UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30,1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0 - 23426
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REPTRON ELECTRONICS, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 38-2081116
- -------------------------------- -----------------------------------
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
14401 McCormick Drive
Tampa, Florida 33626
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813)854-2351
------------
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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6,092,119 shares of common stock issued and outstanding as of August 12, 1998
- --------- ---------------
REPTRON ELECTRONICS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Statements of Operations --
Three months ended June 30, 1998 and
June 30, 1997 and Six months ended
June 30, 1998 and June 30, 1997 3
Consolidated Balance Sheets --
June 30, 1998 and December 31, 1997 4
Consolidated Statement of
Shareholders' Equity -- Six months ended
June 30, 1998 and year ended December 31, 1997 5
Consolidated Statements of Cash Flows --
Six months ended June 30, 1998 and June
31, 1997 6
Notes to Consolidated Financial
Statements -- June 30, 1998 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of the Security
Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Three months ended Six months ended
June 30, June 30,
(Unaudited) (Unaudited)
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 73,636 $ 79,102 $ 144,471 $ 155,353
Cost of goods sold 62,854 64,500 122,218 126,679
--------- --------- --------- ---------
Gross profit 10,782 14,602 22,253 28,674
Selling, general and administrative expenses 11,290 9,386 22,023 18,635
--------- --------- --------- ---------
Operating income (loss) (508) 5,216 230 10,039
Interest expense 1,835 1,246 3,697 2,474
--------- --------- --------- ---------
Earnings (loss) before income taxes (2,343) 3,970 (3,467) 7,565
Income tax provision (benefit) (878) 1,588 (1,500) 3,026
--------- --------- --------- ---------
Net earnings (loss) $ (1,465) $ 2,382 $ (1,967) $ 4,539
========= ========= ========= =========
Net earnings (loss) per common share - basic $ (0.24) $ 0.39 $ (0.32) $ 0.75
========= ========= ========= =========
Weighted average common shares
outstanding - basic 6,090,560 6,073,447 6,089,518 6,072,053
========= ========= ========= =========
Net earnings (loss) per common share
- diluted $ (0.24) $ 0.38 $ (0.32) $ 0.73
========= ========= ========= =========
Weighted average common stock equivalent shares
outstanding - diluted 6,090,560 6,263,109 6,089,518 6,237,672
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<TABLE>
<CAPTION>
REPTRON ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
(Unaudited)
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 14,075 $ 55,135
Accounts receivable - trade, less allowances
for doubtful accounts of $1,108 and $350,
respectively 49,265 45,033
Inventories 77,826 68,732
Prepaid expenses and other assets 6,633 3,907
Deferred tax benefit 599 110
------- -------
Total current assets 148,398 172,917
PROPERTY, PLANT & EQUIPMENT - AT COST, NET 40,468 35,404
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET 24,095 4,272
OTHER ASSETS 8,656 9,921
------- -------
$221,617 $222,514
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade 23,675 24,782
Current portion of long-term obligations 4,981 3,708
Accrued expenses 6,957 5,574
Deferred revenue - 1,280
Income taxes payable - -
------- -------
Total current liabilities 35,613 35,344
LONG-TERM OBLIGATIONS, less current portion 130,667 129,985
DEFERRED INCOME TAXES 2,305 2,210
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,
6,092,119 and 6,088,369 shares, respectively 61 61
Additional paid-in capital 21,402 21,378
Retained earnings 31,569 33,536
------- -------
53,032 54,975
------- -------
$221,617 $222,514
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<TABLE>
<CAPTION>
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
Common Stock Total
----------------- Capital Share-
Shares Par In excess of Retained holders'
Outstanding Value Par Value Earnings Equity
----------- ----- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 6,065,519 $61 $21,233 $27,396 $48,690
Exercise of stock
options 22,850 - 145 - 145
Net earnings - - - 6,140 6,140
--------- -- ------ ------ ------
Balance at
December 31, 1997 6,088,369 61 21,378 33,536 54,975
Exercise of stock
options (unaudited) 3,750 - 24 - 24
Net Earnings (unaudited) - - - (1,967) (1,967)
--------- -- ------ ------ ------
Balance at
June 30, 1998 (unaudited) 6,092,119 $61 $21,402 $31,569 $53,032
========= == ====== ====== ======
</TABLE>
The accompanying notes are an integral part of this financial statement
5
<TABLE>
<CAPTION>
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six months ended
June 30,
(Unaudited)
------------------
1998 1997
------- -------
Increase (decrease) in cash and cash equivalents:
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,967) $ 4,539
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 4,636 2,148
Gain on sale of assets - (23)
Deferred income taxes 38 67
Change in assets and liabilities:
Accounts receivable - trade 6,556 (9,163)
Inventories 4,247 (6,718)
Prepaid expenses and other current assets (858) (1,009)
Other assets (408) (2,396)
Accounts payable - trade (10,840) 9,100
Accrued expenses 894 197
Deferred revenue (1,280) -
Income taxes payable - 228
------- ------
Net cash provided by (used in) operating
activities 1,018 (3,030)
------- ------
Cash flows from investing activities:
Net cash paid for acquisitions (30,335) -
Purchases of property, plant and equipment (2,363) (6,286)
Proceeds from the sale of property 243 -
------- ------
Net cash used in investing activities (32,455) (6,286)
------- ------
Cash flows from financing activities:
Proceeds from exercise of stock options 24 74
Net proceeds from (payments on) note payable to bank - 10,350
Payments on long term obligations (9,647) (1,558)
------- ------
Net cash provided by (used in) financing
activities (9,623) 8,866
------- ------
Net decrease in cash and cash equivalents (41,060) (450)
Cash and cash equivalents at beginning of period 55,135 479
------- ------
Cash and cash equivalents at end of period $ 14,075 $ 29
======= ======
Supplemental cash flow information:
Interest paid $ 3,429 $ 2,430
====== ======
Income taxes paid $ 61 $ 2,731
====== ======
</TABLE>
Non-cash investing and financing activities:
No capital leases were entered into during the six month periods ended
June 30, 1997 and June 30, 1998.
The accompanying notes are an integral part of these financial statements
6
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all the
information and footnote disclosure required by generally accepted
accounting principles for complete financial statements. The consolidated
financial statements as of June 30, 1998 and for the three and six months
ended June 30, 1998 and June 30, 1997 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The
results of operations for the three and six months ended June 30, 1998 are
not necessarily indicative of results that may be expected for the year
ending December 31, 1998. 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 1997 Form 10-K.
<TABLE>
<CAPTION>
NOTE B -- INVENTORIES
Inventories consist of the following (in thousands):
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Reptron Distribution:
Inventories $40,211 $42,126
K-Byte Manufacturing:
Work in process 10,633 10,945
Raw materials 26,982 15,661
------ ------
$77,826 $68,732
====== ======
</TABLE>
7
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 1998
(Unaudited)
NOTE C -- FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company has two industry segments: Distribution and Contract
Manufacturing. Distribution purchases a wide variety of electronic
components, including semiconductors, passive products and
electromechanical components, for distribution to manufacturers and
wholesalers primarily throughout United States. Contract Manufacturing
manufactures electronic products according to customer design, for
customers in various industries, including telecommunications, banking, and
healthcare services.
The following table shows net sales and gross profit by industry segments:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(in thousands) (in thousands)
------------------ ----------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales
Distribution $40,978 $49,251 $ 81,298 $ 96,619
Contract Manufacturing 32,658 29,851 63,173 58,734
------ ------ ------- -------
$73,636 $79,102 $144,471 $155,353
====== ====== ======= ======
Gross Profit
Distribution $ 7,669 $ 9,447 $ 15,466 $ 18,179
Contract Manufacturing 3,113 5,155 6,787 10,495
------ ------ ------- -------
$10,782 $14,602 $ 22,253 $ 28,674
====== ====== ======= =======
</TABLE>
NOTE D -- BUSINESS ACQUISITIONS
On May 29, 1998, Reptron Electronics, Inc. ("Reptron") acquired all of the
assets and liabilities of Hibbing Electronics Corporation and its
subsidiary, ("Hibbing") by way of the purchase of all of the issued and
outstanding common stock of OECO Corporation, the parent of Hibbing. The
transaction was valued at approximately $40.7 million, consisting of the
sum of a cash payment of $29.7 million and debt of approximately $11.0
million. Of the $29.7 million, approximately $7.4 million was deposited
in an escrow account as security for collection of designated accounts
receivable, liquidation of identified inventory and breach of
representations and warranties. In addition, Reptron assumed certain
building and equipment lease obligations. Reptron paid down approximately
$6.7 million of the Hibbing debt at closing, which consisted of notes
payable to bank of $5.8 million and long-term debt of $900,000.
8
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 1998
(Unaudited)
NOTE D - BUSINESS ACQUISITION (CONTINUED)
The following unaudited pro forma summary combines the results of
operations of the Company with the operations of Hibbing Electronics
Corporation as if the acquisition had occurred at the beginning of the
respective periods. This pro forma summary does not necessarily reflect
the results of operations as they would have been if the Company and
Hibbing Electronics Corporation operated as a single entity during such
periods.
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
Net sales $ 85,813 $ 95,255 $177,166 $188,590
======= ======= ======= =======
Gross Profit $ 11,557 $ 16,214 $ 25,693 $ 32,422
======= ======= ======= =======
Operating income (loss) $ (818) $ 5,431 $ 849 $ 10,980
======= ======= ======= =======
Net earnings (loss) $ (1,692) $ 2,447 $ (1,630) $ 4,960
======= ======= ======= =======
Net earnings (loss) per
share - basic $ (0.28) $ 0.40 $ (0.27) $ 0.82
======= ======= ======= =======
Net earnings (loss)
per share - diluted $ (0.28) $ 0.39 $ (0.27) $ 0.80
======= ======= ======= =======
NOTE E -- YEAR 2000 ISSUES
The Company utilizes a number of computer programs across its entire
operation. The Company is currently working to resolve the potential
impact of the year 2000 on the ability of the Company's computerized
information systems to accurately process information that may be date
sensitive. Any of the Company's programs that recognize a date using "00"
as the year 1900 rather than the year 2000 could result in errors or system
failures. The Company has not completed its assessment, however,
management believes that costs of addressing this issue will not have a
material adverse impact on the Company's financial position. However, if
the Company and third parties upon which it relies are unable to address
this issue in a timely manner, it could result in a material financial risk
to the Company.
9
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 the Company's industry and in
the general economy; competitive factors; risks due to shifts in market
demand; the ability of the Company to complete acquisitions; and the risk
factors listed from time to time in the Company's reports filed with the
Securities and Exchange Commission as well as assumptions regarding the
foregoing. The words "believe", "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. The Company 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.
RESULTS OF OPERATIONS
Net Sales.
----------
Total second quarter net sales decreased $5.5 million, or 6.9%, from
$79.1 million in the second quarter of 1997 to $73.6 million in the second
quarter of 1998. Total net sales for the first half of 1998 decreased
$10.9 million, or 7.0% from $155.4 million in the first half of 1997 to
$144.5 million in the first half of 1998.
Reptron Distribution second quarter net sales decreased $8.3 million, or
16.8%, from $49.3 million in the second quarter of 1997 to $41.0 million in
the second quarter of 1998. Net sales generated from sales offices in the
central and southern regions of the United States accounted for a decrease
of $9.8 million which was offset by an increase in net sales of $717,000
from sales offices in the western region of the United States and an
increase in net sales of $785,000 from the new sales office location (which
was not operating during the second quarter of 1997). The largest customer
represented approximately 12.0% of Reptron Distribution second quarter,
1998 net sales (6.6% of total Company net sales) and the largest sales
office accounted for approximately 17.1% of Reptron Distribution net sales.
Sales of semiconductors accounted for 67.5% of second quarter Reptron
Distribution net sales, with the remaining sales generated from passive
components (22.3%) and electromechanical products (10.2%).
Reptron Distribution net sales decreased $15.3 million, or 15.9%, from
$96.6 million in the first half of 1997 to $81.3 million in the first half
of 1998. Net sales generated from sales offices in the central and
southern regions of the United States accounted for a decrease of $17.9
million, primarily due to reductions in component pricing as a result of
industry wide excess supply, which was offset by increases in net sales of
$1.8 million from a sales office which was not operating during the first
half of 1997 and $1.4 million from the memory module division. The largest
Reptron Distribution customer in the first half of 1998 represented
approximately 10.2% of total Reptron Distribution net sales (6.0% of total
Company net sales) and the largest sales office accounted for 15.0% of
total Reptron Distribution net sales. Sales of semiconductors accounted
for 68.0% of first half Reptron Distribution net sales, with the remaining
sales generated from passive components (22.3%) and electromechanical
products (9.7%).
K-Byte Manufacturing net sales increased $2.8 million, or 9.4%, from
$29.9 million in the second quarter of 1997 to $32.7 million in the second
quarter of 1998. Net sales from two Hibbing Electronics Corporation
manufacturing locations, acquired May 29, 1998, accounted for an increase
of approximately $6.2 million, which was partially offset by a decrease in
net sales of approximately $3.4 million from the previously established K-
Byte customer base. The largest K-Byte Manufacturing customer accounted
for approximately 8.4% of second quarter division net sales (3.7% of total
Company net sales). Sales from the Tampa, Florida; Gaylord, Michigan and
Hibbing, Minnesota manufacturing facilities accounted for approximately
46.0%, 32.2%, and 17.7%, respectively, of K-Byte Manufacturing second
quarter net sales. The remaining sales originated from the Saline,
Michigan and Gaithersburg, Maryland locations.
10
K-Byte Manufacturing net sales increased $4.5 million, or 7.6%, from
$58.7 million in the first half of 1997 to $63.2 million in the first half
of 1998. Net sales from two Hibbing Electronics Corporation manufacturing
locations, acquired May 29, 1998, accounted for an increase of
approximately $6.2 million, which was partially offset by a decrease in net
sales of approximately $1.7 million from the previously established K-Byte
customer base. The largest three K-Byte customers accounted for
approximately 12.1%, 9.9% and 7.7%, respectively, of total division net
sales (5.3%, 4.3% and 3.4%, respectively, of total Company net sales).
Sales from the Tampa, Florida; Gaylord, Michigan; and Hibbing, Minnesota
manufacturing facilities accounted for approximately 50.2%, 37.5% and 9.1%,
respectively, of total K-Byte Manufacturing sales in the first half of
1998. The remaining sales were generated from the Saline, Michigan and
Gaithersburg, Maryland locations.
Gross Profit.
-------------
Total second quarter gross profit decreased $3.8 million, or 26.2%, from
$14.6 million in the second quarter of 1997 to $10.8 million in the second
quarter of 1998. The gross margin of the Company decreased from 18.5% in
the second quarter of 1997 to 14.6% in the second quarter of 1998. Total
gross profit decreased $6.4 million, or 22.4%, from $28.7 million in the
first half of 1997 to $22.3 million in the first half of 1998. The gross
margin decreased from 18.5% in the first half of 1997 to 15.4% in the first
half of 1998.
Reptron Distribution second quarter gross profit decreased $1.7 million,
or 18.8%, from $9.4 million in the second quarter of 1997 to $7.7 million
in the second quarter of 1998. The gross margin decreased from 19.2% in
the second quarter of 1997 to 18.7% in the second quarter of 1998. This
decrease in gross margin is primarily as a result of industry wide
pressures on component pricing, due to excessive supply. Reptron
Distribution's gross margin remained relatively flat at 19.0% in the first
half of 1998 as compared to 18.8% in the first half of 1997.
K-Byte Manufacturing gross profit decreased $2.1 million, or 39.6%, from
$5.2 million in the second quarter of 1997 to $3.1 million in the second
quarter of 1998 and its gross margin decreased from 17.3% in the second
quarter of 1997 to 9.5% in the second quarter of 1998. This decrease is
reflective of absorption of fixed manufacturing overhead and increased
depreciation and amortization expenses at current sales levels. K-Byte
Manufacturing gross margin decreased from 17.9% in the first half of 1997
to 10.7% in the first half of 1998 for similar reasons.
Selling, General, and Administrative Expenses.
----------------------------------------------
Selling, general, and administrative expenses increased $1.9 million, or
20.3%, from $9.4 million in the second quarter of 1997 to $11.3 million in
the second quarter of 1998. This increase is attributed to the addition of
senior management, the operating expenses of the new sales office in Texas,
the placement of field engineers at various sales locations and the Hibbing
operating expenses incurred since the acquisition.. These expenses, as a
percentage of net sales, increased from 11.9% in the second quarter of 1997
to 15.3% in the second quarter of 1998 due to the increases described above
coupled with reduced sales levels. First half selling, general and
administrative expenses as a percentage of net sales increased from 12.0%
in the first half of 1997 to 15.2% in the first half of 1998, for similar
reasons.
Interest Expense.
-----------------
Interest expense increased $600,000, or 47.3%, from $1.2 million in the
second quarter of 1997 to $1.8 million in the second quarter of 1998
primarily as a result of higher levels of debt associated with the
convertible debt which was issued in August, 1997. First half interest
expense increased $1.2 million, or 49.4%, from $2.5 million in the first
half of 1997 to $3.7 million in the first half of 1998, for similar
reasons.
LIQUIDITY AND CAPITAL RESOURCES
The Company primarily finances its operations through operating cash
flows, subordinated notes, bank credit lines, capital equipment leases, and
short-term financing through supplier credit lines.
Operating activities for the second quarter of 1998 used cash of
approximately $1.8 million. This decrease in liquidity resulted primarily
from a net loss of $1.5 million, a decrease in accounts payable of $8.9
million, an increase in prepaid expenses and other current assets of $2.3
million and a decrease in deferred revenue of $1.3 million. These items
were offset by a decrease in accounts receivable of $1.5 million, a
decrease in inventories of $4.2 million and an increase in accrued expenses
of $3.9 million.
11
Operating activities for the first half of 1998 generated cash of
approximately $1.0 million. This increase resulted primarily from a
decrease in accounts receivable of $6.6 million, a decrease in inventories
of $4.2 million, and an increase in accrued expenses of $900,000. These
items were offset by a net loss of $2.0 million, a decrease in accounts
payable of $10.8 million, a decrease in deferred revenue of $1.3 million
and increases in prepaid expenses and other current assets and other assets
of $1.3 million.
On May 29, 1998, the Company acquired Hibbing Electronics Corporation
for a cash payment of approximately $29.7 million. In conjunction with the
closing of this transaction, the Company paid down Hibbing debt of
approximately $6.7 million. The cash reserves of the Company were used to
fund the purchase transaction and the debt paydown.
Capital expenditures totaled approximately $2.3 million in the first
half of 1998. These capital expenditures were primarily for the
acquisition of systems software and manufacturing equipment and building
improvements. The cash reserves of the Company were used to fund these
purchases.
The Company has a $15.0 million credit facility available through June,
1999. As of June 30, 1998, there were no amounts outstanding under this
facility.
The Company believes that cash generated from operations, available cash
reserves and available credit facilities will be sufficient for the Company
to meet its capital expenditures and working capital needs for its
operations as presently conducted. Additionally, the Company's future
liquidity and cash requirements will depend on a wide range of factors,
including the level of business in existing operations, expansion of
facilities, and possible acquisitions. While there can be no assurance
that such financing will be available in amounts and on terms acceptable to
the Company, the Company believes that such financing would likely be
available on acceptable terms.
12
REPTRON ELECTRONICS, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of the Security Holders
The annual Meeting of the Shareholders of the Company was held
on May 21, 1998. Mr. William L. Elson was elected director of
the Company for three year term with 4,789,357 shares voting
in favor, zero shares against and 125,664 shares abstaining.
Mr. John J. Mitcham was elected director of the Company for a
three year term with 4,889,357 voting in favor, zero shares
against and 25,664 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Employment Agreement between Reptron Electronics,
Inc. and Michael L. Musto.
b. Reports on Form 8-K
Form 8-K was filed on June 12, 1998 with respect to the
acquisition of Hibbing Electronics Corporation. On August
10, 1998, Form 8-K/A was filed with the required financial
statements and pro forma financial information relative to
this acquisition.
13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: August 14, 1998
---------------------
REPTRON ELECTRONICS, INC.
-------------------------
(Registrant)
By: /s/ Michael Branca
------------------------
Michael Branca Chief Financial
Officer (Principal Financial
and Accounting Officer)
14
EXHIBIT 10.1
EMPLOYMENT AGREEMENT FOR
MICHAEL L. MUSTO
EXECUTIVE
EMPLOYMENT AGREEMENT
This Employment Agreement is made this day of 1998 between
Reptron Electronics, Inc., a Florida corporation whose corporate office
address is 14401 McCormick Drive, Tampa, FL 33626 (hereinafter "Company")
and Michael L. Musto whose address is 2410 Huntington Blvd., Safety Harbor,
FL 34695 (hereinafter "Executive").
WHEREAS:
A. The Executive is currently in the employ of the Company on an at
will basis, in a position of significant responsibility, and
B. The Company and the Executive are desirous of entering into a
formal employment relationship by way of this employment agreement,
maintaining the at will nature of the relationship, and addressing the
preservation of Intangible Business Assets of the Company (defined below).
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Company and the Executive agree as follows:
1. This Agreement shall continue until terminated as herein provided.
This Agreement supersedes all prior employment agreements or arrangements
existing as between the Company and the Executive.
2. The Company engages the Executive and the Executive accepts the
engagement to provide the services hereinafter described for the period and
upon the terms and conditions hereinafter described.
3. At the execution hereof, the Executive shall be employed as
President, Chief Executive Officer and Chairman of the Board. The Executive
shall perform the duties associated with such positions and shall commit
such of his time and effort required in completing and fulfilling those
duties and responsibilities commensurate with and like in amount to the
time committed by the Executive in fulfilling the same as of the execution
hereof.
4. During the term of this Agreement, the Executive shall be
compensated as follows:
(a) The Company shall pay to the Executive an annual base salary of
$400,000, payable in bi-weekly installments. In the event of the death of
the Executive, the base salary shall be paid to the end of the then bi-
weekly installment period. In the event of the disability of the Executive,
the base salary shall be payable through the date benefits under the
disability policy of the Company become payable, but in no event for a
period longer than 180 days following the onset of the illness or injury
causing such disability.
(b) The Executive shall receive an annual cash bonus payable by March
15 following the calendar year in which earned an amount equal to the sum
calculated in Exhibit A.
(c) If the Executive's employment is terminated as of a date other
than the end of the Company's fiscal year end, the bonus amount shall be
calculated to the end of the calendar quarter in which the termination
occurs and annualized through the end of the then fiscal year of the
Company, and paid to the Executive, or his written designated beneficiary
or estate, as the case may be.
(d) The Executive shall participate in and receive comparable
benefits as are provided by the Company to its other personnel from time to
time except as modified or amplified by this Agreement. Further, for the
three year period after termination of this Agreement for any reason, the
Company shall maintain health and hospitalization medical insurance for the
Executive and his spouse at no additional charge providing benefits
comparable to that maintained at the date of such termination.
5. For purposes hereof, Change of Control shall mean:
(a) Any replacement of 50% or more of the directors of the
Company which follows, and is directly or indirectly a result of, any one
or more of the following:
(i) A cash tender offer or exchange offer for the
Company's common stock;
(ii) A solicitation of proxies other than by the
Company's management or board of directors;
(iii) Acquisition of beneficial ownership of shares
having 50% or more of the total number of votes
that may be cast for the election of directors of
the Company by a third party or a "group" as
defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, for the purpose of changing
control of the Company; or
(iv) Any merger, business combination, sale of assets
or other extraordinary corporate transaction
undertaken for the purpose of changing control of
the Company, or
(b) The Board of Directors determines that any other proposed
action presented to the Board or the Shareholders, if taken, would
constitute a Change of Control.
6. (a) This Agreement and the Executive's employment shall terminate
upon any of the following:
(i) the voluntary termination of employment by the
Executive,
(ii) the death, or partial or permanent disability of
the Executive (partial or permanent disability
being determined at such time when disability
insurance coverage maintained by the Company for
the Executive becomes payable),
(iii) discharge of the Executive by the Company for
whatever reason.
(iv) the end of the fiscal year in which the Executive
attains 70 years of age.
(v) upon a Change of Control.
(b) Upon any such termination, except as otherwise provided
herein, all compensation and benefits shall thereafter likewise
concurrently terminate.
7. As additional consideration of the services to be performed by the
Executive and the undertakings hereby assumed by the Executive, the Company
shall make a "Severance Payment" as follows:
(a) The amount of the Severance Payment shall equal 2.99 times
the average annual base compensation as defined and determined under
Section 280G of the Internal Revenue Code of 1986, as amended.
(b) The Severance Payment shall be payable in full thirty (30)
days following a termination of this Agreement as provided in subparagraphs
6(iii) and (v) above.
(c) If the Executive shall die after the termination of this
Agreement, but prior to remittance of the Severance Payment, the same shall
be payable to the estate of the Executive or to such designee as the
Executive shall have directed in writing to the Company.
(d) Receipt of the Severance Payment shall act as a full release
by the Executive of all claims the Executive may have against the Company
except for unpaid wages, benefits or sums to be paid to the Executive post-
termination of this Agreement as herein provided.
8. Executive acknowledges that during the course of his past
employment with the Company, and as his employment continues, he has and
will have direct access to and knowledge of the Company's trade secrets and
other confidential and proprietary information and documents, including but
not limited to the Company's customer list, customer requirements and
information, price lists, all training materials, product information,
operating procedures, marketing information, selling strategies, and
supplier information (collectively "Confidential Information"). The
Executive agrees that all Confidential Information shall remain the
property of the Company, shall be kept in the strictest of confidence, used
solely for the benefit of the Company and shall not be disclosed, either
directly or indirectly, to any other person or entity except as is required
in the furtherance of the Company's business and for its benefit. Executive
further agrees that all such Confidential Information (and any copies
thereof regardless of how maintained, including that which has been reduced
to electronic memory) shall be returned to the Company upon termination of
this Agreement for whatever reason. The terms of this paragraph are in
addition to, and not in lieu of, any common law, statutory or other
contractual obligations that Executive may have relating to the Company's
Confidential Information. Further, the terms of this paragraph shall
survive indefinitely the termination of this Agreement.
9. The Executive acknowledges that:
(a) The Company has made significant investment in the
development, maintenance and preservation of its trade secrets, its
marketing methodology, its relationship with its various customers and
vendors, both past, current and prospective; in its development and
maintenance of its franchised distributorship rights, in the training and
development of its executives and in the development, maintenance and
preservation of its goodwill, including that which is associated with its
name, its trade dress and its various trade marks, including but not
limited to the mark "K-Byte" (collectively "Intangible Business Assets").
(b) The Company has a legitimate business interest in maintaining
and protecting the value of these Intangible Business Assets and in
preventing the unauthorized use or misappropriation of any one of the same.
(c) The use of any of these Intangible Business Assets other than
in furtherance of the business interests of the Company would provide the
unauthorized user with an unfair competitive advantage as against the
Company and would be detrimental to the Company.
Consequently, the Executive agrees that during the course of
his employment and for a period of two years thereafter he shall not become
employed by, or consult or be associated with in any capacity whatsoever
(including, but not limited to, that as an owner, shareholder, agent or
independent contractor) any business enterprise which manufactures, sells,
markets or distributes any of the products manufactured, sold, marketed, or
distributed by the Company, or which provides services comparable to that
provided by the Company, in markets designated by the National Electronics
Distributors Association in which the Company had a presence all as defined
below; and during said two year period, and notwithstanding locale, the
Executive shall not submit a quotation for, or offer to sell, any product
or service competitive with the Company to any customer or prospective
customer of the Company. A market shall be that geographic area designated
as such by the National Electronics Distributors Association. The Company's
presence in a market as so designated shall exist if the Company had sales
of product or services to customers in such market in the cumulative amount
of not less than $1,500,000 within the twelve (12) month period preceding
the date of such termination of employment.
10. The Company has made a significant investment in developing and
training a competent work force. The Executive acknowledges that the scope
of the abilities of, and compensation paid to, the Company's various
employees is valuable and confidential information. Further, the Executive
acknowledges that the Company's continued viability and success is in large
part contingent upon maintaining a stable, trained and competent work
force. During the course of his employment, and for a period of two years
thereafter, regardless of the reason for termination thereof, the Executive
will not directly or indirectly solicit, entice, encourage, or cause, any
salaried employee of the Company to leave the employment of the Company.
Further during said two year period, the Executive will not directly or
indirectly hire, or cause another person or entity to hire any salaried
employee of the Company.
11. Executive acknowledges and agrees that the covenants set forth in
Paragraphs 8, 9 and 10 are necessary and reasonable to protect the
Company's Confidential Information, its Intangible Business Assets, its
legitimate business interests and goodwill, and that the breadth, time and
geographic scope of the limitations set forth therein are reasonable and
necessary to protect the same. The Executive expressly acknowledges and
agrees that the Company would not have an adequate remedy at law in the
event of his breach, and or threatened breach of the covenants set forth in
Paragraphs 8, 9 and 10 of this Agreement. Consequently, in addition to such
other remedies as the Company may have, the Company, without posting any
bond, shall be entitled to obtain, and Executive agrees not to oppose a
request for, equitable relief in the form of specific performance, ex parte
temporary or preliminary injunctive relief, other temporary or permanent
injunctive relief, or other equitable remedy fashioned by a court of
competent jurisdiction enjoining the Executive from any such threatened or
actual breach.
12. If during the term of this Agreement, the Company is a
participant in a consolidation or merger, or the Company should sell
substantially all of its assets, the Company agrees that as a condition of
closing any such transaction, the surviving entity to such consolidation or
merger, or the purchaser of such assets, shall in writing assume this
Agreement and become obligated to perform all of the terms and provisions
hereof applicable to the Company. Without limiting the generality of the
foregoing, the covenants contained in Paragraphs 8, 9 and 10 may be
enforced by the assignee or successor of the Company.
13. If any of the consideration paid or made available to the
Executive as herein provided, results in the imposition of an excise or
similar extra tax under Section 4999 of the Internal Revenue Code of 1996,
as amended, or such other provision of law of similar effect, the Company
shall additionally pay to the Executive a gross sum such that after
deduction of applicable federal income taxes, the net amount equals such
excise or similar extra tax.
14. Any notice to be given to the Company hereunder shall be deemed
sufficient if addressed to the Company in writing and delivered or mailed
by certified or registered mail to its offices at 14401 McCormick Drive,
Tampa, Florida 33626, or such other address as the Company may hereafter
designate. Any notice to be given to Executive hereunder shall be delivered
or mailed by certified or registered mail to him at 2410 Hungtington Blvd.,
Safety Harbor, Florida 34695, or such other address as he may hereafter
designate.
15. This Agreement shall be binding upon and inure to the benefit of
the successors and assigns of the Company, including without limitation the
purchaser of substantially all of the operating assets of the Company.
Unless clearly inapplicable, reference herein to the Company shall be
deemed to include any such successor. Without limiting the generality of
the foregoing, the covenants contained in Paragraphs 8, 9 and 10 may be
enforced by the assignee or successor of the Company. In addition, this
Agreement shall be binding upon and inure to the benefit of the Executive
and his heirs, executors, legal representatives and assigns; provided,
however, that the obligations of Executive hereunder may not be delegated
without the prior written approval of the Board of Directors of the
Company. The provisions of Paragraphs 7, 8, 9, 10, 11, 12 and 13 shall
survive the termination of this Agreement.
16. This Agreement may not be altered, modified or amended except by
a written instrument signed by each of the parties hereto.
17. This instrument including attachments and exhibits thereto and
documents and agreements referred to therein embodies the whole agreement
of the parties. All previous negotiations or agreements between the
parties, either verbal or written with respect to the subject matter hereof
not herein contained are hereby withdrawn and annulled. This contract shall
supersede all previous communications, representations, or agreements,
either verbal or written, between the parties hereto with respect to the
subject matter hereof.
18. The failure of either party at any time to require performance by
the other party of any provision of this Agreement shall not be deemed a
continuing waiver of that provision or a waiver of any other provision of
this Agreement and shall in no way affect the full right to require such
performance from the other party at any time thereafter.
19. The invalidity or unenforceability of any Paragraph or
Paragraphs, or subparagraphs of this Agreement, shall not affect the
validity or enforceability of the remainder of this Agreement, or the
remainder of any Paragraph or sub-paragraph. If as provided by law, a court
of competent jurisdiction is unable to modify any such violative Paragraph
or sub-paragraph to result in the same not being invalid or unenforceable,
this Agreement shall then be construed in all respects as if any invalid or
unenforceable Paragraph or subparagraph(s) were omitted.
20. The Executive represents to the Company as follows:
(a) That the Executive has been advised by the Company to have
this Agreement reviewed by an attorney representing the Executive, and the
Executive has either had this Agreement reviewed by such attorney or has
chosen not to have this Agreement reviewed because the Executive, after
reading the entire Agreement, fully and completely understands each
provision and has determined not to obtain the services of an attorney.
(b) The Executive, either on his own or with the assistance and
advice of his attorney, has in particular reviewed Paragraphs 8, 9, 10 and
11, understands and accepts the restrictions thereby imposed and agrees the
same are reasonable in all respects and necessary for the protection of the
property rights and the Intangible Business Assets of the Company.
(c) That no force, threats of discharge, or other threats or
duress have been used by the Company, directly, indirectly or by innuendo,
in connection with the Executive's execution of this Agreement.
21. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Florida without regard to
conflicts of laws. Further, the Executive agrees that any action relating
to the terms of this Agreement shall be commenced and only commenced in a
state or federal court sitting in Tampa, Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date opposite their signatures.
REPTRON ELECTRONICS, INC.
Date: June 5, 1998 By: /s/ Barry M. Alpert
----------------------
Name: BARRY M. ALPERT
Title: Chairman of the
Compensation Committee
Date: /s/ Michael L. Musto
--------------------
MICHAEL L. MUSTO
REPTRON ELECTRONICS, INC.
Date: By: /s/ Paul J. Plante
-------------------
PAUL J. PLANTE
Chief Operating Officer
Michael L. Musto Bonus
Provided net earnings of the Company for the year are not less than
fifteen percent (15%) of Shareholder equity:
(1) (2) (3) (4)
Earnings Bonus in Earnings Bonus In
Growth Cash As A Growth Number Of Stock
Rate % of Base Rate Options As
Salary A % Of Base Salary
0-14.9% 0.00% 0-14.9% 0.00%
15-19.9% 15% 15-19.9% 10%
20-25.9% 20% 20-25.9% 15%
26-30.9% 25% 26-30.9% 20%
31-35.9% 30% 31-35% 25%
36-40% 35% 36-40% 30%
>40% 40% >40% 35%
EXHIBIT A
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 14075
<SECURITIES> 0
<RECEIVABLES> 49265
<ALLOWANCES> 1108
<INVENTORY> 77826
<CURRENT-ASSETS> 148398
<PP&E> 40468
<DEPRECIATION> 0
<TOTAL-ASSETS> 221617
<CURRENT-LIABILITIES> 35613
<BONDS> 130667
0
0
<COMMON> 61
<OTHER-SE> 52971
<TOTAL-LIABILITY-AND-EQUITY> 221617
<SALES> 144471
<TOTAL-REVENUES> 144471
<CGS> 122218
<TOTAL-COSTS> 144241
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3697
<INCOME-PRETAX> (3467)
<INCOME-TAX> (1500)
<INCOME-CONTINUING> (1967)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1967)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
