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 September 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.
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(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
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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6,147,119 shares of common stock issued and outstanding as of
November 9, 1998.
- -----------------
REPTRON ELECTRONICS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Statements of Earnings --
Three months ended September 30, 1998 and
September 30, 1997 and Nine months ended
September 30, 1998 and September 30, 1997 3
Consolidated Balance Sheets --
September 30, 1998 and December 31, 1997 4
Consolidated Statement of Shareholders'
Equity -- Year ended December 31, 1997
and Nine months ended September 30, 1998 5
Consolidated Statements of Cash Flows --
Nine months ended September 30, 1998 and September
30, 1997 6
Notes to Consolidated Financial
Statements -- September 30, 1998 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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 Nine months ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $77,527 $74,278 $221,998 $229,631
Cost of goods sold 66,254 61,276 188,471 187,956
------ ------ ------- -------
Gross profit 11,273 13,002 33,527 41,675
Selling, general and administrative expenses 12,099 9,158 34,125 27,793
------ ------ ------- -------
Operating income (loss) (826) 3,844 (598) 13,882
Interest expense, net 2,306 1,595 6,003 4,069
------ ------ ------- -------
Earnings (loss) before income taxes (3,132) 2,249 (6,601) 9,813
Income tax provision (benefit) (1,176) 810 (2,676) 3,835
------ ------ ------- -------
Net earnings (loss) $(1,956) $ 1,439 $ (3,925) $ 5,978
====== ====== ======= =======
Net earnings (loss) per common share - basic $ (0.32) $ 0.24 $ (0.64) $ 0.98
====== ====== ======= =======
Weighted average common shares outstanding
- basic 6,145,936 6,081,094 6,108,324 6,075,066
========= ========= ========= =========
Net earnings (loss) per common share
- diluted $ (0.32) $ 0.23 $ (0.64) $ 0.95
======= ======= ======= =======
Weighted average common stock equivalent
shares outstanding - diluted 6,145,936 6,326,783 6,108,324 6,267,376
========= ========= ========= =========
</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
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 8,551 $ 55,135
Accounts receivable - trade, less allowances
for doubtful accounts of $350 49,523 45,033
Inventories 76,167 68,732
Prepaid expenses and other assets 8,273 3,907
Deferred tax benefit 132 110
------- -------
Total current assets 142,646 172,917
PROPERTY, PLANT & EQUIPMENT - AT COST, NET 39,256 35,404
EXCESS OF COST OVER NET ASSETS ACQUIRED, NET 24,707 4,272
OTHER ASSETS 8,890 9,921
------- -------
$215,499 $222,514
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade 21,497 24,782
Current portion of long-term obligations 4,886 3,708
Accrued expenses 5,913 5,574
Deferred revenue - 1,280
------- -------
Total current liabilities 32,296 35,344
LONG-TERM OBLIGATIONS, less current portion 129,510 129,985
DEFERRED INCOME TAXES 2,345 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,
6,147,119 and 6,088,369 shares, respectively 61 61
Additional paid-in capital 21,676 21,378
Retained earnings 29,611 33,536
------- -------
51,348 54,975
------- -------
$215,499 $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)
Total
Common Stock 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) 58,750 - 298 - 298
Net Earnings (Unaudited) - - - (3,925) (3,925)
--------- -- ------ ------ ------
Balance at September
30, 1998 (Unaudited) 6,147,119 $61 $21,676 $29,611 $51,348
========= == ====== ====== ======
</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)
Nine months ended
September 30,
1998 1997
------- -------
Increase (decrease) in cash and cash equivalents:
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (3,925) $ 5,978
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 7,526 3,509
Deferred income taxes 113 351
Gain on sale of assets (218) (23)
Change in assets and liabilities:
Accounts receivable - trade 6,298 (5,862)
Inventories 5,906 (9,935)
Prepaid expenses and other assets (2,233) (2,169)
Other assets (1,539) (7,813)
Accounts payable - trade (13,018) 5,870
Accrued expenses (150) 405
Deferred revenue (1,280) -
Income taxes Payable - (246)
------- -------
Net cash used in operating activities (2,520) (9,935)
------- -------
Cash flows from investing activities:
Net cash paid for acquisitions (31,006) -
Disposal of property, plant and equipment 597 23
Purchases of property, plant and equipment (3,054) (5,489)
------- ------
Net cash used in investing activities (33,463) (5,466)
------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options 298 103
Net proceeds from (payments on) note payable to bank - (48,550)
Proceeds from long-term obligations - 123,800
Payments on long-term obligations (10,899) (11,086)
------- -------
Net cash provided by (used in) financing
activities (10,601) 64,267
------- -------
Net increase (decrease) in cash and cash
equivalents (46,584) 48,866
Cash and cash equivalents at beginning of period 55,135 479
------ -------
Cash and cash equivalents at end of period $ 8,551 $ 49,345
====== =======
Supplemental cash flow information:
Interest paid $ 4,681 $ 3,311
====== ======
Income taxes paid $ 172 $ 4,216
====== ======
</TABLE>
Non-cash investing and financing activities:
During the nine month periods ended September 30, 1997 the Company incurred
approximately $372 of obligations under capital leases for the acquisition of
equipment. No capital leases were entered into during the nine month period
ended September 30, 1998.
The accompanying notes are an integral part of these financial statements
6
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
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 September 30, 1998 and for the three and nine months ended
September 30, 1998 and September 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 nine months ended September 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):
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Reptron Distribution:
Inventories $38,476 $42,126
K-Byte Manufacturing:
Work in process 11,248 10,945
Raw Materials 26,443 15,661
------ ------
$76,167 $68,732
====== ======
</TABLE>
7
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1998
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 throughout the United
States. Contract Manufacturing manufactures electronic products according to
customer design, for customers in various industries, including
telecommunications, banking, and medical services.
The following table shows net sales and gross profit by industry segments:
<TABLE>
<CAPTION>
Three months ended Nine months
ended
September 30, September 30,
(in thousands) (in thousands)
------------------ ----------------
- -
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales
Distribution $36,559 $45,801 $117,858 $142,420
Contract Manufacturing 40,968 28,477 104,140 87,211
------ ------ ------- -------
$77,527 $74,278 $221,998 $229,631
====== ====== ======= =======
Gross Profit
Distribution $ 7,073 $ 8,756 $ 22,540 $ 26,934
Contract Manufacturing 4,200 4,246 10,987 14,741
------ ------ ------- -------
$11,273 $13,002 $ 33,527 $ 41,675
====== ====== ======= =======
</TABLE>
NOTE D -- BUSINESS ACQUISITION
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. As of September 30,
1998, approximately $502,000 has been disbursed from this escrow account. 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. Management has determined that the goodwill associated with this
transaction will be amortized over a 30 year life.
8
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1998
NOTE D -- BUSINESS ACQUISITIONS (Continued)
The following unaudited pro forma summary combines the results of operations of
the Company with the operations of Hibbing 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 operated as a single entity during such periods.
Nine months ended
Three months ended September 30,
September 30, 1997 1997 1998
------------------ ------- --------
(in thousands) (in thousands)
Net sales $94,402 $282,992 $254,693
====== ======= =======
Gross Profit $15,421 $ 47,843 $ 36,967
====== ======= =======
Operating income $ 4,673 $ 15,652 $ 21
====== ======= =======
Net earnings (loss) $ 1,845 $ 6,804 $ (3,589)
====== ======= =======
Net earnings (loss) per share
- basic $ 0.30 $ 1.12 $ (0.59)
====== ======= =======
Net earnings (loss) per share
- diluted $ 0.29 $ 1.09 $ (0.59)
====== ======= =======
NOTE E -- YEAR 2000 ISSUES
The Year 2000 Issue results from computer hardware and software systems that
were not designed to differentiate between centuries and therefore, may not
accommodate some or all dates beyond the year 1999. Accordingly, computer
hardware and software systems may need to be modified in order to remain
operational in the year 2000 and beyond.
The Company utilizes computer hardware and software across its entire
operation, which may be subject to system failure as a result of the inability
to function properly beyond the year 1999. In the normal course of business,
the Company also relies on products and services from critical vendors, large
customers and other third parties, whose computer hardware and software are
also subject to this issue. In order to address this issue, the Company is in
the process of assessing its critical operating hardware and software and
acquiring representations from vendors, large customers and other third parties
regarding their year 2000 vulnerability. 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
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 1998
NOTE F -- RECENT DEVELOPMENTS
On October 13, 1998, the Company announced the termination of negotiations
regarding the merger of the Company's distribution business and All American
Semiconductor, Inc. The costs related to the terminated transaction will be
expensed in the fourth quarter of 1998.
The management of the Company has announced a plan to close Hibbing's Maryland
manufacturing location during the fourth quarter of 1998. Select customers
that had been served by this manufacturing location will be served by one of
the other three manufacturing locations. The estimated costs associated with
the shut down of this facility are approximately $350,000. Approximately
$241,000, consisting primarily of severance pay and moving expenses, has been
charged to goodwill during the third quarter.
On November 3, 1998 the Company terminated the proposed stock repurchase
program that had been announced on December 18, 1997. No shares were acquired
under the program.
10
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 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 third quarter net sales increased $3.2 million, or
4.4%, from $74.3 million in the third quarter of 1997 to $77.5 million in the
third quarter of 1998. Total net sales for the first three quarters of 1998
decreased $7.6 million, or 3.3% from $229.6 million in the first three quarters
of 1997 to $222.0 million in the first three quarters of 1998.
Reptron Distribution third quarter net sales decreased $9.2 million,
or 20.2%, from $45.8 million in the third quarter of 1997 to $36.6 million in
the third quarter of 1998. Net sales generated from sales offices in the
central region of the United States accounted for approximately $6.1 million of
the decrease in net sales, which was driven by a decrease in sales to one
customer of $4.6 million. The largest customer, which is also a K-Byte
Manufacturing customer, represented approximately 4.3% of Reptron Distribution
third quarter, 1998 net sales (2.0% of total Company net sales). The largest
sales office accounted for approximately 10.6% of Reptron Distribution net
sales. Sales of semiconductors accounted for 68.4% of third quarter Reptron
Distribution net sales, with the remaining sales generated from passive
components (22.6%) and electromechanical products (9.0%).
Reptron Distribution net sales decreased $24.5 million, or 17.2%,
from $142.4 million in the first three quarters of 1997 to $117.9 million in
the first three quarters of 1998. Net sales generated from sales offices in
the Central region of the United States accounted for approximately $20.6
million of the decrease in net sales, which was driven by a decrease in sales
to one customer of $13.5 million. In the first three quarters of 1998, the
largest Reptron Distribution customer, which is also a K-Byte Manufacturing
customer, represented approximately 7.7% of total Reptron Distribution net
sales (4.5% of total Company net sales) and the largest sales office accounted
for 13.1% of total Reptron Distribution net sales.
K-Byte Manufacturing net sales increased $12.5 million, or 43.9%,
from $28.5 million in the third quarter of 1997 to $41.0 million in the third
quarter of 1998. Net sales from Hibbing manufacturing locations, acquired May
29, 1998, accounted for an increase of approximately $14.3 million. Net sales
to new customers totaled approximately $1.5 million, which was offset by a
decrease in net sales of approximately $3.3 million from the previously
established K-Byte customer base. The five largest K-Byte Manufacturing
customers accounted for approximately 37.3% of third quarter division net sales
(19.8% of total Company net sales), no single customer accounted for more than
8.4% of third quarter division net sales. Sales from Hibbing manufacturing
locations accounted for approximately 34.8% of total manufacturing third
quarter net sales. The Tampa, Florida manufacturing facility and the Gaylord,
Michigan manufacturing facility accounted for approximately 32.1% and 31.6%,
respectively, of total manufacturing third quarter net sales. The remaining
sales originated from the Saline, Michigan location. The assets of the Saline,
Michigan location were sold during the third quarter and substantially all of
the customers served from that location are now served by one of the other
manufacturing facilities.
11
K-Byte Manufacturing net sales increased $16.9 million, or 19.4%,
from $87.2 million in the first three quarters of 1997 to $104.1 million in the
first three quarters of 1998. Net sales from Hibbing manufacturing locations,
acquired May 29, 1998, accounted for an increase of approximately $20.5
million. Net sales to new customers totaled approximately $2.3 million, which
was off-set by a decrease in net sales of approximately $5.9 million from the
previously established K-Byte customer base. The five largest K-Byte
Manufacturing customers accounted for approximately 39.5% of total first three
quarters division net sales (18.5% of total Company first three quarters net
sales). No single customer accounted for more than 10.2% of the first three
quarters division net sales. Sales from the Tampa, Florida, and Gaylord,
Michigan manufacturing facilities accounted for approximately 43.0% and 35.1%,
respectively, of total manufacturing sales in the first three quarters of 1998.
Hibbing locations accounted for approximately 19.7% of total manufacturing
sales in the first three quarters of 1998. The remaining net sales were
generated from the Saline, Michigan manufacturing plant.
Gross Profit. Total third quarter gross profit decreased $1.7
million, or 13.3%, from $13.0 million in the third quarter of 1997 to $11.3
million in the third quarter of 1998. The gross margin of the Company
decreased from 17.5% in the third quarter of 1997 to 14.5% in the third quarter
of 1998. Total gross profit decreased $8.2 million, or 19.6%, from $41.7
million in the first three quarters of 1997 to $33.5 million in the first three
quarters of 1998. The gross margin decreased from 18.1% in the first three
quarters of 1997 to 15.1% in the first three quarters of 1998.
Reptron Distribution third quarter gross profit decreased $1.7
million, or 19.2%, from $8.8 million in the third quarter of 1997 to $7.1
million in the third quarter of 1998. The gross margin increased from 19.1% in
the third quarter of 1997 to 19.3% in the third quarter of 1998. This increase
in gross margin was primarily due to a shift in product and customer mix.
Reptron Distribution's gross margin increased from 18.9% in the first three
quarters of 1997 to 19.1% in the first three quarters of 1998 for similar
reasons.
K-Byte Manufacturing gross profit remained flat at $4.2 million in
both the third quarter of 1997 and the third quarter of 1998 and its gross
margin decreased from 14.9% in the third quarter of 1997 to 10.3% in the third
quarter of 1998. This decrease is reflective of absorption of fixed
manufacturing overhead and increased depreciation and amortization expenses at
current sales levels within the K-Byte Manufacturing facilities and the
incorporation of the operations of the Hibbing facilites, which experience
lower gross margins. K-Byte Manufacturing gross margin decreased from 16.9%
in the first three quarters of 1997 to 10.6% in the first three quarters of
1998 for similar reasons.
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses increased $2.9 million, or 32.1%, from $9.2 million in
the third quarter of 1997 to $12.1 million in the third quarter of 1998, after
taking into account the reimbursement of aircraft expenses by the CEO recorded
in the third quarter of 1997. The selling, general and administrative
expenses, as a percentage of net sales, increased from 12.3% in the third
quarter of 1997 to 15.6% in the third quarter of 1998. The operating expenses
of Hibbing, subsequent to acquisition, account for approximately $1.3 million
of the increase in selling, general and administrative expenses. The addition
of senior management, the operating expenses of the new Reptron Distribution
sales office in Texas, the placement of field engineers at various sales
locations and the addition of manufacturing engineering staff account for
approximately $600,000 of the increase. Selling, general and administrative
expenses as a percentage of net sales increased from 12.1% in the first three
quarters of 1997 to 15.4% in the first three quarters of 1998, for similar
reasons.
Interest Expense. Interest expense increased $711,000, or 44.6%,
from $1.6 million in the third quarter of 1997 to $2.3 million in the third
quarter of 1998. This increase resulted primarily from an increase of $29.9
million, or 28.5%, in average outstanding debt from $105.1 million during the
third quarter of 1997 to $135.0 million during the third quarter of 1998. This
increase in average outstanding debt primarily resulted from the August, 1997
issuance of $115.0 million in subordinated, convertible debt. First three
quarters interest expense increased $1.9 million, or 47.5%, from $4.1 million
in the first three quarters of 1997 to $6.0 million in the first three quarters
of 1998. This increase resulted from an increase in the average outstanding
debt of $33.3 million or, 33.1%, from $100.7 million during the first three
quarters of 1997 to $134.0 million during the first three quarters of 1998.
12
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company primarily finances its operations through subordinated
notes, bank credit lines, capital equipment leases, and short-term financing
through supplier credit lines.
Operating activities for the third quarter of 1998 used cash of
approximately $3.5 million. This net decrease resulted primarily from a net
loss of $2.0 million, a decrease in accounts payable of $2.2 million, an
increase in prepaid expenses and other assets of $2.5 million and a decrease in
accrued expenses of $1.0 million. These items were offset by a decrease in
inventory of $1.7 million.
Operating activities for the first three quarters of 1998 used cash
of approximately $2.5 million. This decrease resulted primarily from a net
loss of $3.9 million, a decrease in accounts payable of $13.0 million, an
increase in prepaid expenses and other assets of $3.8 million and a decrease in
deferred revenue of $1.3 million. These items were offset by a decrease of
$6.3 million in accounts receivable and a decrease of $5.9 million in
inventory.
Capital expenditures totaled approximately $3.1 million in the first
three quarters 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 finance these
purchases.
The Company believes that cash generated from operations 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
will be available on acceptable terms.
Year 2000
The Year 2000 Issue results from computer hardware and software
systems that were not designed to differentiate between centuries and
therefore, may not accommodate some or all dates beyond the year 1999.
Accordingly, computer hardware and software systems may need to be modified in
order to remain operational in the year 2000 and beyond.
The Company utilizes computer hardware and software across its entire
operation, which may be subject to system failure as a result of the inability
to function properly beyond the year 1999. In the normal course of business,
the Company also relies on products and services from critical vendors, large
customers and other third parties, whose computer hardware and software are
also subject to this issue. In order to address this issue, the Company is in
the process of assessing its critical operating hardware and software and
acquiring representations from vendors, large customers and other third parties
regarding their year 2000 vulnerability. 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.
13
REPTRON ELECTRONICS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Amendment Agreement No. 10, dated August 15, 1998, to the
Amended and Restated Revolving Credit and Reimbursement
Agreement, dated June 29, 1995
27.1 Financial Data Schedule
b. Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended September 30, 1998.
14
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: November 12, 1998
----------------------------
REPTRON ELECTRONICS, INC.
-------------------------
(Registrant)
By: /s/ Michael Branca
----------------------
Michael Branca, Chief
Financial Officer (Principal
Financial and Accounting Officer)
15
EXHIBIT 10.1
AMENDMENT AGREEMENT NO. 10
TO THE AMENDED AND RESTATED
REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT NO.10 TO THE AMENDED AND RESTATED REVOLVING CREDIT
AND REIMBURSEMENT AGREEMENT (the "Amendment Agreement") is made and entered
into as of this 15th day of August, 1998 among REPTRON ELECTRONICS, INC., a
Florida corporation having its principal place of business in Tampa, Florida
(the "Borrower"), NATIONSBANK, NATIONAL ASSOCIATION (successor by merger of
NationsBank, National Association (South)), a national banking association in
its capacity as agent (the "Agent") for each of the lenders (the "Lenders")
now
or hereafter party to the Credit Agreement (defined below), and each of the
undersigned Lenders. Unless the context otherwise requires, all terms used
herein without definition shall have the respective definitions provided
therefor in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrower, the Agent and the Lenders have entered into that
certain Amended and Restated Revolving Credit and Reimbursement Agreement
dated
June 29, 1995 whereby the Lenders have made available to the Borrower (i) a
$55,000,000 revolving credit facility, which includes a letter of credit
facility of up to $500,000 and (ii) a $9,942,917 (as reduced from time to time
in accordance with the terms thereof) direct pay letter of credit facility
(together with the exhibits and schedules attached thereto, as the same has
been amended by Amendment Agreement No. 1 dated as of December 15, 1995,
Amendment Agreement No. 2 dated as of March 15, 1996, Amendment Agreement No.
3
dated as of September 24, 1996, Amendment Agreement No. 4 dated as of January
31, 1997, Amendment Agreement No. 5 and Waiver dated as of April 28, 1997,
Amendment Agreement No. 6 dated April 30, 1997, Amendment Agreement No. 7
dated
June 30,1997, Amendment Agreement No.8 dated August 25,1997 and Amendment No.
9
dated January 15, 1998 (hereinafter referred to as the "Credit Agreement");
and
WHEREAS, the Borrower, the Agent and Lenders have agreed to further amend
the Credit Agreement, effective as of the date hereof, in the manner set forth
herein:
NOW, THEREFORE, in consideration of the premises and conditions herein set
forth, it is hereby agreed as follows:
1. Credit Agreement Amendment. (a) Subject to the conditions hereof, clause
(2) of Section 11.9 of the Credit Agreement is further amended in its entirety
so that as amended it shall read as follows:
"(2) make an aggregate amount of Restricted Purchases not exceeding
1,000,000 shares of capital stock for an aggregate purchase price not in
excess of $ 12,500,000 provided, however, that the Borrower shall not make
any Restricted Purchase if there shall be
Reptron Amendment No. 10 Document No. 213625 O5
outstanding any Loans or Letters of Credit and if the Borrower shall make
any such Restricted Purchase pursuant to this clause (2) the Borrower shall
not be entitled to any further Advance under Article II or to request the
issuance of a Letter of Credit under Article III without the prior written
consent of all Lenders."
(b) Notwithstanding the provisions of Section 10.1 to the contrary, the
Borrower shall furnish to the Agent the financial statements described therein
for the Fiscal Quarter ending September 30, 1998, not later than October 30,
1998.
(c) A new Section 1 1.17 is hereby added to the Agreement which Section
shall read as follows:
" 1 1.17 Prepayment of Indebtedness. If there shall be outstanding any
Loans or Letters of Credit, prepay, redeem, purchase, defease or otherwise
satisfy prior to the scheduled maturity thereof in any manner any
Indebtedness, including the Convertible Notes, and if the Borrower shall
prepay, redeem, purchase, defease or otherwise prior to the stated maturity
any such Indebtedness the Borrower shall not be entitled to any further
Advances under Article II or to request the issuance of a Letter of Credit
under Article III without the prior written consent of all the Lenders. "
2. Consent. Each of Reptron Electronics of PA, Inc., Lake Michigan
Investment, Inc. and Lake Huron Investment Corp., guarantors of the
Obligations, hereby consent to the amendments to the Agreement contained in
this Amendment Agreement.
3. Representations and Warranties. In order to induce the Agent and the
Lenders to enter into this Amendment Agreement, the Borrower hereby represents
and warrants that the Credit Agreement has been re-examined by the Borrower
and
that except as disclosed by the Borrower in writing to the Lenders as of the
date hereof:
(a) The representations and warranties made by the Borrower in Article
VIII thereof are true on and as of the date hereof;
(b) There has been no material adverse change in the condition,
financial
or otherwise, of the Borrower and its Subsidiaries since the date of the
most recent financial reports of the Borrower delivered to the Agent under
Section 10.2 thereof, other than changes in the ordinary course of
business;
(c) The business and properties of the Borrower and its Subsidiaries are
not, and since the date of the most recent financial reports of the
Borrower
delivered to the Agent under Section 10.2 thereof, have not been, adversely
affected in any substantial way as the result of any fire, explosion,
earthquake, accident, strike, lockout, combination of workers, flood,
embargo, riot, activities of armed forces, war or acts of God or the public
enemy, or cancellation or loss of any major contracts; and
(d) After giving effect to this Amendment Agreement, no condition exists
which, upon the effectiveness of the amendment contemplated hereby, would
constitute a Default
Reptron Amendment No 10 Document No. 213625 05
2
or an Event of Default on the part of the Borrower under the Credit
Agreement or the Notes, either immediately or with the lapse of time or the
giving of notice, or both.
4. Waiver. Each Lender by its execution of this Amendment Agreement waives
the failure by the Borrower and its Subsidiaries to comply with Section ll.l
(a) through the period ending October 30, 1998 and if the Borrower cannot
demonstrate compliance at October 31, 1998 based upon its most recent
financial
statements, such failure to comply shall constitute an Event of Default.
5. Conditions Precedent. The effectiveness of this Amendment Agreement is
subject to the receipt by the Agent of (a) six (6) counterparts of this
Amendment Agreement duly executed by all signatories hereto, (b) a fee of
$7,500 for the account of each Lender executing this Amendment Agreement, and
(c) payment of all legal fees and expenses of special Lender's counsel.
6. Entire Agreement. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, condition, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that,
except as in this Amendment Agreement otherwise expressly stated, no
representations, warranties or commitments, express or implied, have been made
by any party to the other. None of the terms or conditions of this Amendment
Agreement may be changed, modified, waived or canceled orally or otherwise,
except by writing, signed by all the parties hereto, specifying such change,
modification, waiver or cancellation of such terms or conditions, or of any
preceding or succeeding breach thereof.
7. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and shall remain
in
full force and effect according to their respective terms.
8. Counterparts. This Amendment Agreement may be executed in any number of
counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute
one
and the same instrument.
9. GOVERNING LAW. THIS AMENDMENT AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED
BY THE LAW OF THE STATE OF FLORIDA, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE
PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY (i) SUBMITS TO THE
JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF FLORIDA FOR THE
PURPOSES OF RESOLVING DISPUTES HEREUNDER OR UNDER ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY OR FOR PURPOSES OF COLLECTION AND (ii) WAIVES
TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION.
10. Enforceability. Should any one or more of the provisions of this
Amendment Agreement be determined to be illegal or unenforceable as to one or
more of the parties hereto, all other provisions nevertheless shall remain
effective and binding on the parties hereto.
Reptron Amendment No. 10 Document No 213625.05
3
11. Credit Agreement. All references in any of the Loan Documents to the
Credit Agreement shall mean and include the Credit Agreement as amended
hereby.
12. Successors and Assigns. This Amendment Agreement shall be binding upon
and inure to the benefit of each of the Borrower, the Lenders, the Agent and
their respective successors, assigns and legal representatives; provided,
however, that the Borrower, without the prior consent of the Lenders, may not
assign any rights, powers, duties or obligations hereunder.
[remainder of this page left blank intentionally]
Reptron Amendment No. 10 Document No. 213625.05
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement
to be duly executed by their duly authorized officers, all as of the day and
year first above written.
BORROWER:
REPTRON ELECTRONICS, INC.
By: /s/ Michael Branca
-----------------------
Name: Michael Branca
---------------------
Title: CFO
--------------------
GUARANTORS:
REPTRON ELECTRONICS OF PA, INC.
By: /s/ Leigh A. Adams
-------------------------
Name:
-----------------------
Title:
----------------------
LAKE MICHIGAN INVESTMENT INC.
By: /s/ Leigh A. Adams
-------------------------
Name:
-----------------------
Title:
----------------------
LAKE HURON INVESTMENT CORP.
By: /s/ Leigh A. Adams
-------------------------
Name:
-----------------------
Title:
----------------------
NATIONSBANK, NATIONAL
ASSOCIATION,
as Agent and a Lender
By: /s/ Timothy M. O'Connor
--------------------------
Name: Timothy M. O'Connor
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Rose M. Crump
--------------------------
Name: Rose M. Crump
-----------------------
Title: Vice President
----------------------
THE SUMITOMO BANK, LIMITED
By:
--------------------------
Name:
------------------------
Title:
-----------------------
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEET AND IS
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
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