FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended December 31, 2001
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to _________________________
Commission File Number 0-5896
JACO ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1978958
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
145 OSER AVENUE, HAUPPAUGE, NEW YORK 11788
------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (631) 273-5500
Indicated 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 report), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO __
-
Number of Shares of Registrant's Common Stock Outstanding as of February 8, 2002
- - 5,707,459 (Excluding 618,300 Shares of Treasury Stock).
FORM 10-Q December 31, 2001
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
2001 2001
--------------- -----------
ASSETS
Current Assets
Cash $ 97,126 $ 89,523
Marketable securities 723,461 771,406
Accounts receivable - net 26,805,550 37,820,946
Inventories 49,856,900 62,212,121
Prepaid expenses and other 983,244 824,121
Prepaid and refundable income taxes 1,606,115 486,325
Deferred income taxes 2,187,000 2,190,000
--------- ---------
Total current assets 82,259,396 104,394,442
Property, plant and equipment - net 7,763,747 8,389,651
Deferred income taxes 475,000 436,000
Excess of cost over net assets acquired - net 20,213,733 20,095,844
Other assets 3,259,254 2,998,902
----------- -----------
$113,971,130 $136,314,839
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q December 31, 2001
Page 3
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 31, June 30,
2001 2001
------------ -----------
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 18,188,049 $ 25,004,058
Current maturities of long term debt and
capitalized lease obligations 985,875 1,081,905
------------- ------------
Total current liabilities 19,173,924 26,085,963
Long term debt and capitalized lease obligations 43,508,101 56,128,243
Deferred compensation 875,000 850,000
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 100,000 shares,
$10 par value; none issued
Common stock - authorized, 20,000,000,
$.10 par value; issued 6,325,759 and
6,315,759 shares, respectively, and 5,707,459
and 5,697,459 shares outstanding, respectively 632,576 631,576
Additional paid-in capital 24,639,866 24,615,866
Retained earnings 27,323,056 30,146,599
Accumulated other comprehensive income 23,122 61,107
Treasury stock (2,204,515) (2,204,515)
---------- -----------
Total shareholders' equity 50,414,105 53,250,633
---------- ----------
$113,971,130 $136,314,839
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q December 31, 2001
Page 4
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31,
(UNAUDITED)
2001 2000
-------------- -------------
NET SALES $42,405,312 $100,235,652
COST AND EXPENSES
Cost of goods sold 35,803,750 80,158,461
---------- ----------
Gross profit 6,601,562 20,077,191
Selling, general and administrative expenses 8,193,330 12,052,203
------------ ------------
Operating (loss) profit (1,591,768) 8,024,988
Interest expense 539,227 1,169,326
------------ ------------
(Loss) earnings before income taxes (2,130,995) 6,855,662
Income tax (benefit) provision (810,000) 2,811,000
------------ ------------
NET (LOSS) EARNINGS $(1,320,995) $ 4,044,662
============ ============
Net (loss) earnings per common share:
Basic $ (0.23) $ 0.72
============ ============
Diluted $ (0.23) $ 0.65
============ ============
Weighted average common shares outstanding:
Basic 5,707,459 5,655,089
============ ============
Diluted 5,707,459 6,230,451
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q December 31, 2001
Page 5
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31,
(UNAUDITED)
2001 2000
-------------- -------------
NET SALES $91,835,835 $194,394,480
COST AND EXPENSES
Cost of goods sold 77,218,772 153,699,631
---------- -----------
Gross profit 14,617,063 40,694,849
Selling, general and administrative expenses 17,585,675 23,886,259
------------ ------------
Operating (loss) profit (2,968,612) 16,808,590
Interest expense 1,308,931 2,058,061
------------ ------------
(Loss) earnings before income taxes (4,277,543) 14,750,529
Income tax (benefit) provision (1,454,000) 6,048,000
------------ ------------
NET (LOSS) EARNINGS $(2,823,543) $ 8,702,529
============ ============
Net (loss) earnings per common share:
Basic $ (0.49) $ 1.54
============ ============
Diluted $ (0.49) $ 1.40
============ ============
Weighted average common shares outstanding:
Basic 5,704,198 5,644,524
============ ============
Diluted 5,704,198 6,232,609
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q December 31, 2001
Page 6
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2001
(UNAUDITED)
Accumulated
Additional other
paid-in Retained comprehensive
Shares Amount capital earnings income
--------------- -------------- ---------------- ------------------- ----------------
Balance at July 1, 2001 6,315,759 $ 631,576 $ 24,615,866 $ 30,146,599 $ 61,107
Net loss (2,823,543)
Unrealized loss on marketable
securities, net of deferred taxes (37,985)
Exercise of stock options 10,000 1,000 24,000
--------------- -------------- ---------------- ------------------- ---------------- ---
Balance at December 31, 2001 6,325,759 $ 632,576 $ 24,639,866 $ 27,323,056 $ 23,122
=============== ============== ================ =================== ================ ===
Total
Treasury shareholders'
stock equity
------------ -----------------
Balance at July 1, 2001 $ (2,204,515) $ 53,250,633
Net loss (2,823,543)
Unrealized loss on marketable
securities, net of deferred taxes (37,985)
Exercise of stock options 25,000
----------- ------------
Balance at December 31, 2001 $ (2,204,515) $ 50,414,105
=========== ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q December 31, 2001
Page 7
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31,
(UNAUDITED)
2001 2000
------------------ -----------------
Cash flows from operating activities
Net (loss) earnings $ (2,823,543) $ 8,702,529
Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operating activities
Depreciation and amortization 1,189,926 1,486,162
Deferred compensation 25,000 92,500
Deferred income tax benefit (14,968) (363,000)
Gain on sale of equipment (7,048)
Provision for doubtful accounts 181,300 746,201
Changes in operating assets and liabilities,
Decrease (increase) in operating assets - net 21,790,519 (36,820,975)
(Decrease) increase in operating liabilities - net (6,591,009) 8,532,402
------------------ -----------------
Net cash provided by (used in) operating activities 13,750,177 (17,624,181)
------------------ -----------------
Cash flows from investing activities
Capital expenditures (159,169) (1,415,902)
Proceeds from sale of equipment 37,673
Increase in marketable securities (11,072) (52,573)
Business acquisitions - deferred payments (193,297)
Increase in other assets (328,852) (223,466)
------------------ -----------------
Net cash used in investing activities (654,717) (1,691,941)
------------------ -----------------
Cash flows from financing activities
Borrowings under line of credit 76,592,648 176,491,113
Payments under line of credit (89,150,168) (157,413,488)
Principal payments under equipment financing
and term loans (555,337) (425,382)
Payment of fractional shares (559)
Proceeds from exercise of stock options 25,000 306,000
------------------ -----------------
Net cash (used in) provided by financing activities (13,087,857) 18,957,684
------------------ -----------------
NET INCREASE (DECREASE) IN CASH 7,603 (358,438)
------------------ -----------------
Cash at beginning of period 89,523 617,603
------------------ -----------------
Cash at end of period $ 97,126 $ 259,165
================== =================
Supplemental schedule of non-cash financing and investing activities:
Equipment acquired under capital lease obligations $ 396,685
Accrued acquisition costs $ 3,960,000
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q December 31, 2001
Page 8
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
1) The accompanying condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring accrual adjustments, which are
in the opinion of management, necessary for a fair presentation of the
consolidated financial position and the results of operations at and for the
periods presented. Such financial statements do not include all the information
or footnotes necessary for a complete presentation. Therefore, they should be
read in conjunction with the Company's audited consolidated statements for the
year ended June 30, 2001 and the notes thereto included in the Company's annual
report on Form 10-K. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
2) The Company has a $70,000,000 revolving line of credit facility
with its banks, which is based principally on eligible accounts receivables and
inventories as defined in the loan agreement. The agreement was amended to (i)
extend the maturity date to September 14, 2003, and (ii) change the requirements
of certain financial covenants. The interest rate is based on the average 30-day
LIBOR plus 1% to 2-1/4% depending on the Company's performance for the
immediately preceding four fiscal quarters measured by a certain financial
ratio. The applicable interest rate may be adjusted quarterly and borrowings
under this facility are collateralized by substantially all of the assets of the
Company.
3) For interim financial reporting purposes, the Company uses the gross profit
method for computing inventories, which consists of goods held for resale.
4) On September 18, 2001, the Company announced that its Board of Directors
authorized the repurchase of up to 250,000 shares of its outstanding common
stock. Purchases may be made from time to time in market or private transactions
at prevailing market prices.
5) On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business
Combinations," and Statement of Financial Accounting Standards No. 142 ("SFAS
No. 142"), "Goodwill and Other Intangible Assets." SFAS No. 141 is effective for
all business combinations completed after June 30, 2001. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. However, certain
provisions of this statement apply to goodwill and other intangible assets
acquired between July 1, 2001 and the effective date of SFAS No. 142. The new
standards require that all business combinations initiated after June 30, 2001
be accounted for under the purchase method. In addition, all intangible assets
acquired that are obtained through contractual or legal right, or are capable of
being separately sold, transferred, licensed, rented or exchanged shall be
recognized as an asset apart from goodwill. Goodwill and intangibles with
indefinite lives will no longer be subject to amortization, but will be subject
to at least an annual assessment for impairment by applying a fair value-based
test.
The Company has adopted, as of July 1, 2001, the provisions of SFAS
Nos. 141 and 142. Accordingly, the results for the three and six months ended
December 31, 2001 excludes approximately $287,000 and $565,000, respectively, of
such amortization, as compared to approximately $222,000 and $444,000, which
were included in the comparable periods last year. The Company has performed a
transitional fair value based impairment test and has determined that no
impairment of goodwill or intangibles exist as of December 31, 2001.
FORM 10-Q December 31, 2001
Page 9
The following table presents a reconciliation of net (loss) earnings
and net (loss) earnings per common share amounts, as reported in the Company's
statement of operations, to those amounts adjusted for goodwill and intangible
asset amortization determined in accordance with the provisions of SFAS No. 142.
Three Months Ended Six Months Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Dollars in thousands except Dollars in thousands except
per share data per share data
-------------- --------------
Reported net (loss) earnings $ (1,321) $ 4,045 $ (2,824) $ 8,703
Add back: goodwill amortization 213 426
Add back: franchise agreement amortization 9 18
---------------- ------------ -------------- ---------------
Adjusted net (loss) earnings $ (1,321) $ 4,267 $ (2,824) $ 9,147
================ ============ ============== ===============
BASIC (LOSS) EARNINGS PER SHARE:
Reported net (loss) earnings $ (0.23) $ 0.72 $ (0.49) $ 1.54
Goodwill amortization 0.03 0.08
Franchise agreement amortization 0.00 0.00
---------------- ------------ -------------- ---------------
Adjusted net (loss) earnings $ (0.23) $ 0.75 $ (0.49) $ 1.62
================ ============ ============== ===============
DILUTED (LOSS) EARNINGS PER SHARE:
Reported net (loss) earnings $ (0.23) $ 0.65 $ (0.49) $ 1.40
Goodwill amortization 0.03 0.07
Franchise agreement amortization 0.00 0.00
---------------- ------------ -------------- ---------------
Adjusted net (loss) earnings $ (0.23) $ 0.68 $ (0.49) $ 1.47
================ ============ ============== ===============
6) In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement is effective for fiscal years
beginning after December 15, 2001. This supercedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
while retaining many of the requirements of such statement. The adoption of SFAS
144 is not expected to have a material impact or effect on the Companys
financial position or it s results of operations.
7) On June 6, 2000, the Company acquired all of the issued and outstanding
shares of common stock, no par value, of Interface Electronics Corp.
("Interface"), a distributor of electronic parts, components and equipment,
located in Massachusetts. The purchase price was $15,400,000 payable in cash at
the closing, plus a deferred payment of $3,953,297. On the second anniversary of
the closing date a deferred payment of up to $2,640,000 shall be paid if certain
conditions, as defined in the purchase agreement, are met. When the remaining
contingency is resolved, the Company shall record the current fair value of the
consideration paid as additional goodwill.
FORM 10-Q December 31, 2001
Page 10
The acquisition has been accounted for as a purchase and the operations of
Interface have been included in the Company's Statement of Operations since the
date of acquisition, June 6, 2000. Included in other assets are the costs of the
identifiable intangible assets acquired, principally an employment agreement
which is being amortized on a straight-line basis over five years, and a
franchise agreement which was being amortized on a straight-line basis over
fifteen years until the Company's adoption of SFAS No. 142. The excess of the
purchase price and related expenses over the net tangible and identifiable
intangible assets acquired amounted to approximately $17,604,000 and was being
amortized on a straight-line basis over twenty years until the Company's
adoption of SFAS No. 142.
8) On February 25, 2000, the Company purchased the operating assets of PGI,
Industries, Inc., ("PGI") an exporter of electronic components, located in
Ronkonkoma, New York. The purchase price was $1,200,000 paid in cash, plus a
deferred payment of $100,000 payable over the next two years based on certain
conditions, as defined in the purchase agreement. As of December 31, 2001,
$50,000 of the deferred payment has been paid. When the remaining contingency is
resolved, the Company shall record the current fair value of the consideration
issued as additional costs of the acquired enterprise. The acquisition has been
accounted for as a purchase and the operations of PGI have been included in the
Company's Statement of Operations since the date of acquisition, February 25,
2000. The excess of the purchase price over the fair value of the assets
acquired, approximately $260,000, was being amortized on a straight-line basis
over twenty years until the Company's adoption of SFAS No. 142.
9) Total comprehensive income and its components for the three and six months ended December 31, 2001 and 2000 are as follows:
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- ------------- -------------
Net (loss) income $(1,320,995) $4,044,662 $(2,823,543) $8,702,529
Unrealized gain (loss)
on marketable securities 50,016 (108,938) (59,017) (112,835)
Deferred tax (expense) benefit (18,000) 39,600 21,032 41,000
-------------- -------------- ------------- -------------
Comprehensive (loss) income $(1,288,979) $3,975,324 $(2,861,528) $8,630,694
============== ============== ============= =============
Accumulated other comprehensive income is comprised of unrealized gains
and losses on marketable securities, net of the related tax effect.
FORM 10-Q December 31, 2001
Page 11
10) The number of shares used in the Company's basic and diluted earnings per share computations are as follows:
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------- --------------------------------
2001 2000 2001 2000
-------------- -------------- ------------- -------------
Weighted average common shares
outstanding net of treasury shares,
for basic earnings per share 5,707,459 5,655,089 5,704,198 5,644,524
Common stock equivalents for
stock options 575,362 588,085
-------------- -------------- ------------- -------------
Weighted average common shares
outstanding for diluted earnings per share 5,707,459 6,230,451 5,704,198 6,232,609
============== ============== ============= =============
The diluted loss per common share for the three and six months ended
December 31, 2001 is based only on the weighted average number of common shares
outstanding during the period, as the inclusion of 259,683 and 285,718 common
share equivalents, respectively, would have been antidilutive.
11) The Company has two reportable segments: electronics parts distribution and
contract manufacturing. The Company's primary business activity is conducted
with small and medium size manufacturers, located in North America, that produce
electronic equipment used in a variety of industries. Information pertaining to
the Company's operations in different geographic areas for the three and six
months ended December 31, 2001 and 2000 is not considered material to the
financial statements.
The Company's chief operating decision maker utilizes net sales and
net earnings information in assessing performance and making overall operating
decisions and resource allocations. The accounting policies of the operating
segments are the same as those described in the summary of significant
accounting policies included in the Company's annual report to shareholders.
Information about the Company's segments is as follows:
FORM 10-Q December 31, 2001
Page 12
Three Months Ended Six Months Ended
December 31, December 31,
------------ ------------
2001 2000 2001 2000
--------- --------- --------- -------
(in thousands) (in thousands)
Net sales from external customers
Electronics components distribution $38,163 $93,656 $80,601 $181,423
Contract manufacturing 4,242 6,580 11,235 12,971
------- ------- -------- --------
$42,405 $100,236 $91,836 $194,394
====== ======= ====== =======
Intersegment net sales
Electronics components distribution $ 54 $ 254 $ 169 $ 382
Contract manufacturing _____ _____ _____ _____
$ 54 $ 254 $ 169 $ 382
======== ========= ======= =======
Operating (loss) profit
Electronics components distribution $ (1,451) $ 7,712 $ (3,025) $ 15,971
Contract manufacturing (141) 313 56 838
--------- ------- ------ -------
$ (1,592) $ 8,025 $ (2,969) $ 16,809
======= ===== ======== =======
Interest expense
Electronics components distribution $ 403 $ 1,015 $ 1,007 $ 1,767
Contract manufacturing 136 154 302 291
-------- -------- ------- -------
$ 539 $ 1,169 $ 1,309 $ 2,058
====== ======== ========= =========
Income tax (benefit) provision
Electronics components distribution $ (716) $ 2,746 $ (1,370) $ 5,824
Contract manufacturing (94) 65 (84) 224
---------- -------- ---------- ---------
$ (810) $ 2,811 $ (1,454) $ 6,048
========= ========= =========== =========
Identifiable assets
Electronics components distribution $99,884 $150,593 $99,884 $150,593
Contract manufacturing 14,087 15,890 14,087 15,890
-------- -------- -------- --------
$113,971 $166,483 $113,971 $166,483
======= ======= ======= =======
Capital expenditures
Electronics components distribution $ 58 $ 196 $ 128 $ 529
Contract manufacturing 31 86 31 887
------- ------- ------- --------
$ 89 $ 282 $ 159 $ 1,416
====== ======= ======= =========
Depreciation and amortization
Electronics components distribution $ 373 $ 540 $ 742 $ 1,076
Contract manufacturing 225 211 448 410
-------- -------- ------- -------
$ 598 $ 751 $ 1,190 $ 1,486
======= ======= ========= =========
FORM 10-Q December 31, 2001
Page 13
JACO ELECTRONICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:
Except for the historical information, this filing includes
forward-looking statements that involve risks and uncertainties, including, but
not limited to, general industry and economic conditions, the impact of
competitive products, product demand and market acceptance risks, fluctuations
in operating results, delays in development of highly-complex products, the
ability of the Company to continue to expand its operations, the level of costs
incurred in connection with the Company's expansion efforts and the financial
strength of the Company's customers and suppliers and other risks detailed from
time to time in the Company's Securities and Exchange Commission filings. The
forward-looking statements in this filing involve risks and uncertainties which
could cause actual results, performance or trends, including margins, SG&A
expenses as a percentage of revenues and earnings per diluted share, to differ
materially from those expressed in the forward-looking statements. The Company
believes that all forward-looking statements made by it have a reasonable basis,
but there can be no assurance that management's expectations, beliefs or
projections as expressed in the forward-looking statements will actually occur
or prove to be correct. Actual results may differ materially from such
information set forth herein.
GENERAL
Jaco is a distributor of electronic components, provider of contract
manufacturing and value-added services. Products distributed by Jaco include
semiconductors, capacitors, resistors, electromechanical devices, flat panel
displays and monitors, and power supplies used in the assembly and manufacturing
of electronic equipment.
The Company's customers are primarily small and medium sized
manufacturers. The trend for these customers has been to shift certain
manufacturing functions to third parties (outsourcing). The Company intends to
seek to capitalize on this trend toward outsourcing by increasing sales of
products enhanced by value-added services. Value-added services currently
provided by Jaco consist of automated inventory management services, kitting
(e.g. supplying sets of specified quantities of products to a customer that are
prepackaged for ease of feeding the customer's production lines), and contract
manufacturing through Nexus Custom Electronics, Inc., a wholly owned subsidiary
of the Company. The Company is also expanding in the flat panel display
value-added market, which includes full system integration, kitting and the
implementation of touch technologies.
FORM 10-Q December 31, 2001
Page 14
Results of Operations
The following table sets forth certain items in the Company's statements of
operations as a percentage of net sales for the periods shown:
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ ---------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 84.4 80.0 84.1 79.1
---------- ---------- ---------- ----------
Gross Profit 15.6 20.0 15.9 20.9
Selling, general and
administrative expenses 19.3 12.0 19.1 12.3
---------- ---------- ---------- ----------
Operating (loss) profit (3.7) 8.0 (3.2) 8.6
Interest expense 1.3 1.2 1.5 1.0
---------- ---------- ---------- ----------
(Loss) earnings before income taxes (5.0) 6.8 (4.7) 7.6
Income tax (benefit) provision (1.9) 2.8 (1.6) 3.1
---------- ---------- ---------- ----------
NET (LOSS) EARNINGS (3.1)% 4.0% (3.1)% 4.5%
========== ========== ========== ==========
COMPARISON OF THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31,
2000
- -------------------------------------------------------------------------------
Net sales for the three and six months ended December 31, 2001 were $42.4
million and $91.8 million, respectively, compared to $100.2 million and $194.4
million for the three and six months ended December 31, 2000, respectively,
representing decreases of 57.7% and 52.8%. The decreases are the result of
continuing weak demand for components throughout the electronics industry and a
general slowdown in the global economy. Additionally, as a result of the reduced
demand, many of our customers have a surplus of inventory. At such time that
this surplus diminishes the Company believes that sales will increase. Weak
demand negatively impacted sales in all product groups except flat panels. As
applications for flat panel usage increases, the Company has dedicated
additional resources to this market and has realized sequential growth compared
to the first quarter of this fiscal year. Also, the focus on the sale of
integrated flat panel product has resulted in new flat panel business.
FORM 10-Q December 31, 2001
Page 15
Gross profit was $6.6 million, or 15.6% and $14.6 million, or 15.9% for
the three and six months ended December 31, 2001, respectively, compared to
$20.1 million, or 20.0% and $40.7 million, or 20.9% for the three and six months
ended December 31, 2000, representing decreases of 67.1% and 64.1%. Demand for
components continues to be weak. We do not foresee any material increase in
gross margin until such time that demand for our product improves.
Selling, general and administrative ("SG&A") expenses were $8.2 million
and $17.6 million for the three and six months ended December 31, 2001,
respectively, compared to $12.1 million and $23.9 million for the three and six
months ended December 31, 2000, respectively. This represents a decrease of $3.9
million, or 32.0% and $6.3 million, or 26.4% for the three and six months ended
December 31, 2001, respectively, compared to the same periods for Fiscal 2001.
As a result of weak demand, it has been necessary to significantly reduce
staffing levels in all departments. The Company has reduced costs that are
deemed discretionary and has seen a decrease in variable costs, such as
commissions paid to sales personnel, as a result of the decrease in sales.
Though management is continuing to review all SG&A expenses, we believe that we
have not hindered our ability to grow as customers demand increases.
Interest expense decreased to $0.5 million and $1.3 million for the
three and six months ended December 31, 2001, respectively, compared to $1.2
million and $2.1 million for the three and six months ended December 31, 2000,
respectively, representing decreases of 53.9% and 36.4%. The reduction of
interest expense is attributable to the Company's ability to reduce inventory
levels as demand has weakened, a decrease in Accounts Receivable as a function
of sales, and a reduction in borrowing rates.
Net loss for the three and six months ended December 31, 2001 was $1.3
million, or $0.23 per share diluted, and $2.8 million, or $0.49 per share
diluted, respectively, compared to net earnings of $4.0 million, or $0.65 per
share diluted and $8.7 million, or $1.40 per share diluted for the three and six
months ended December 31, 2000, respectively. The Company was unable to reduce
costs during this time period to the same extent as sales decreased.
LIQUIDITY AND CAPITAL RESOURCES
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Our agreement with our banks, as amended, expires on September 14, 2003.
The agreement provides us with a $70 million revolving line of credit facility
based principally on eligible accounts receivable and inventories as defined in
the agreement. The interest rate of the credit facility is based on the average
30-day LIBOR rate plus 1.0%-2.25% depending on our performance for the
immediately preceding four fiscal quarters measured by a certain financial
ratio, and may be adjusted quarterly. The outstanding balance on the revolving
line of credit facility was $42.0 million at December 31, 2001. Borrowings under
this facility are collateralized by substantially all of our assets. The
agreement, as amended on February 6, 2002, contains provisions for maintenance
of certain financial ratios, all of which we were in compliance with as of
December 31, 2001, and prohibits the payment of cash dividends.
For the six months ended December 31, 2001, our cash provided by operating
activities was approximately $13.8 million, as compared to net cash used in
operating activities of $17.6 million for the same period last fiscal year. The
increase in net cash provided is primarily attributable to a decrease in
accounts receivable and inventory. This was partially offset by a decrease in
accounts payable and accrued expenses for the six months ended December 31,
2001. The decrease in accounts receivable and inventory was the result of the
decrease in net sales for the six months ended December 31, 2001, as compared to
the same period last year. Net cash used in investing activities decreased to
$0.7 million for the six months ended December 31, 2001, as compared to $1.7
million for the six months ended December 31, 2000. The decrease is primarily
attributable to a reduction in capital expenditures. Net cash used in financing
activities was $13.1 million for the six months ended December 31, 2001 as
compared to net cash provided by financing activities of $19.0 million for the
comparable period last fiscal year. The increase in net cash used is primarily
attributable to the decrease in the outstanding balance on the revolving line of
credit facility from $54.6 million as of June 30, 2001 to $42.0 million as of
December 31, 2001, which was a result of the decreases in accounts receivable
and inventory.
FORM 10-Q December 31, 2001
Page 16
For the six months ended December 31, 2001 and December 31, 2000,
our inventory turnover was 2.8x and 4.9x, respectively. The average days
outstanding of our accounts receivable at December 31, 2001 were 63 days, as
compared to 48 days at December 31, 2000.
We believe that cash flow from operations and funds available under our
credit facility will be sufficient to fund our capital needs for the forseeable
future. However, our cash expenditures may vary significantly from current
levels, based on a number of factors, including, but not limited to future
acquisitions, if any. While there can be no assurances that such financing will
be available, the Company believes it will be able to continue to obtain
financing on acceptable terms.
Inflation
Inflation has not had a significant impact on the Company's operations
during the last three fiscal years.
Quantitative and Qualitative Disclosure about Market Risk.
- ----------------------------------------------------------
We are exposed to interest rate changes with respect to our credit
facility which bears interest at the higher of the prime rate or the federal
funds rate plus 0.5%, or at our option, at a rate equal to the average 30-day
LIBOR rate plus 1.0% to 2.25% depending on our performance for the immediately
preceding four fiscal quarters measured by a certain financial ratio, and may be
adjusted quarterly. At January 31, 2002, $43.3 million was outstanding under the
credit facility. Changes in the LIBOR interest rate during the fiscal year will
have a positive or negative effect on our interest expense. Each 1.0%
fluctuation in the LIBOR interest rate will increase or decrease interest
expense for us by approximately $0.4 million based on outstanding borrowings at
January 31, 2002.
The impact of interest rate fluctuations on other floating rate
debt is not material.
FORM 10-Q December 31, 2001
Page 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to Report
Item 2. Changes in Securities and Use of Proceeds
Nothing to Report
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
Our Annual Meeting of Shareholders was held on December 12,
2001. The Shareholders approved the following:
The election of each of the nominees to the Board of
Directors:
Stephen A. Cohen For: 5,412,704 Withheld: 79,695
Edward M. Frankel For: 5,418,204 Withheld: 74,195
Charles B. Girsky For: 5,232,404 Withheld: 259,995
Joel H. Girsky For: 5,232,404 Withheld: 259,995
Joseph F. Hickey, Jr. For: 5,418,204 Withheld: 74,195
Joseph F. Oliveri For: 5,232,404 Withheld: 259,995
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
99.8.13 Amendment to Second Restated
and Amended Loan and Security Agreement
dated February 6, 2002
b) Reports on Form 8-K: None
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JACO ELECTRONICS, INC.
(Registrant)
BY: /s/ Jeffrey D. Gash
---------------------------------------
Jeffrey D. Gash, Chief Financial Officer
(Principal Financial Officer)
DATED: February 14, 2002