manufacturing services and display integration services. Reptron Manufacturing Services offers full electronics manufacturing services including complex circuit board assembly, complete supply chain services and manufacturing engineering services to OEMs in a wide variety of industries including medical, industrial/instrumentation, banking, telecommunications, and office products. Reptron Display and System Integration provides value-added display design engineering and system integration services to OEMs.

In accordance with AICPA Statement of Position 90-7 Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), the Company adopted “fresh start” accounting as of January 31, 2004 and the Company’s emergence from Chapter 11 resulted in a new reporting entity. Under “fresh start” accounting, the reorganization value of the entity is allocated to the entity’s assets based on fair values, and liabilities are stated at the present value of amounts to be paid determined at appropriate current interest rates. The effective date is considered to be the close of business on January 31, 2004 for financial reporting purposes. The periods presented prior to February 1, 2004 have been designated “Predecessor Company” and the periods subsequent to January 31, 2004 have been designated “Reorganized Company.” As a result of the implementation of fresh start accounting, the financial statements of the Company after the effective date are not comparable to the Company’s financial statements for prior periods.

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and in accordance with the instructions for Form 10-Q. Accordingly, they do not include all of the information and disclosures normally required by accounting principles generally accepted in the United States of America for complete financial statements. The financial information included herein is unaudited and reflects all adjustments (consisting of normal recurring adjustments for all periods presented, including fresh start accounting adjustments where applicable) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. As a result of the implementation of fresh start accounting as of January 31, 2004, the financial statements after that date are not comparable to the financial statements for prior periods. The other significant accounting policies of the Reorganized Company are consistent with those disclosed in the Company’s Form 10-K filed in March 2004. The results of interim periods are not necessarily indicative of results to be expected for a full year. The consolidated financial statements should be read in conjunction with the financial statements and notes thereto, together with management’s discussion and analysis of financial condition and results of operations, included in the 2003 Form 10-K which was filed in March 2004.

NOTE B – PLAN OF REORGANIZATION

On February 3, 2004, Reptron implemented its previously announced financial restructuring when its pre-negotiated Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Plan” or “Plan of Reorganization”) became effective. Events occurring during 2003 and through February 3, 2004 related to the Chapter 11 proceedings are summarized below.

In January 2003, the Company announced that it was seeking to restructure $76.3 million principal amount of Reptron’s outstanding 6¾% Convertible Subordinated Notes (the “Convertible Notes”). As part of this initiative, Reptron discontinued all interest payments on the Convertible Notes.

In February 2003, the Company commenced discussions with certain holders of the Convertible Notes (“Ad-hoc Committee”) to discuss the financial condition of the Company and the proposed restructuring. The Company engaged in extensive negotiations with the Ad-hoc Committee regarding the terms of the consensual restructuring of Reptron.

6

Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Unaudited)

NOTE B – PLAN OF REORGANIZATION - Continued

On October 28, 2003, Reptron filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Under the terms of the Plan, substantially all of Reptron’s general unsecured creditors (except for holders of the Convertible Notes and certain other creditors) were to receive full payment for all prepetition claims within ninety days subsequent to the Plan’s effective date. The Plan was confirmed by the bankruptcy court on January 14, 2004 and became effective February 3, 2004, resulting in conversion of the $76.3 million of Convertible Notes, $6.4 million of accrued interest and $0.7 million of other liabilities into $30 million of Senior Secured Notes due in 2009 (“New Notes”) and the issuance of 95% of the common stock of the reorganized entity (“New Common Stock”). Previously outstanding common stock was also exchanged for 5% of the New Common Stock. The New Notes carry an interest rate of seven percent per annum during the first two years and eight percent per annum during the remaining three years.

In accordance with the Plan, in the first quarter of 2004 the Company, among other matters:

The consolidated balance sheet at December 31, 2003 reflects $76.3 million principal amount of Convertible Notes along with $6.4 million of accrued and unpaid interest thereon, $0.6 million of real property lease liabilities, and $0.1 million of severance liabilities as “Liabilities subject to compromise.” These liabilities are reported at the amount allowed on pre-petition claims in the Chapter 11 proceedings.

Interest expense of approximately $1.3 million and $2.6 million on the Convertible Notes was accrued in the second quarter and first half of 2003, respectively, even though the Company discontinued interest payments on such debt. Interest expense for January 2004 excludes $0.4 million of stated contractual interest associated with the Convertible Notes.

The Company incurred $0.9 million of reorganization costs during the first half of 2004, which primarily includes professional fees of approximately $0.4 million, debt issuance costs of approximately $0.2 million, and contract settlement and other miscellaneous costs of approximately $0.3 million.

The Company’s emergence from Chapter 11 bankruptcy proceedings on February 3, 2004 resulted in a new reporting entity and adoption of fresh start reporting, in accordance with SOP 90-7. Although the effective date of the Plan was February 3, 2004, the Company has accounted for the consummation of the Plan as if it occurred at the close of business on January 31, 2004. The balance sheet as of December 31, 2003 does not give effect to any adjustments in the carrying value of assets or the amounts or classification of liabilities that were recorded upon adoption of fresh start accounting. As a result of the extinguishment of the liabilities subject to compromise, the Company recognized a reorganization gain on debt discharge amounting to $3.5 million, representing the excess of the carrying value of those liabilities compared to management’s estimate of the fair value of the New Common Stock and the New Notes. As provided for in the Company’s Plan of Reorganization, the holders of the liabilities subject to compromise would receive their ratable portion of the New Common Stock and New Notes in full satisfaction of those liabilities.

The following unaudited financial information reflects the implementation of the Plan as of the close of business on January 31, 2004. Reorganization adjustments have been made to reflect the discharge of debt and adoption of fresh start reporting in accordance with SOP 90-7. Accordingly, the reorganization value of the Company of $86 million, as disclosed in our Plan of Reorganization and related Disclosure Statement, limited to the aggregate carrying value of the pre-emergence assets, has been used to allocate the value of the assets and liabilities of the Company in conformity with Statement of Financial

7

Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Unaudited)

NOTE B – PLAN OF REORGANIZATION - Continued

Accounting Standards No. 141 (“SFAS 141”), “Business Combinations.” The Company determined that independent third party appraisals of its long-term tangible and intangible assets was necessary in order to allocate the reorganization value of the Company to its various assets at January 31, 2004. Those valuation procedures have not been finalized as of the date of these financial statements. The fresh-start adjustments included in the table which follows represent management’s preliminary estimate of adjustments necessary to record assets and liabilities at fair value. Any future adjustments are expected to primarily result in allocations among property and equipment, intangible assets and certain accounts receivable. Additionally, the Company is evaluating the effects the reorganization will have on its income tax net operating losses, other deferred tax assets, deferred tax liabilities and related valuation allowance. The amounts of net operating losses available to the company may be limited in total or be subject to annual limitations. These factors will be further considered during the completion of the allocation discussed above. The Company expects to substantially complete this allocation in the third quarter of 2004. However, additional allocations may occur following that date.

8

Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Unaudited)

NOTE B – PLAN OF REORGANIZATION - Continued

NOTE C – DISCONTINUED OPERATIONS

Electronic Component Distribution

As a result of significant losses incurred by the Company’s Electronic Component Distribution (“ECD”) segment during 2001 and 2002, the Company decided to exit the component distribution business either through a sale of the business or by discontinuance of its operations in 2003. Management completed a sale of identified assets of this division on June 13, 2003. Accordingly, the results of this division have been reported as a discontinued operation for all periods presented.

Revenue for the ECD division was $13.8 million for the three months ending June 30, 2003 and $36.2 million for the first half of 2003. The ECD division’s loss before income taxes was $17.3 million in the first half of 2003. Included in the loss from discontinued operations in the first half of 2003 is an impairment writedown of $3.3 million of goodwill, an $11.0 million writedown of inventory, and a $1.7 million impairment of fixed assets. The inventory writedown was determined with consideration given to the sale proceeds for the inventory included in the sale. The goodwill impairment was also recognized in response to the near term expectations established by the board of directors in March 2003 to either sell or otherwise discontinue these operations. As a result, the long-term turnaround previously estimated by management for this segment was no longer feasible and recovery of these assets was not expected in the near term. Also included in the pre-tax loss in the first half of 2003 is interest expense of $0.5 million that was allocated to the electronic component distribution business. The basis for this allocation considered interest expense which could reasonably have been expected to be avoided through the collection of the electronic components distribution division’s trade receivables, proceeds from the sales of assets held for sale, and subsequent payment on the working capital credit facility. Included in loss from discontinued operations in January 2004 is $0.2 million representing an increase in estimated workers compensation costs.

Computer Products Division

The Company exited the Computer Products (“CP”) business through a sale of identified assets of the division that was completed on October 27, 2003. Accordingly, the results of this division have been reported as a discontinued operation for all periods presented.

Revenue for the CP division was $5.8 million for the three months ending June 30, 2003 and $16.4 million for the first half of 2003. The loss from operations before income taxes was $1.2 million and $1.4 million for the same periods, respectively. Interest expense of $0.1 million and $0.2 million is included in pre-tax operations during the second quarter of 2003 and the first half of 2003, respectively. The basis for this allocation considered interest expense that can reasonably be expected to be avoided through the proceeds from the sales of assets held for sale, and subsequent payment on the working capital credit facility. Included in loss from discontinued operations in January 2004 is $0.3 million representing the change in estimate of the recoverability of certain assets.

9

Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Unaudited)

NOTE D — NEW ACCOUNTING PRONOUNCEMENTS

On January 31, 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46”). FIN 46 clarifies existing accounting for whether variable interest entities should be consolidated in financial statements based upon the investees’ ability to finance its activities without additional financial support and whether investors possess characteristics of a controlling financial interest. FIN 46 applies to years or interim periods beginning after June 15, 2003 with certain disclosure provisions required for financial statements issued after January 31, 2003. The Company currently does not have investments in any variable interest entities. In December 2003 the FASB issued FIN No. 46(R), which replaced FIN No. 46. FIN No. 46(R) is effective immediately for certain disclosure requirements and variable interest entities referred to as special-purpose entities for periods ending after December 15, 2003 and for all other types of entities for financial statements for periods ending after March 15, 2004. The application of FIN 46(R) in 2003 and in the first half of 2004 did not have a material effect on it’s the Company’s financial position, results of operations and cash flows.

NOTE E — INVENTORIES

Inventories consist of the following (in thousands):

10

Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Unaudited)

NOTE F — EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net loss per common share (in thousands):

For the three and six month periods ended March 31, 2003 and the one month period ended January 31, 2004, all options have been excluded from the computation of diluted earnings per share because their effect on loss per share would be anti-dilutive.

The Convertible Notes were not included in the computation of earnings per share for the three and six month periods ended June 30, 2003 and the one month period ended January 31, 2004 because the conversion price of $28.50 exceeded the average market price of the common stock. Therefore, the effect would be anti-dilutive.

11

Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Unaudited)

NOTE G – NOTE PAYABLE TO BANK

The Company has a revolving credit facility with Congress Financial Corporation that provides up to $25 million (the “Credit Agreement”) to fund the Company’s operations through February, 2007. The Credit Agreement contains certain covenants including a minimum quarterly measure of earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined by the Credit Agreement. The Company was in compliance with the covenants contained in the Credit Agreement as of June 30, 2004. The interest rate on the credit facility is based on the lender’s prime rate plus one percent. The Credit Agreement is collateralized by substantially all of the Company’s assets. This credit facility, together with the Company’s available cash reserves and cash provided by operations, is expected to provide sufficient liquidity for the Company to pay for goods and services within standard terms. Under the advance rates contained in the Credit Agreement, there was approximately $4.7 million of unused available credit on June 30, 2004. The Credit Agreement requires customer receipts to be directed to a lockbox and applied directly to the revolving credit facility. Accordingly, the debt is classified as a current liability.

NOTE H – INCOME TAXES

The Company recorded income tax expense from continuing operations of $0.8 million and an income tax benefit from discontinued operations of $0.2 million for the month ended January 31, 2004. Also, the deferred tax asset was reduced by a corresponding amount. The income tax provision resulted primarily from the reorganization gain on debt discharge that was partially offset by operating losses. During the five month period ended June 30, 2004, the Company incurred losses before income taxes of $0.6 million. As a result, Reptron recognized a deferred tax asset and an offsetting valuation allowance of approximately $0.2 million, resulting in no income tax benefit. Realization of the tax loss carryforwards are contingent upon future taxable earnings in the appropriate jurisdiction. Each carryforward item is reviewed for expected utilization, using a “more likely than not” approach, based on the character of the carryforward item (credit, loss, etc.), the associated taxing jurisdiction (federal or state), the relevant history for the particular item, the applicable expiration dates, and identified actions under the Company’s control in realizing the associated carryforward benefits. The Company assesses the available positive and negative evidence surrounding the recoverability of the deferred tax assets and applies judgment in estimating the amount of valuation allowance necessary under the circumstances. Management continues to assess and evaluate strategies that will enable the carryforward, or a greater portion thereof, to be utilized, and will reduce the valuation allowance appropriately for each item at such time when it is determined that the “more likely than not” criterion is satisfied. As noted above, the effect of the reorganization may reduce the amount of net operating losses and/or limit the amount that may be available to the company in a given period. Additionally, the carrying value of the deferred tax asset may be further adjusted during the fresh start allocation period as discussed above.

12

Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Unaudited)

NOTE I – STOCK BASED COMPENSATION

The Company follows SFAS No. 123, which establishes a fair value based method of accounting for stock-based employee compensation plans; however, the Company has elected to account for its employee stock compensation plans using the intrinsic value method under Accounting Principles Board Opinion No. 25 with pro forma disclosures of net earnings and earnings per share, as if the fair value based method of accounting defined in SFAS No. 123 had been applied.

Had compensation cost for the Company’s stock option plan been determined based on the fair value at the grant dates for stock-based employee compensation arrangements consistent with the method required by SFAS No. 123, the Company’s net loss and net loss per common share would have been the pro forma amounts indicated below (in thousands):

Prior to the effective date of the Plan of Reorganization of February 3, 2004, the Company provided for three stock option plans which were terminated in accordance with the Plan of Reorganization as of January 31, 2004. The Plan of Reorganization provides for the adoption of a new stock option plan whereby up to 10% of the Company’s New Common Stock may be issuable in connection with options granted under the new plan. As of June 30, 2004, no options had been granted under the new plan. The Company has committed to granting 175,000 options to its CEO and 50,000 options to each of its four outside directors. All of these options will have an option price of $10.53 and will be granted during the third quarter of 2004.

13

Table of Contents

REPTRON ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Unaudited)

NOTE J – STATEMENTS OF CASH FLOWS

Supplemental disclosures of cash flow information from discontinued operations are as follows (in thousands):

14

Table of Contents

REPTRON ELECTRONICS, INC

Item 2: 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 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”, “estimate”, “expect”, “intend”, “anticipate”, “plan” 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.

REORGANIZATION

On October 28, 2003, Reptron filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Under the terms of the Plan, substantially all of Reptron’s general unsecured creditors (except for holders of the Convertible Notes and certain other creditors) are to receive full payment for all pre-petition claims within ninety days subsequent to the Plan’s effective date. The Plan was confirmed by the bankruptcy court on January 14, 2004 and became effective February 3, 2004, resulting in conversion of the $76.3 million of Convertible Notes, $6.4 million of accrued interest and $0.7 million of other liabilities into $30 million of Senior Secured Notes due in 2009 (“New Notes”) and the issuance of 95% of the common stock of the reorganized entity (“New Common Stock”). Previously outstanding common stock was exchanged for 5% of the New Common Stock. The New Notes carry an interest rate of seven percent per annum during the first two years and eight percent per annum during the remaining three years.

In accordance with the Plan, in the first quarter of 2004 the Company, among other matters:

The consolidated balance sheet at December 31, 2003 reflects $76.3 million principal amount of Convertible Notes along with $6.4 million of accrued and unpaid interest thereon, $0.6 million of real property lease liabilities, and $0.2 million of severance liabilities as “Liabilities subject to compromise.” These liabilities are reported at the amount allowed on pre-petition claims in the Chapter 11 proceedings.

Interest expense of approximately $1.3 million and $2.6 million on the Convertible Notes was accrued in the second quarter and first half of 2003, respectively, even though the Company discontinued interest payments on such debt. Interest expense for January 2004 excludes $0.4 million of stated contractual interest associated with the Convertible Notes.

The Company incurred $0.9 million of reorganization costs during January 2004, which primarily includes professional fees of approximately $0.4 million, debt issuance costs of approximately $0.2 million, and contract settlement and other miscellaneous costs of approximately $0.3 million.

15

Table of Contents

The Company’s emergence from Chapter 11 bankruptcy proceedings on February 3, 2004 resulted in a new reporting entity and adoption of fresh start reporting, in accordance with Statement of Position No. 90-7 (SOP 90-7”), “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.” Although the effective date of the Plan was February 3, 2004, the Company accounted for the consummation of the Plan as if it occurred at the close of business on January 31, 2004. The balance sheet as of December 31, 2003 does not give effect to any adjustments in the carrying value of assets or the amounts or classification of liabilities that were recorded upon adoption of fresh start accounting. As a result of the extinguishment of the liabilities subject to compromise, the Company recognized a reorganization gain on debt discharge amounting to $3.5 million, representing the excess of the carrying value of those liabilities compared to management’s estimate of the fair value of New Common Stock and New Notes. As provided for in the Company’s Plan of Reorganization, the holders of the liabilities subject to compromise would receive their ratable portion of the New Common Stock and New Notes in full satisfaction of those liabilities.

The following unaudited financial information reflects the implementation of the Plan as of the close of business on January 31, 2004. Reorganization adjustments have been made to reflect the discharge of debt and adoption of fresh start reporting in accordance with SOP 90-7. Accordingly, the reorganization value of the Company, as provided for in our Plan of Reorganization and Disclosure Statement, limited to the aggregate book value of the pre-emergence assets, has been used to allocate the value of the assets and liabilities of the Company in conformity with Statement of Financial Accounting Standards No. 141 (“SFAS 141”), “Business Combinations.” The Company determined that independent third party appraisals of its long-term tangible and intangible assets was necessary in order to allocate the reorganization value of the Company to its various assets at January 31, 2004. Those valuation procedures have not been finalized as of the date of these financial statements. The fresh-start adjustments included in the table which follows represent management’s preliminary estimate of adjustments necessary to record assets and liabilities at fair value. Any future adjustments are expected to primarily result in allocations among property and equipment, intangible assets and certain accounts receivable. Additionally, the Company is evaluating the effects the reorganization will have on its its income tax net operating losses and other deferred tax assets and liabilities. The amounts of net operating losses available to the company may be limited in total or be subject to annual limitations. These factors will be further considered during the completion of the allocation discussed above. The Company expects to substantially complete this allocation in the third quarter of 2004. However, additional allocations may occur following that date.

16

Table of Contents