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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, 2002
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 0 - 23426
---------
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
----- -------
There were 6,417,196 shares of common stock issued and outstanding as of August
14, 2002.
REPTRON ELECTRONICS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
Consolidated Statements of Operations -- Three months
ended June 30, 2002 and June 30, 2001 and Six months
ended June 30, 2002 and June 30, 2001 3
Consolidated Balance Sheets -- June 30, 2002 and
December 31, 2001 4
Consolidated Statement of Shareholders' Equity --
Six months ended June 30, 2002 and year ended
December 31, 2001 5
Consolidated Statements of Cash Flows --
Six months ended June 30, 2002 and June 30, 2001 6
Notes to Consolidated Financial Statements --
June 30, 2002 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of the Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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)
----------------------------------------------------------
2002 2001 2002 2001
---------- ----------- ----------- ----------
Net sales $ 78,778 $ 99,327 $ 161,894 $ 233,557
Cost of goods sold 68,433 85,063 141,703 197,666
Inventory writedown - 12,000 - 12,000
---------- ----------- ----------- ----------
Gross profit 10,345 2,264 20,191 23,891
Selling, general and administrative expenses 13,977 18,586 28,232 37,335
---------- ----------- ----------- ----------
Operating loss (3,632) (16,322) (8,041) (13,444)
Interest expense, net 1,971 2,821 4,099 5,888
---------- ----------- ----------- ----------
Loss before income taxes 5,603) (19,143) (12,140) (19,332)
Income tax benefit - (7,291) - (7,210)
---------- ----------- ----------- ----------
Net loss $ (5,603) $ (11,852) $ (12,140) $ (12,122)
========== =========== =========== ==========
Net loss per common share - basic: $ (0.87) $ (1.85) $ (1.89) $ (1.90)
========== =========== =========== ==========
Weighted average common shares outstanding -
basic 6,417,196 6,391,237 6,415,196 6,381,623
========== =========== =========== ==========
Net loss per common share - diluted: $ (0.87) $ (1.85) $ (1.89) $ (1.90)
========== =========== =========== ==========
Weighted average common shares outstanding -
diluted 6,391,237 6,391,237 6,381,623 6,381,623
========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements
3
REPTRON ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
ASSETS
June 30, December 31,
2002 2001
---------- ------------
CURRENT ASSETS
Cash and cash equivalents $ 369 $ 197
Accounts receivable - trade, net 47,761 53,018
Inventories, net 67,252 75,633
Prepaid expenses and other 2,475 1,995
Income tax receivable - 5,900
-------- --------
Total current assets 117,857 136,743
PROPERTY, PLANT & EQUIPMENT - AT COST, NET 25,584 27,133
EXCESS OF COST OVER NET ASSETS ACQUIRED (GOODWILL), NET 30,073 30,073
DEFERRED INCOME TAX 2,434 3,551
OTHER ASSETS 1,551 1,895
-------- --------
$177,499 $199,395
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 36,120 $ 26,873
Current portion of long-term obligations 1,030 1,252
Accrued expenses 6,140 7,646
-------- --------
Total current liabilities 43,290 35,771
NOTE PAYABLE TO BANK 33,301 50,596
LONG-TERM OBLIGATIONS, less current portion 80,813 80,856
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,
6,417,196 and 6,397,196, respectively 64 64
Additional paid-in capital 23,146 23,083
Retained earnings (deficit) (3,115) 9,025
-------- --------
TOTAL SHAREHOLDERS' EQUITY 20,095 32,172
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $177,499 $199,395
======== ========
The accompanying notes are an integral part of these financial statements
4
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
Common Stock
---------------- Additional Retained Total
Shares Par Paid-In Earnings Shareholders'
Outstanding Value Capital (Deficit) Equity
----------- ----- ------------- --------- ----------------
Balance at December 31, 2000 6,359,257 $64 $22,862 $ 30,849 $ 53,775
Exercise of stock options 37,939 - 221 - 221
Net loss - - - (21,824) (21,824)
--------- --- -------- -------- ---------
Balance at December 31, 2001 6,397,196 64 23,083 9,025 32,172
Exercise of stock options (Unaudited) 20,000 - 63 - 63
Net loss (Unaudited) - - - (12,140) (12,140)
--------- --- -------- --------- ----------
Balance at June 30, 2002 (Unaudited) 6,417,196 $64 $23,146 $ (3,115) $ 20,095
========= === ======== ========= ==========
The accompanying notes are an integral part of this financial statement
5
REPTRON ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six months ended
June 30,
(Unaudited)
----------------------------
2002 2001
----------- -----------
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net loss $ (12,140) $ (12,122)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,942 5,229
Deferred income taxes - (299)
Change in assets and liabilities:
Accounts receivable - trade 5,257 35,208
Inventories 8,381 25,138
Prepaid expenses and other current assets (480) 391
Other assets (70) (771)
Accounts payable - trade 9,247 (29,033)
Accrued expenses (1,506) (4,813)
Income taxes payable/receivable 7,017 (8,087)
--------- ---------
Net cash provided by operating activities 19,648 10,841
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,440) (2,810)
--------- ---------
Net cash used in investing activities (1,440) (2,810)
--------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 63 221
Net payments on note payable to bank (17,295) (6,479)
Payments on long term obligations (804) (1,615)
--------- ---------
Net cash used in financing activities (18,036) (7,873)
--------- ---------
Net increase (decrease) in cash and cash equivalents 172 158
Cash and cash equivalents at beginning of period 197 108
--------- ---------
Cash and cash equivalents at end of period $ 369 $ 346
========= =========
Supplemental cash flow information:
Interest paid $ 4,145 $ 6,172
========= =========
Income taxes paid (refunded) $ (7,017) $ 1,176
========= =========
The accompanying notes are an integral part of these financial statements
6
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(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 accounting principles generally
accepted in the United States of America for complete financial statements. The
consolidated financial statements as of June 30, 2002, and for the three and six
months ended June 30, 2002 and June 30, 2001, 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, 2002 are not necessarily
indicative of results that may be expected for the year ending December 31,
2002. 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 2001 Form 10-K which was filed in March 2002.
NOTE B -- RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS
142, Goodwill and Intangible Assets. SFAS 141 is effective for all business
combinations completed after June 30, 2001. SFAS 142 is effective for the year
beginning January 1, 2002, however, certain provisions of that Statement apply
to goodwill and other intangible assets acquired between July 1, 2001 and the
effective date of SFAS 142.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Management does not believe that adoption of this
pronouncement will have a material effect on the Company's financial position or
results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of. The provisions of the statement were
adopted by the Company as of January 1, 2002. The adoption of this pronouncement
did not have a significant impact on Reptron's financial position or results of
operations.
NOTE C -- INVENTORIES
Inventories consist of the following (in thousands):
June 30, December 31,
2002 2001
---------- ------------
Electronic Component Distribution:
Inventories $34,832 $43,110
Electronic Manufacturing Services:
Work in process 10,953 9,326
Raw materials 21,467 23,197
-------- --------
$67,252 $75,633
======== ========
7
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2002
(Unaudited)
NOTE D -- FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Reptron Electronics, Inc. is a leading electronics manufacturing supply chain
services company operating as a national distributor of electronic components, a
contract manufacturer of electronic products and display solution provider. Our
Electronic Component Distribution customers are in diverse industries' including
robotics, telecommunications, computers and computer peripherals, consumer
electronics, healthcare, industrial controls and contract manufacturing. Our
Electronic Manufacturing Services segment manufactures electronic products
according to customer design, primarily for customers in the telecommunications,
healthcare, industrial/instrumentation, banking and office products industries.
As a display solution provider, we provide display design engineering, systems
integration and turnkey manufacturing services.
The following table shows net sales and gross profit by industry segments.
Three months ended Six months ended
June 30, June 30,
(in thousands) (in thousands)
-----------------------------------------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net Sales
Electronic Component Distribution $ 35,776 $ 60,240 $ 83,114 $ 138,588
Electronic Manufacturing Services 43,002 39,087 78,780 94,969
--------- --------- --------- ---------
$ 78,778 $ 99,327 $ 161,894 $ 233,557
========= ========= ========= =========
Gross Profit
Electronic Component Distribution $ 5,904 $ 758 $ 13,209 $ 15,200
Electronic Manufacturing Services 4,441 1,506 6,982 8,691
--------- --------- --------- ---------
$ 10,345 $ 2,264 $ 20,191 $ 23,891
========= ========= ========= =========
June 30,
(in thousands)
------------------------
2002 2001
------- -------
Goodwill, Gross
Electronic Component Distribution $ 4,889 $ 4,889
Electronic Manufacturing Services 30,140 30,140
--------- ---------
$ 35,029 $ 35,029
========= =========
Goodwill, net of accumulated amortization
Electronic Component Distribution $ 3,294 $ 3,416
Electronic Manufacturing Services 26,779 27,357
--------- ---------
$ 30,073 $ 30,773
========= =========
8
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2002
(Unaudited)
NOTE E -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net loss per
common share:
Three months ended Six months ended
June 30, June 30,
------------------------- ---------------------------
2002 2001 2002 2001
--------- --------- --------- -----------
Numerator:
Net loss (in thousands) $ (5,603) $ (11,852) $ (12,122) $ (12,122)
========= ========== ========== ===========
Denominator:
For basic loss per share -
Weighted average shares 6,417,196 6,391,237 6,415,196 6,381,623
Effect of dilutive securities:
Employee stock options - - - -
--------- ----------- ---------- -----------
For diluted loss per share 6,417,196 6,391,237 6,415,196 6,381,623
========= =========== ========== ===========
Net loss per common share - basic $ (0.87) $ (1.85) $ (1.89) $ (1.90)
========= =========== ========== ===========
Net loss per common share - diluted $ (0.87) $ (1.85) $ (1.89) $ (1.90)
========= =========== ========== ===========
For the three-month and six-month periods ended June 30, 2002 and 2001, 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 diluted earnings
per share for all periods due to the conversion price of $28.50 exceeding the
average market price of the common stock and, therefore the effect would be
anti-dilutive.
NOTE F - INCOME TAXES
During the three month period ended June 30, 2002, the Company incurred losses
before income taxes of $5.6 million. As a result, Reptron recognized a deferred
tax asset and an offsetting valuation allowance of $2.2 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 adjust the valuation
allowance appropriately for each item at such time when it is determined that
the "more likely than not" criterion is satisfied.
9
REPTRON ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JUNE 30, 2002
(Unaudited)
NOTE G - LONG-TERM DEBT
The Company's credit facility was amended as of June 26, 2002. As part of this
amendment, the line of credit facility was reduced from $75 million to $60
million which will better match the Company's borrowing requirements.
NOTE H - GOODWILL
A third party valuation consultant was engaged to assist the Company in
preparing valuations on certain business units of the Company for the purpose of
evaluating the impact of the adoption of SFAS 142. Based primarily on a report
dated May 13, 2002 from the valuation consultant and the Company's internal
analysis, as of January 1, 2002, there is no impairment of the net goodwill
which is associated with acquisitions the Company made in prior periods.
Beginning January 1, 2002, amortization of the excess of cost over net assets
acquired (goodwill) ceased.
The following table shows a reconciliation of net income adjusted for goodwill
amortization and related loss per share information:
Three months ended Six months ended
June 30, June 30,
(in thousands) (in thousands)
-----------------------------------------------------------
2002 2001 2002 2001
--------- ---------- ---------- ----------
Reported net loss $ (5,603) $ (11,852) $ (12,140) $ (12,122)
Add: Goodwill amortization, net of income tax - 210 - 420
--------- ---------- ---------- ----------
Adjusted net loss $ (5,603) $ (11,642) $ (12,140) $ (11,702)
========= ========== ========== ==========
Adjusted basic and diluted loss per share $ (0.87) $ (1.82) $ (1.89) $ (1.83)
========= ========== =========== ==========
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 Reptron's industry and in the general economy;
competitive factors; risks due to shifts in market demand; the ability of
Reptron to complete and integrate 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.
RESULTS OF OPERATIONS
Net Sales. Total second quarter net sales decreased $20.5 million, or
20.7%, from $99.3 million in the second quarter of 2001 to $78.8 million in the
second quarter of 2002. Total net sales for the first half of 2002 decreased
$71.7 million, or 30.7% from $233.6 million in the first half of 2001 to $161.9
million in the first half of 2002.
Electronic Component Distribution ("ECD") second quarter net sales
decreased $24.5 million, or 40.6%, from $60.2 million in the second quarter of
2001 to $35.8 million in the second quarter of 2002. Approximately $22.2 million
of this decrease was from the franchise distribution business which sells
electronic components primarily to original equipment manufacturers ("OEM").
Approximately $2.3 million of the total decrease was from the memory module
business which primarily sells DRAM modules through retail stores. Management
believes that these decreases resulted primarily from the continuation of the
industry-wide slowdown in the sales volume and price reductions of electronic
components experienced in the United States in 2001 and continuing into the
first half of 2002. Sales of semiconductors, passive components and
electromechanical components accounted for 81.1%, 8.1% and 10.8%, respectively,
of second quarter 2002 ECD net sales and 81.0%, 10.1% and 8.9%, respectively, of
second quarter 2001 ECD net sales. Sales generated from the top four ECD vendors
accounted for approximately $14.8 million, or 41.4% of second quarter 2002 ECD
net sales, as compared with approximately $28.9 million or 46.5% of second
quarter 2001 ECD net sales.
ECD net sales decreased $55.5 million, or 40.0%, from $138.6 million in the
first half of 2001 to $83.1 million in the first half of 2002. The franchise
distribution business decreased by approximately $59.1 million which was
partially offset by an increase in sales from the memory module business of
approximately $3.6 million. The decrease in franchise distribution sales was
driven primarily by factors stated above. The increase in sales of memory
modules in the first half of 2002 was primarily the result of strong sales to a
new significant customer in the first quarter of 2002. Sales of semiconductors,
passive components and electromechanical components accounted for 84.0%, 6.7%
and 9.3%, respectively, of first half 2002 ECD net sales, and 80.5%, 10.7% and
8.8%, respectively, of first half 2001 ECD net sales. Sales generated from the
top four ECD vendors accounted for approximately $30.4 million, or 36.5% of
first half 2002 ECD net sales, as compared with approximately $64.7 million or
45.5% of first half 2001 ECD net sales.
Electronic Manufacturing Services ("EMS") net sales increased $3.9 million,
or 10.0%, from $39.1 million in the second quarter of 2001 to $43.0 million in
the second quarter of 2002. Sales of governmental equipment accounted for
approximately $6.6 million of the sales increase experienced in the second
quarter of 2002 and was partially offset by a decrease in semiconductor
equipment sales of approximately $2.9 million. EMS continues to experience
decreased demands from within the semiconductor equipment and telecommunications
customer base as these industry segments have declined significantly within the
past two years. EMS transacted business with approximately 50 customers in the
second quarter of 2002. The three largest EMS customers accounted for
approximately 23.8%, 7.2% and 6.3%, respectively, of second quarter 2002 EMS net
sales (13.0%, 3.9% and 3.4%, respectively, of total Company second quarter 2002
net sales) as compared to 15.6%, 11.4% and 9.5%, respectively, of second quarter
2001 EMS net sales (6.1%, 4.5% and 3.7%, respectively, of total Company second
quarter 2001 net sales).
11
EMS net sales decreased $16.2 million, or 17.1%, from $95.0 million in the
first half of 2001 to $78.8 million in the first half of 2002. This decrease is
primarily attributable to decreased demand from established EMS customers due to
continued deterioration of the electronic manufacturing industrial segment.
Additionally, sales to the semiconductor equipment industry declined
significantly due to the severe downturn in this segment. The sales decrease was
partially offset from new sales of governmental equipment to a previously
established EMS customer of approximately $9.1 million during the first half of
2002. EMS transacted business with approximately 50 customers in the first half
of 2002. The three largest EMS customers accounted for approximately 20.9%,
6.8%, and 6.7%, respectively, of first half 2002 EMS net sales (10.2%, 3.3% and
3.3%, respectively, of total Company first half 2002 net sales) as compared to
12.3%, 10.6% and 6.2%, respectively, of first half 2001 EMS net sales (5.0%,
4.3% and 2.5%, respectively, of total Company first half 2001 net sales).
The table which follows summarizes EMS sales by industry segment:
Three Months Six Months Three Months Six Months
Ending Ending Ending Ending
Industry Segment June 30, 2002 June 30, 2002 June 30, 2001 June 30, 2001
- ---------------------------------- ------------------ ----------------- ------------------ -----------------
Medical Equipment 25% 23% 26% 23%
Governmental Equipment 15% 12% 0% 0%
Industrial/Instrumentation 14% 15% 19% 19%
Banking 12% 13% 19% 15%
Telecommunications 10% 13% 10% 13%
Semiconductor Equipment 5% 4% 13% 17%
Office Products 5% 7% 5% 4%
All Others 14% 13% 8% 9%
Gross Profit. Total second quarter gross profit increased $8.1 million, or
356.9%, from $2.3 million in the second quarter of 2001 to $10.3 million in the
second quarter of 2002. This increase is the result of a non-cash inventory
writedown charge of $12.0 million recorded during the second quarter of 2001.
Without considering this writedown in 2001, second quarter 2002 gross profit
declined $1.9 million, or 15.6%, due to a 20.7% net sales decline in the second
quarter of 2002. Total gross profit margin was 13.1% in the second quarter of
2002 and 12.5% in the first half of 2002 as compared to 2.3% in the second
quarter of 2001 and 10.2% in the first half of 2001 (14.4% and 15.4% excluding
the inventory writedown, respectively). Total gross profit decreased $3.7
million, or 15.5%, from $23.9 million in the first half of 2001 to $20.2 million
in the first half of 2002.
ECD second quarter gross profit increased $5.1 million, or 678.9%, from
$758,000 in the second quarter of 2001 to $5.9 million in the second quarter of
2002. This increase is the result of a non-cash inventory writedown charge of
$10.0 million recorded during the second quarter of 2001 to reflect the rapid
decline in market pricing for electronic components and as a result of
distributor supplier lines terminated by Reptron. This charge was included in
cost of sales and caused gross profit margin to decline from 17.9% to 1.3% in
the second quarter of 2001 and from 18.2% to 11.0% for the first six months of
2001. The gross profit margin was 16.5% in the second quarter of 2002 and 15.9%
in the first half of 2002. The decrease in gross profit margin from the
comparable periods in the prior year, excluding the effect of the inventory
writedown charge, is due to a greater portion of ECD sales being generated from
sales from the memory module business which typically have a lower gross profit
margin than sales from other electronic components. Sales from the memory module
business increased as a percentage of total ECD net sales from 14.0% in the
second quarter of 2001 and 12.7% in the first six months of 2001 to 17.2% in the
second quarter of 2002 and 25.6% in the first six months of 2002.
EMS gross profit increased $2.9 million, or 194.9%, from $1.5 million in
the second quarter of 2001 to $4.4 million in the second quarter of 2002. This
increase is primarily the result of a non-cash inventory writedown charge of
$2.0 million recorded during the second quarter of 2001 as a result of excess
components due to significant reductions in customer demands and decline in
pricing of electronic components. This charge was included in cost of sales and
caused gross profit margin to decline from 9.0% to 3.9% in the second quarter of
2001 and from 11.3% to 9.2% for the first six months of 2001. The gross profit
margin was 10.3% in the second quarter of 2002 and 8.7% in the first half of
2002. EMS first half gross profit decreased $1.7 million, or 19.7% from $8.7
million in 2001 to $7.0 million in 2002. The variances in gross profit and gross
profit margin from the prior year periods, excluding the inventory charge, is
primarily attributable to the corresponding variance in the absorption rate of
fixed manufacturing costs at the given sales levels.
12
Selling, General, and Administrative Expenses. Selling, general, and
administrative expenses decreased $4.6 million, or 24.8%, from $18.6 million in
the second quarter of 2001 to $14.0 million in the second quarter of 2002.
Selling, general and administrative expenses, as a percentage of net sales
decreased from 18.7% in the second quarter of 2001 to 17.4% in the second
quarter of 2002. For the first six months of 2002, selling, general and
administrative expenses decreased $9.1 million or 24.4% from $37.3 million in
the first half of 2001 to $28.2 million in the first half of 2002. Selling,
general and administrative expenses as a percentage of net sales increased from
16.0% in the first half of 2001 to 17.4% in the first half of 2002. The overall
decrease in SG&A expenses is primarily attributable to cost cutting measures
implemented during the second half of 2001 and the first half of 2002. The
employee base declined by 176 employees from 1,730 in the second quarter of 2001
to 1,554 in the second quarter of 2002 which represents a 10% reduction in
overall workforce, resulting in a corresponding reduction in selling, general
and administrative expenses.
Interest Expense. Net interest expense decreased approximately $850,000, or
30.3%, from $2.8 million in the second quarter of 2001 to $2.0 million in the
second quarter of 2002. Net interest expense decreased $1.8 million, or 30.4%,
from $5.9 million in the first half of 2001 to $4.1 million in the first half of
2002. The decrease is primarily attributed to the decrease in average
outstanding debt of $34.5 million, from $158.4 million during the first half of
2001 to $123.9 million during the first half of 2002, and a decrease in our
overall average interest rate from 7.4% during the first half of 2001 to 6.6%
during the first half of 2002.
Income Taxes. During the three month period ended June 30, 2002, we
incurred losses before income taxes of $5.6 million. As a result, we recognized
a deferred tax asset and an offsetting valuation allowance of $2.2 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 our control in realizing the associated carryforward
benefits. We assess the available positive and negative evidence surrounding the
recoverability of the deferred tax assets and apply judgment in estimating the
amount of valuation allowance necessary under the circumstances. We continue 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.
LIQUIDITY AND CAPITAL RESOURCES
We primarily finance our operations through subordinated notes, bank credit
lines, operating cash flows, capital equipment leases, and short-term financing
through supplier credit lines.
Net cash provided by or used in operating activities has historically been
driven by net income (loss) levels combined with fluctuations in inventory,
accounts receivable and accounts payable. Operating activities for the first
half of 2002 provided cash of approximately $19.6 million. This increase in cash
flow resulted primarily from decreases in accounts receivable of $5.3 million,
inventory of $8.4 million, and income taxes receivable of $7.0 million, and an
increase in accounts payable of $9.2 million. These items were partially offset
by an increase in accrued expenses of $1.5 million. Days sales in accounts
receivable were approximately 56 and 60 days as of June 30, 2002 and 2001,
respectively. Annualized inventory turns for the first half of 2001 were
approximately 4.1 turns, as compared to 3.5 turns for the same period in 2001,
excluding the 2001 inventory writedown.
Capital expenditures totaled approximately $1.4 million in the first half
of 2002. These capital expenditures were primarily for the conversion of
available floor space in our Tampa, Florida manufacturing facility into office
space for our distribution division's support staff and corporate headquarters.
These expenditures were funded by the working capital line of credit.
Five lenders have made available to Reptron a $60 million revolving credit
facility (the "Credit Agreement") through January 8, 2004. Borrowings under the
Credit Agreement are collateralized by all inventory, accounts receivable,
equipment and general intangibles. The Credit Agreement limits the amount of
capital expenditures and prohibits the payment of dividends thereby restricting
the distribution of retained earnings. At June 30, 2002, we were in compliance
with the earnings covenant contained in the Credit Agreement with our lenders.
There can be no assurance that we will be in compliance in the future with the
earnings covenant contained in the Credit Agreement, or be able to obtain
waivers of non-compliance from our lenders.
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Management believes that credit facilities currently available will be
sufficient to meet the capital expenditures and working capital needs of our
operations as presently conducted. However, future liquidity and cash
requirements will depend on a wide range of factors, including the level of
business in existing operations, expansion of facilities and available credit
provided by our lenders and suppliers. In particular, management is considering
various alternatives related to the payment of approximately $76.3 million of
our 6.75% Convertible Subordinated Notes ("Convertible Notes"), which will
become due in August 2004. If the Convertible Notes are not converted into our
common stock, we will be required to repay the indebtedness or make other
arrangements to refinance the Convertible Notes. If we fail to do so, it will
result in a default of the Convertible Notes, which would have a material
adverse effect on our business and financial condition. While there can be no
assurance that such financing will be available in amounts and on acceptable
terms, management believes that such financing would likely be available on
acceptable terms.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
the year beginning January 1, 2002, however, certain provisions of that
Statement apply to goodwill and other intangible assets acquired between July 1,
2001 and the effective date of SFAS 142.
A third party valuation consultant was engaged to assist in preparing
valuations on certain business units of Reptron for the purpose of evaluating
the impact of the adoption of SFAS 142. Based primarily on a report dated May
13, 2002 from the valuation consultant and our internal analysis, as of January
1, 2002, there is no impairment of the net goodwill associated with acquisitions
we made in prior periods. Beginning January 1, 2002, we ceased amortization of
the excess of cost over net assets acquired (goodwill). This amortization
expense was approximately $0.7 million in the six month period ended June 30,
2001.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities. It
applies to legal obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees. This
Statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002. We do not believe that the adoption of this
pronouncement will have a material effect on our financial position or results
of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of. The provisions of the statement were
adopted by the Company as of January 1, 2002. The adoption of this pronouncement
did not have a significant impact on the Company's financial position or results
of operations.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
While we had no holdings of derivative financial or commodity instruments
at June 30, 2002, Reptron is exposed to financial market risks, including
changes in interest rates. A majority of our borrowings bear a fixed interest
rate. However, borrowings under our bank Credit Facility bear interest at a
variable rate based on the prime interest rate.
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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 Reptron was held on
June 24, 2002. Mr. Michael L. Musto was elected director of
Reptron for a three year term with 6,116,962 shares voting in
favor, zero shares against and 26,709 shares abstaining. Mr.
William U. Parfet was elected director of Reptron for a three
year term with 6,138,071 voting in favor, zero shares against and
5,600 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Seventh Amendment To Revolving Credit And Security Agreement
Dated January 8, 1999.
99.1 Certification Pursuant to 18 U.S.C.ss.1350.
b. Reports on Form 8-K
None
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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, 2002
-------------------
REPTRON ELECTRONICS, INC.
----------------------------------------
(Registrant)
By: /s/ Paul J. Plante
----------------------------------------
Paul J. Plante, President and Chief
Operating Officer(Principal
Financial and Accounting Officer)
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