1 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 September 30, 1995 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 of 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: (516) 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 November 7, 1995 - 3,791,806 --------- 2 FORM 10-Q Page 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS JACO ELECTRONICS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 1995 June 30, 1995 ------------------ ------------- ASSETS: Current Assets: Cash and cash equivalents $ 423,220 $ 393,671 Accounts receivable - net 21,737,316 20,437,664 Inventories 33,958,022 26,653,881 Prepaid expenses and other 1,136,129 1,256,319 Due from officers 221,362 309,808 Deferred income taxes 691,000 571,000 -------------- -------------- Total current assets 58,167,049 49,622,343 Property, plant and equipment - net 4,119,559 4,106,221 Deferred income taxes 174,000 174,000 Excess of cost over net assets acquired 1,335,156 1,353,031 Other assets 1,169,615 1,067,643 ------------ ------------- $ 64,965,379 $ 56,323,238 ============ ============ See accompanying notes to condensed consolidated financial statements. 3 FORM 10-Q Page 3 JACO ELECTRONICS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES & SHAREHOLDERS' EQUITY: September 30, 1995 June 30, 1995 ------------------ ------------- Current Liabilities: Accounts payable and accrued expenses $ 21,169,044 $ 17,952,385 Current maturities of long term debt and capitalized lease obligations 460,497 452,995 Income taxes payable 729,693 475,702 ------------- ------------ Total current liabilities 22,359,234 18,881,082 Long term debt and capitalized lease obligations 28,009,990 23,665,624 Deferred compensation 562,500 550,000 SHAREHOLDERS' EQUITY: Preferred stock - authorized, 100,000 shares, $10 par value; none issued Common stock - authorized 5,000,000 shares, $.10 par value; issued and outstanding, 2,464,306 and 2,464,384 shares, respectively 246,430 246,438 Additional paid-in capital 5,013,671 5,013,663 Retained earnings 8,773,554 7,966,431 ----------- ----------- Total shareholders' equity 14,033,655 13,226,532 ----------- ----------- $64,965,379 $56,323,238 =========== =========== See accompanying notes to condensed consolidated financial statements. 4 Form 10-Q Page 4 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) 1995 1994 ---- ---- NET SALES $40,083,485 $31,087,594 ----------- ----------- COST AND EXPENSES: Cost of goods sold 31,542,271 24,693,472 ----------- ----------- Gross profit 8,541,214 6,394,122 Selling, general and administrative expenses 6,613,141 5,528,395 ----------- ----------- Operating profit 1,928,073 865,727 Interest expense 558,122 428,233 ----------- ----------- Earnings before income taxes 1,369,951 437,494 Income tax provision 562,000 175,000 ----------- ----------- NET EARNINGS $ 807,951 $ 262,494 =========== =========== Net earnings per common share $ .32 $ .11 =========== =========== Weighted average common and common equivalent shares outstanding 2,536,909 2,423,387 =========== =========== See accompanying notes to condensed consolidated financial statements. 5 FORM 10-Q Page 5 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED JUNE 30, 1995 THE THREE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) Additional Total Paid-In Retained Shareholders' Shares Amount Capital Earnings Equity ------ ------ ------- -------- ------ Balance at June 30, 1994 1,652,309 $ 165,231 $3,810,516 $7,226,705 $ 11,202,452 Exercise of stock options 28,000 2,800 105,700 108,500 10% stock dividend 167,979 16,798 1,159,056 (1,175,854) Payment for fractional shares resulting from 10% stock dividend ( 362) ( 362) 4-for-3 stock split 616,096 61,609 ( 61,609) Net earnings 1,915,942 1,915,942 --------- --------- ---------- ---------- ------------ Balance at June 30, 1995 2,464,384 246,438 5,013,663 7,966,431 13,226,532 --------- --------- ---------- ---------- ------------ Payment for fractional shares resulting from 4-for-3 stock split ( 78) ( 8) 8 ( 828) ( 828) Net earnings 807,951 807,951 --------- --------- ---------- ---------- ------------ 2,464,306 $ 246,430 $5,013,671 $8,773,554 $ 14,033,655 ========= ========= ========== ========== ============ See accompanying notes to condensed consolidated financial statements. 6 FORM 10-Q Page 6 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) 1995 1994 ---- ---- Cash flows from operating activities Net earnings $ 807,951 $ 262,494 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities Depreciation and amortization 174,900 155,616 Deferred compensation 12,500 12,500 Deferred income tax provision (120,000) ( 37,000) Amortization of goodwill 17,875 20,218 Loss on sale of equipment 8,762 Provision for doubtful accounts 160,240 Changes in operating assets and liabilities, Increase in operating assets - net (8,643,843) (6,127,731) Increase in operating liabilities - net 3,470,650 4,530,398 ---------- ----------- Net cash used in operating activities (4,110,965) ( 1,183,505) ----------- ------------ Cash flows from investing activities Capital expenditures ( 201,600) ( 355,369) Proceeds from sales of assets 4,600 Decrease (increase) in due from officers - net 88,446 ( 27,309) Increase in other assets ( 101,972) ( 38,311) --------- -------- Net cash used in investing activities ( 210,526) ( 420,989) ----------- ------------ Cash flows from financing activities Borrowings under line of credit 44,114,000 32,975,464 Payments under line of credit (39,649,993) (31,406,755) Principal payments under equipment financing and term loan ( 112,139) ( 110,579) Borrowings under term loan 125,992 Payments for fractional shares ( 828) ------------ ----------- Net cash provided by financing activities 4,351,040 1,584,122 ----------- ----------- NET INCREASE (DECREASE) IN CASH 29,549 ( 20,372) ----------- ------------ Cash and cash equivalents at beginning of period 393,671 434,798 ----------- ----------- Cash and cash equivalents at the end of period $ 423,220 $ 414,426 =========== =========== See accompanying notes to condensed consolidated financial statements 7 FORM 10-Q Page 7 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, 1995 and the notes thereto included in the Company's annual report on Form 10K. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. 2) For interim statement purposes, the Company uses the gross profit method in computing inventories which consists of goods held for resale. 3) Earnings per share have been computed based on weighted average number of shares outstanding including approximately 72,600 common stock equivalents for the period ending September 30, 1995. No common stock equivalents were included for the period ended September 30, 1994 as they were antidilutive. 4) On February 3, 1995, the Company declared a 10% stock dividend which was paid on March 10, 1995. Further, on August 30, 1995, the Company declared a 4-for-3 stock split which was paid on October 3, 1995. All references to the number of common shares and earnings per common shares have been restated to reflect the 10% stock dividend and the 4-for-3 stock split. 5) Subsequent Event On October 20, 1995, the Company completed a public offering of 1,600,000 shares of its common stock at $12.75 per share. The offering consisted of 1,325,000 shares offered by the Company and 275,000 shares offered by selling shareholders. The Company's net proceeds of approximately $15,711,000, before deducting expenses estimated to be $396,000, was used to reduce its bank indebtedness. 8 Form 10-Q Page 8 JACO ELECTRONICS, INC. AND SUBSIDIARIES MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Jaco is a distributor of electronic components and provider of contract manufacturing and value-added services. Products distributed by Jaco include semiconductors, capacitors, resistors and electromechanical devices and motors 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 configuring complete computer systems to customer specifications both in tower and desktop configurations, 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), assembling fractional-horsepower electric motors and turnkey contract manufacturing through the Company's wholly owned subsidiary, Nexus Custom Electronics, Inc. RESULTS OF OPERATIONS The following table sets forth certain items in the Company's statement of earnings as a percentage of net sales for the periods shown; Three months ended September 30, 1995 1994 ---- ---- Net sales 100.0% 100.0% Cost of goods sold 78.7 79.4 ----- ----- Gross profit 21.3 20.6 Selling, general and administrative expenses 16.5 17.8 ----- ----- Operating profit 4.8 2.8 Interest expense 1.4 1.4 Earnings before income taxes 3.4 1.4 Income tax provision 1.4 .6 ---- ---- NET EARNINGS 2.0% .8% ===== ==== 9 FORM 10-Q Page 9 COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994 Net sales were $40.1 million for the three months ended September 30, 1995, an increase of $9.0 million or 29% as compared to $31.1 million for the three months ended September 30, 1994. The increase in sales is the result of continued strong demand for components in the electronic industry and the increase of sales personnel in our new and existing offices. In addition, revenue from contract manufacturing by Nexus increased slightly to $2.8 million for the three months ended September 30, 1995 as compared to $2.6 million for the three months ended September 30, 1994. Gross profit margins, as a percentage of net sales, increased from 20.6% for the three months ended September 30, 1994 to 21.3% for the three months ended September 30, 1995. The strong demand for components was primarily attributable for the increase. Selling, general and administrative expenses were $6.6 million during the first quarter of fiscal 1996, an increase of $1.1 million, or 19.6%, from $5.5 million during the first quarter of fiscal 1995. The increases were attributable, principally, to the Company's sales growth which resulted in increased selling expenses including commissions and the hiring of additional sales personnel both for new and existing sales offices. The Company continues to pay strict attention to cost containment. As a result, selling, general and administrative expenses, as a percentage of net sales during the first quarter of fiscal 1996 decreased to 16.5% as compared to 17.8% during the respective period last year. Interest expense increased to $558,000 or 30.4%, for the three months ended September 30, 1995 compared to $428,000 for the same period last year. This was primarily attributable to the increase in borrowings resulting from additional inventory required to support the growth in sales. Interest expense is expected to decrease during the remainder of fiscal 1996, as a result of the reduction of indebtedness under the Company's Credit Facility by application of the net proceeds of the stock offering (see Note A-5). Net earnings for the three months ended September 30, 1995 were $808,000, an increase of approximately $546,000, or 208%, as compared to $262,000 for the three months ended September 30, 1994. The increase in the Company's sales and the improvement in its gross profit margin were primarily responsible for the growth in earnings. LIQUIDITY AND CAPITAL RESOURCES The Company maintains a total Credit Facility of $30,000,000, $8,000,000 of which is structured as a term loan, $1,500,000 (the outstanding balance of which at September 30, 1995 was approximately $1,179,000) of which is structured as a term loan, payable in equal monthly installments of $17,857 and the balance of which is structured as a revolving line of credit. During fiscal 1995, the borrowing rate was reduced from prime +1% to a rate equal to the higher of prime rate or the federal funds rate +1/2% or, at the Company's option, LIBOR plus 2.5% for fixed periods of time. The Company must comply with various financial covenants, with all of which 10 FORM 10-Q Page 10 the Company believes itself to be in compliance. As of September 30, 1995, the Company had outstanding borrowings of $27.2 million, with additional borrowing capacity of $2.8 million available under the revolving line of credit. Working capital increased to $35.8 million as of September 30, 1995, as compared to $15.2 million as of September 30, 1994, an increase of $20.6 million or 136%. The increase was primarily attributable to the Company's restructuring of its Credit Facility which, among other things, extended its maturity date to September 1998; the Company's profitable results; and higher inventory necessary to support the Company's increased level of sales and resulting increased account receivable. During the three months ended September 30, 1995, the Company's net cash used in operating activities increased to $4.1 million, from $1.2 million in fiscal 1995 as primarily a result of increases in inventory, which was partially offset by increases in accounts payable , all of which is a reflection of higher sales. During the quarter, the Company increased its borrowings under its Credit Facility by $4.5 million principally to provide cash for operating activities. The Company's cash expenditures may vary significantly from its current expectation, based on a number of factors, including but not limited to, future acquisitions, if any. During October 1995, the Company completed a public offering of 1,600,000 shares of its common stock. The offering consisted of 1,325,000 shares offered by the Company and 275,000 shares offered by selling shareholders. The net proceeds to the Company from this offering, after deducting all costs, was approximately $15.3 million. The net proceeds initially have been used to reduce the outstanding balance of the bank indebtedness under its Credit Facility. As a result of this reduction, the amount available under the Credit Facility will be increased and available in the future for working capital or potential acquisitions. INFLATION Inflation has not had a significant impact on the Company's operations during the last three fiscal years. 11 FORM 10-Q Page 11 PART II - OTHER INFORMATION Item 1. Legal Proceedings Nothing to Report Item 2. Changes in Securities 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 12 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 - Vice President/Finance (Principal Financial Officer) DATED: November 13, 1995 13 EXHIBIT INDEX ------------- Exhibit 27 Financial Data Schedule