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 March 31, 2002
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 May 10, 2002 -
5,707,459 (Excluding 618,300 Shares of Treasury Stock).
FORM 10-Q March 31, 2002
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
2002 2001
-------------- ---------
ASSETS
Current Assets
Cash $ 400,379 $ 89,523
Marketable securities 730,886 771,406
Accounts receivable - net 29,934,982 37,820,946
Inventories 53,222,706 62,212,121
Prepaid expenses and other 1,311,777 824,121
Prepaid and refundable income taxes 1,770,909 486,325
Deferred income taxes 2,129,000 2,190,000
--------- ---------
Total current assets 89,500,639 104,394,442
Property, plant and equipment - net 7,233,133 8,389,651
Deferred income taxes 502,000 436,000
Excess of cost over net assets acquired - net 20,263,733 20,095,844
Other assets 3,294,797 2,998,902
--------- ---------
$120,794,302 $136,314,839
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002
Page 3
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
2002 2001
-------------- --------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 27,886,523 $ 25,004,058
Current maturities of long term debt and
capitalized lease obligations 955,920 1,081,905
---------- ----------
Total current liabilities 28,842,443 26,085,963
Long term debt and capitalized lease obligations 41,321,335 56,128,243
Deferred compensation 887,500 850,000
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 26,648,506 30,146,599
Accumulated other comprehensive income 26,591 61,107
Treasury stock (2,204,515) (2,204,515)
---------- -----------
Total shareholders' equity 49,743,024 53,250,633
---------- ----------
$120,794,302 $136,314,839
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002
Page 4
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2002 2001
----------- -----------
NET SALES $49,297,412 $83,680,954
COST AND EXPENSES
Cost of goods sold 42,100,445 68,313,422
---------- ----------
Gross profit 7,196,967 15,367,532
Selling, general and administrative expenses 7,726,038 11,585,251
--------- ----------
Operating (loss) profit (529,071) 3,782,281
Interest expense 493,479 1,094,788
--------- ----------
(Loss) earnings before income taxes (1,022,550) 2,687,493
Income tax (benefit) provision (348,000) 1,102,000
--------- ----------
NET (LOSS) EARNINGS $(674,550) $1,585,493
========== ==========
Net (loss) earnings per common share:
Basic $ (0.12) $ 0.28
========== ==========
Diluted $ (0.12) $ 0.26
========== ==========
Weighted average common shares outstanding:
Basic 5,707,459 5,692,537
========= ==========
Diluted 5,707,459 6,165,278
========= ==========
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002
Page 5
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
2002 2001
----------- -----------
NET SALES $141,133,247 $278,075,434
COST AND EXPENSES
Cost of goods sold 119,319,217 222,013,053
----------- -----------
Gross profit 21,814,030 56,062,381
Selling, general and administrative expenses 25,311,713 35,471,510
---------- ----------
Operating (loss) profit (3,497,683) 20,590,871
Interest expense 1,802,410 3,152,849
--------- ----------
(Loss) earnings before income taxes (5,300,093) 17,438,022
Income tax (benefit) provision (1,802,000) 7,150,000
----------- ----------
NET (LOSS) EARNINGS $(3,498,093) $10,288,022
============ ===========
Net (loss) earnings per common share:
Basic $ (0.61) $ 1.82
========== ==========
Diluted $ (0.61) $ 1.66
========== ==========
Weighted average common shares outstanding:
Basic 5,705,269 5,660,295
========= ==========
Diluted 5,705,269 6,209,932
========= ==========
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002
Page 6
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2002
(UNAUDITED)
Additional
paid-in Retained
Shares Amount capital earnings
------------ ----------- -------------- ----------------
Balance at July 1, 2001 6,315,759 $ 631,576 $ 24,615,866 $ 30,146,599
Net loss (3,498,093)
Unrealized loss on marketable
securities, net of deferred taxes
Exercise of stock options 10,000 1,000 24,000
------------ ----------- -------------- ----------------
Balance at March 31, 2002 6,325,759 $ 632,576 $ 24,639,866 $ 26,648,506
============ =========== ============== ================
Accumulated
other Total
comprehensive Treasury shareholders'
income stock equity
------------- ------------- --------------
Balance at July 1, 2001 $ 61,107 $ (2,204,515) $ 53,250,633
Net loss (3,498,093)
Unrealized loss on marketable
securities, net of deferred taxes (34,516) (34,516)
Exercise of stock options 25,000
-------------- ------------ --------------
Balance at March 31, 2002 $ 26,591 $ (2,204,515) $ 49,743,024
============== ============ ==============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002
Page 7
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
2002 2001
-------------- --------------
Cash flows from operating activities
Net (loss) earnings $ (3,498,093) $ 10,288,022
Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operating activities
Depreciation and amortization 1,765,267 2,320,995
Deferred compensation 37,500 138,750
Deferred income tax expense (benefit) 14,032 (792,000)
Gain on sale of equipment (7,048)
Provision for doubtful accounts 216,400 1,064,401
Changes in operating assets and liabilities,
Decrease (increase) in operating assets - net 14,766,854 (42,178,132)
Increase in operating liabilities - net 3,107,465 10,387,116
-------------- --------------
Net cash provided by (used in) operating activities 16,402,377 (18,770,848)
-------------- --------------
Cash flows from investing activities
Capital expenditures (169,646) (1,830,704)
Proceeds from sale of equipment 37,673
Increase in marketable securities (13,028) (54,737)
Business acquisitions - deferred payments (243,297) (3,792,807)
Increase in other assets (398,645) (204,848)
-------------- --------------
Net cash used in investing activities (786,943) (5,883,096)
-------------- --------------
Cash flows from financing activities
Borrowings under line of credit 116,403,926 254,637,255
Payments under line of credit (130,919,186) (230,291,235)
Principal payments under equipment financing
and term loans (814,318) (672,897)
Payment of fractional shares (559)
Proceeds from exercise of stock options 25,000 436,625
-------------- --------------
Net cash (used in) provided by financing activities (15,304,578) 24,109,189
-------------- --------------
NET INCREASE (DECREASE) IN CASH 310,856 (544,755)
-------------- --------------
Cash at beginning of period 89,523 617,603
-------------- --------------
Cash at end of period $ 400,379 $ 72,848
============== ==============
Supplemental schedule of non-cash financing and investing activities:
Equipment acquired under capital lease obligations $ 396,685 $ 1,535,169
Accrued acquisition costs $ 217,193
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002
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 nine months ended March
31, 2002 excludes approximately $280,000 and $847,000, respectively, of such
amortization, as compared to approximately $273,000 and $717,000, which were
included in the comparable periods last year. The Company performed a
transitional fair value based impairment test and determined that no impairment
of goodwill or intangible existed as of December 31, 2001.
FORM 10-Q March 31, 2002
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 Nine Months Ended
March 31, March 31,
------------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Dollars in thousands except Dollars in thousands except
per share data per share data
-------------- ----------------
Reported net (loss) earnings $ (675) $ 1,585 $ (3,498) $ 10,288
Add back: goodwill amortization 264 690
Add back: franchise agreement amortization 9 27
------------- ---------- ------------ ------------
Adjusted net (loss) earnings $ (675) $ 1,858 $ (3,498) $ 11,005
============= ========== ============ ============
BASIC (LOSS) EARNINGS PER SHARE:
Reported net (loss) earnings $ (0.12) $ 0.28 $ (0.61) $ 1.82
Goodwill amortization 0.05 0.12
Franchise agreement amortization 0.00 0.00
------------- ---------- ------------ ------------
Adjusted net (loss) earnings $ (0.12) $ 0.33 $ (0.61) $ 1.94
============= ========== ============ ============
DILUTED (LOSS) EARNINGS PER SHARE:
Reported net (loss) earnings $ (0.12) $ 0.26 $ (0.61) $ 1.66
Goodwill amortization 0.04 0.11
Franchise agreement amortization 0.00 0.00
------------- ---------- ------------ ------------
Adjusted net (loss) earnings $ (0.12) $ 0.30 $ (0.61) $ 1.77
============= ========== ============ ============
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 Company's
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 March 31, 2002
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. 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 at March 31, 2002 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 which has been paid. 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. The excess of
the purchase price over the fair value of the assets acquired, approximately
$310,000 at March 31, 2002, was being amortized on a straight-line basis over
twenty years until the Company's adoption of SFAS No. 142.
9) Total comprehensive income (loss) and its components for the three and nine
months ended March 31, 2002 and 2001 are as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ------------ ------------ -----------
Net (loss) income $(674,550) $1,585,493 $(3,498,093) $10,288,022
Unrealized gain (loss)
on marketable securities 5,469 (96,588) (53,548) (209,423)
Deferred tax (expense) benefit (2,000) 35,000 19,032 76,000
----------- ------------ ------------ -----------
Comprehensive (loss) income $(671,081) $1,523,905 $(3,532,609) $10,154,599
=========== ============ ============ ===========
Accumulated other comprehensive income is comprised of unrealized gains
and losses on marketable securities, net of the related tax effect.
FORM 10-Q March 31, 2002
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 Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ------------ ------------ -----------
Weighted average common shares
outstanding net of treasury shares,
for basic earnings per share 5,707,459 5,692,537 5,705,269 5,660,295
Common stock equivalents for
stock options 472,741 549,637
----------- ------------ ------------ -----------
Weighted average common shares
outstanding for diluted earnings per 5,707,459 6,165,278 5,705,269 6,209,932
share
=========== ============ ============ ===========
Excluded from the calculation of earnings per share are options to
purchase 944,521 and 947,454 shares of the Company's common stock for the three
and nine months ended March 31, 2002, respectively, as compared to 45,000 shares
for the three and nine months ended March 31, 2001, as their inclusion would
have been antidilutive. Common stock equivalents for stock options are
calculated using the treasury stock method.
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 nine
months ended March 31, 2002 and 2001 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 March 31, 2002
Page 12
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
2002 2001 2002 2001
-------- -------- -------- -------
(in thousands) (in thousands)
Net sales from external customers
Electronics components distribution $46,411 $76,060 $127,012 $257,483
Contract manufacturing 2,886 7,621 14,121 20,592
------- ------- -------- --------
$49,297 $83,681 $141,133 $278,075
====== ====== ======= =======
Intersegment net sales
Electronics components distribution $ 27 $ 402 $ 196 $ 784
Contract manufacturing 9 9
-------- --------- ------- -------
$ 36 $ 402 $ 205 $ 784
======== ========= ======= =======
Operating (loss) profit
Electronics components distribution $ (184) $ 3,415 $ (3,209) $ 19,386
Contract manufacturing (345) 367 (289) 1,205
--------- ------- --------- ---------
$ (529) $ 3,782 $ (3,498) $ 20,591
===== ===== ======== =======
Interest expense
Electronics components distribution $ 374 $ 925 $ 1,381 $ 2,692
Contract manufacturing 119 170 421 461
-------- -------- ------- -------
$ 493 $ 1,095 $ 1,802 $ 3,153
====== ======== ========= =========
Income tax (benefit) provision
Electronics components distribution $ (190) $ 1,021 $ (1,560) $ 6,845
Contract manufacturing (158) 81 (242) 305
----------- -------- ----------- ---------
$ (348) $ 1,102 $ (1,802) $ 7,150
========= ========= =========== =========
Identifiable assets
Electronics components distribution $107,534 $153,252 $107,534 $153,252
Contract manufacturing 13,260 19,590 13,260 19,590
-------- -------- -------- --------
$120,794 $172,842 $120,794 $172,842
======= ======= ======= =======
Capital expenditures
Electronics components distribution $ 11 $ 543 $ 139 $ 1,072
Contract manufacturing 31 759
---- ------- ------- --------
$ 11 $ 543 $ 170 $ 1,831
====== ======= ======= =========
Depreciation and amortization
Electronics components distribution $ 347 $ 579 $ 1,089 $ 1,655
Contract manufacturing 228 256 676 666
-------- -------- ------- -------
$ 575 $ 835 $ 1,765 $ 2,321
======= ======= ========= =========
FORM 10-Q March 31, 2002
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 March 31, 2002
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 Nine Months Ended
March 31, March 31,
------------------------ -----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 85.4 81.7 84.6 79.8
-------- -------- -------- --------
Gross profit 14.6 18.3 15.4 20.2
Selling, general and
administrative expenses 15.7 13.8 17.9 12.8
-------- -------- -------- --------
Operating (loss) profit (1.1) 4.5 (2.5) 7.4
Interest expense 1.0 1.3 1.3 1.1
-------- -------- -------- --------
(Loss) earnings before income taxes (2.1) 3.2 (3.8) 6.3
Income tax (benefit) provision (0.7) 1.3 (1.3) 2.6
-------- -------- -------- --------
NET (LOSS) EARNINGS (1.4)% 1.9% (2.5)% 3.7%
========== ========== ========== ==========
COMPARISON OF THE THREE AND NINE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
- --------------------------------------------------------------------------------
Net sales for the three and nine months ended March 31, 2002 were $49.3
million and $141.1 million, respectively, compared to $83.7 million and $278.1
million for the three and nine months ended March 31, 2001, respectively,
representing decreases of 41.1% and 49.2%. The electronics industry continues to
be impacted by weak demand for components. However, we did realize a 16%
sequential increase in quarterly net sales as we believe some of the excess
inventory at our customers has been utilized. During the current quarter, our
flat panel display (FPD) sales represented approximately 16% of our total
distribution sales, and continues to be an area of our business that has not
been as significantly effected by the technology slump as other areas of our
business. For the current quarter, passive components represented approximately
38% of our distribution sales and active components including FPD represented
approximately 62%.
FORM 10-Q March 31, 2002
Page 15
Gross profit was $7.2 million, or 14.6% and $21.8 million, or 15.4% for
the three and nine months ended March 31, 2002, respectively, compared to $15.4
million, or 18.3% and $56.1 million, or 20.2% for the three and nine months
ended March 31, 2001. We continue to see downward pressure on our gross profit
margins as a result of weak demand for components. Additionally, we have
experienced an increase in the sale of certain semiconductors that have
historically sold at lower margins than other components. We do not anticipate
any increase in our gross profit margins for the foreseeable future.
Selling, general and administrative expenses ("SG&A") were $7.7 million
and $25.3 million for the three and nine months ended March 31, 2002,
respectively, compared to $11.6 million and $35.5 million for the three and nine
months ended March 31, 2001, respectively. This represents a decrease of $3.9
million, or 33.3%, and $10.2 million, or 28.6%, for the three and nine months
respectively. During the quarter, we have continued to reduce costs that
management deems non-essential to our anticipated future growth. The full effect
of the most recent cost reductions will be realized during the fourth quarter,
which should slightly reduce our SG&A.
Interest expense decreased to $0.5 million and $1.8 million for the
three and nine months ended March 31, 2002, respectively, compared to $1.1
million and $3.2 million for the three and nine months ended March 31, 2001,
respectively, representing decreases of 54.9% and 42.8%. This decrease is
attributable to a reduction in bank borrowings and favorable borrowing rates
that have existed for the last year. We do not anticipate our borrowings to
increase during the next quarter.
Net loss for the three and nine months ended March 31, 2002 was $0.7
million, or $0.12 per share diluted, and $3.5 million, or $0.61 per share
diluted, respectively, compared to net earnings of $1.6 million, or $0.26 per
share diluted and $10.3 million, or $1.66 per share diluted for the three and
nine months ended March 31, 2001, respectively. The net loss was primarily
attributable to the weak condition of the electronics industry resulting in a
significant reduction in sales. The reduction in SG&A has enabled us to reduce
the net loss during the quarter compared to the December 2001 quarter.
LIQUIDITY AND CAPITAL RESOURCES
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 current 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 $40.0 million at March 31, 2002. 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 March
31, 2002, and prohibits the payment of cash dividends.
For the nine months ended March 31, 2002, our cash provided by operating
activities was approximately $16.4 million, as compared to net cash used in
operating activities of $18.8 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. The decrease in accounts receivable and
inventory was the result of the decrease in net sales for the nine months ended
March 31, 2002, as compared to the same period last year. Net cash used in
investing activities decreased to $0.8 million for the nine months ended March
31, 2002, as compared to $5.9 million for the nine months ended March 31, 2001.
The decrease is primarily attributable to deferred payments related to the
acquisition of Interface Electronics Corp. of $0.2 million for the nine months
ended March 31, 2002, as compared to $3.8 million for the nine months ended
March 31, 2001. Net cash used in financing activities was $15.3 million for the
nine months ended March 31, 2002 as compared to net cash provided by financing
activities of $24.1 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 $40.0 million as of March 31, 2002, which was a result of
the decreases in accounts receivable and inventory.
FORM 10-Q March 31, 2002
Page 16
For the nine months ended March 31, 2002 and March 31, 2001, our
inventory turnover was 2.9x and 4.4x, respectively. The average days outstanding
of our accounts receivable at March 31, 2002 were 61 days, as compared to 48
days at March 31, 2001.
We believe that cash flow from operations and funds available under our
existing credit facility will be sufficient to fund our capital needs for the
foreseeable 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. Historically, we have been able to obtain
amendments to our existing credit facility to satisfy financial covenants. While
there can be no assurances that such financing or future amendment if needed,
will be available, management believes we will be able to continue to obtain
financing on acceptable terms.
Inflation
Inflation has not had a significant impact on our 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 April 30, 2002, $36.8 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
April 30, 2002.
The impact of interest rate fluctuations on other floating rate
debt is not material.
FORM 10-Q March 31, 2002
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
Nothing to Report
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits: None
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: May 14, 2002