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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended ......................................June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 incorporation (I.R.S. Employer
or organization) Identification No.)
145 Oser Avenue, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (516) 273-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.10 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates
of the Company, computed by reference to the closing price on September 20, 1996
was $22,722,237.
Number of shares outstanding of each class of Common Stock, as of
September 20, 1996: 3,888,221 shares (excluding 87,500 shares of treasury
stock).
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Definitive Proxy Statement to be filed on or before October 28,
1996, under Regulation 14A, in connection with the Company's 1996
Annual Meeting of Shareholders.
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PART I
ITEM 1. BUSINESS
Jaco Electronics, Inc., a New York corporation organized in 1961
(collectively with all of its subsidiaries, unless otherwise noted, "Jaco" or
the "Company").
GENERAL
Jaco markets and distributes passive and active electronic
components to original equipment manufacturers ("OEMs") throughout the United
States and Canada from two distribution centers located on the East and West
coasts and 14 sales offices located throughout the United States. The Company
distributes products such as semiconductors, capacitors, resistors,
electro-mechanical devices, computers and computer subsystems, which are used in
the manufacture and assembly of electronic products. The Company also provides a
variety of value-added services including configuring complete computer systems
to customers' specifications, kitting the component requirements of certain
customers, assembling fractional-horsepower electric motors to customers'
specifications and furnishing contract manufacturing services. Value-added
services are intended to attract new customers, maintain and increase sales to
existing customers and, where feasible, generate additional revenues and improve
margins from sales of components. In addition, these services are designed to
respond to an industry trend of outsourcing, in which purchasing, manufacturing
and distribution functions are allocated by customers to the most efficient
provider. The Company entered the contract manufacturing business in March 1994,
when it acquired all of the outstanding capital stock of Nexus Custom
Electronics, Inc. ("Nexus"), a Vermont-based turnkey contract manufacturer of
printed circuit boards. Management believes the acquisition of Nexus has
enabled, and will continue to enable, the Company to expand and broaden its
range of value-added service capabilities.
The Company's core customer base consists primarily of small and
medium-sized OEMs that produce electronic equipment used in a wide variety of
industries, including manufacturers of telecommunications, computer,
computer-related, medical and aerospace equipment and several
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Fortune 500 manufacturers. In the fiscal year ended June 30, 1996, the Company
distributed electronic components to thousands of customers, none of which
individually represented more than 2% of net sales.
Jaco is a service-oriented company, built on strong customer and
supplier relationships. The Company's inventory management and information
systems assist its customers in controlling materials costs, in reducing cycle
times and in keeping pace with rapidly occurring technological developments. The
Company utilizes a computerized inventory control system to assist in the
marketing of its products and coordinate purchases from suppliers with sales to
customers. The Company's computer system provides detailed on-line information
regarding the availability of the Company's entire stock of inventory located at
its stocking facilities as well as on-line access to the inventories of some of
the Company's major suppliers. Through the Company's integrated real-time
information system, customers' orders can readily be tracked through the entire
process of entering the order, reserving products to fill the order, ordering
components from suppliers, if necessary, and shipping products to customers on
scheduled dates. The Company is thus able to provide the type of distributor
service required by its OEM customers that have adopted the "just-in-time"
method of inventory procurement. The "just-in-time" method is utilized in an
effort to operate more efficiently and profitably by relying on scheduled
deliveries of such components at the time they are needed in the production
process and thereby reducing inventories of components.
The Company provides additional customer support through
technically competent product managers and field engineers, value-added services
and electronic data interchange.
INDUSTRY OVERVIEW
The electronics distribution industry has become an increasingly
important sales channel for the electronics industry because distributors can
market component manufacturers' products to a broader range of OEMs than such
manufacturers could economically serve with their direct sales forces.
Historically, manufacturers of electronic components have sold directly to large
OEMs and
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relied upon distributors to serve small customers. Today, distributors have
become more of an extension of component manufacturers' product delivery
channels by providing value-added services and technical support to customers,
by stocking sufficient inventory to ensure timely delivery of components and by
managing customer credit. Distributors also work with OEMs to ensure that
manufacturers' components are integrated into the design of new products.
According to the National Electronics Distributors Association,
an industry trade association, in 1995 the electronics distribution industry
recorded approximately $22 billion in sales. Of these sales, approximately $14.4
billion consisted of sales of semiconductors and computer products, which
accounted for approximately $81.8 million of the Company's net distribution
sales for the year ended June 30, 1996. Approximately $6.6 billion of industry
sales consisted of sales of interconnect (connectors, sockets),
electromechanical (relays, switches) and passive (resistors, capacitors)
components, which products accounted for approximately $74.5 million of the
Company's net distribution sales in the year ended June 30, 1996.
PRODUCTS
The Company currently distributes over 60,000 stock items.
Management believes that it is necessary for the Company to carry a wide variety
of items in order to fully service its customers requirements and, in addition,
many suppliers require the Company to carry their full product line.
The components distributed by the Company are used in the
assembly and manufacture of electronic equipment such as computers, data
transmission and telecommunications equipment and transportation equipment,
including electronic signals and aircraft, and a broad variety of other
electronic products. The Company's products fall into two broad categories:
"passive" components and "active" components.
Passive components consist primarily of capacitors,
electromechanical devices, fractional- horse-power motors and resistors. Passive
products accounted for approximately 52%, 52% and
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48% of the Company's net distributor sales in the fiscal years ended June 30,
1994, June 30, 1995 and June 30, 1996, respectively.
Active components include semiconductors and computer subsystems.
Semiconductors consist of such items as integrated circuits and discrete
components, transistors, diodes, dynamic RAMs, static RAMs, video RAMs and
MOSFETs. Computer subsystems are an integral part of personal computers and
computer workstations and incorporate such items as disk drives, tape drives,
floppy disks and controllers. These products represented approximately 48%, 48%
and 52% of the Company's net distributor sales in the fiscal years ended June
30, 1994, June 30, 1995 and June 30, 1996, respectively.
VALUE-ADDED SERVICES
The Company provides a number of value-added services which are
intended to attract new customers, to maintain and increase sales to existing
customers and, where feasible, to generate additional revenues and improve
margins from sales of components. Value-added services include:
- CONFIGURING COMPUTER SYSTEMS. Subsystem integration is a
service offered by the Company where it offers turnkey
solutions to customers' computer requirements by integrating
such components as disks, tapes and floppy disk drives with
other components, including power suppliers, enclosures,
interface electronics cables and converters and active
components to configure complete computer systems to
customer specifications, both in tower and desktop
configurations.
- KITTING. Kitting of customer component product requirements
is provided to fill a segment or a complete order of
products to a select customer base. Kitting consists of
assembling to a customer's specifications two or more of the
Company's 60,000 stock items into pre-packaged kits ready
for use in the customer's assembly line.
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- MOTOR ASSEMBLY. The Company assembles fractional-horsepower
electric motors in conformity with customer specifications.
The Company's Hauppauge, New York distribution center is one
of only two authorized by the Globe Motors division of
Labinal Components and Systems, Inc. as a Globe Motors
assembly center.
- CONTRACT MANUFACTURING. The Company also furnishes turnkey
contract manufacturing printed circuit boards ("PCBs") for
OEMs using both conventional pin-through-hole and more
advanced surface mount technologies. Contract manufacturing
operations involve assembling PCBs to customer
specifications utilizing components from suppliers with whom
the Company has distribution agreements and other suppliers.
As a turnkey contract manufacturer of PCBs, the Company
procures the required raw materials and components, manages
the assembly and test operations, and supplies the PCBs in
accordance with the customer's delivery schedule and quality
requirements for the finished product.
SALES AND MARKETING
Management believes the Company has developed valuable long-term
customer relationships and an in-depth understanding of its customers' needs and
purchasing patterns. Jaco serves a broad range of customers in the computer,
computer-related, telecommunications, data transmission, defense, aerospace,
medical equipment and other industries. None of the Company's customers
individually represented more than 3% and 2%, respectively, of net sales in the
fiscal years ended June 30, 1995 and June 30, 1996.
The Company's sales personnel are trained to identify their
customers' requirements and to actively market the Company's entire product line
to satisfy those needs. For example, the Company's sales staff and field
engineers regularly meet with customers' engineers and designers to discuss
prospective needs and potential design or procurement problems and enable the
sales personnel to understand which products will meet the customers'
performance criteria, are cost-effective and target specifically identified
problems.
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Sales are made throughout the United States and Canada from the
sales departments maintained at the Company's two distribution facilities
located on the East and West Coasts of the United States in California and New
York and from 14 additional sales offices located in California, Florida,
Maryland, Massachusetts, Minnesota, North Carolina, Oregon, Texas, Washington,
Colorado, Arizona (established in March 1996) and Illinois (established in
August 1996). Sales are made primarily through personal visits by the Company's
employees and by a staff of trained telephone sales personnel who answer
inquiries and receive and process orders from customers. In addition, the
Company utilizes the services of independent sales representatives whose
territories include parts of the United States, Canada, and several foreign
countries. These sales representatives operate under agreements which are
terminable by either party upon 30 days' notice. Independent sales
representatives are authorized to solicit sales of all of the Company's product
lines and are prohibited from representing competing product lines.
In the fiscal year ended June 30, 1996, 94% of the Company's
sales were produced by Company sales personnel and 6% by independent sales
representatives, one of whom produced approximately $5 million in revenue. The
Company believes that the termination of any independent sales representative
would not have a material adverse effect upon its business.
BACKLOG
The Company's backlog consists of purchase orders received from
customers for products scheduled for delivery within the next twelve months. The
Company's backlog was $44.9 million at June 30, 1995, compared to $40.6 million
at June 30, 1996. Orders constituting the Company's backlog are subject to
delivery rescheduling, price negotiations and cancellations by the buyer,
sometimes without penalty or notice. Backlog is not necessarily indicative of
future sales for any particular period and, the Company expects that in the
normal course of business, less than all backlogged orders will be filled.
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OPERATIONS
Component Distribution. Inventory management is critical to a
distributor's business. The Company constantly focuses on a high number of
resales or "turns" of existing inventory to reduce exposure to product
obsolescence and changing customer demand.
The Company's central computer system facilitates the control of
purchasing and inventory, accounts payable, shipping and receiving, and
invoicing and collection information of Jaco's distribution business. Each of
the Company's sales departments and offices is electronically linked to the
Company's central computer systems which provides fully integrated on-line
real-time data with respect to the Company's inventory levels. The Company's
inventory management system was developed internally by Jaco and is considered
proprietary. Inventory turns are tracked by vendor, and the Company's inventory
management system provides immediate information to assist in making purchasing
decisions and decisions as to which inventory to exchange with suppliers under
stock rotation programs. The Company's inventory management system also uses
bar-code technology along with scanning devices, which are supplied by Jaco to
certain customers, and is networked to the facilities of select customers. In
some cases, customers use computers that interface directly with the Company's
computers to identify available inventory and rapidly process orders. This
system enables the Company to more effectively manage its inventory and to
respond more quickly to customer requirements for timely and reliable delivery
of components. The Company's inventory turnover was approximately 4.7x for the
year ended June 30, 1996.
Approximately 80% of the Company's component distribution
inventory is maintained at its East Coast distribution center in Hauppauge, New
York. Most of the remaining inventory is maintained at the Company's West Coast
facility in Westlake Village, California. The Company also monitors supplier
stock rotation programs, inventory price protection, rejected material and other
factors related to inventory quality and quantity.
Contract Manufacturing. The Company conducts its contract
manufacturing operations through Nexus at an approximately 32,600 square foot
facility located in Brandon, Vermont. Nexus
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provides turnkey and consigned contract manufacturing of PCBs for OEMs.
"Turnkey" is an industry term that describes a contract manufacturer that buys
customer-specified components from suppliers, assembles the components onto
finished PCBs and performs post-assembly testing, while "consigned" refers to a
contract manufacturer that provides the assembly and testing elements only. OEMs
then incorporate the PCBs into finished products. In assembling PCBs, Nexus is
capable of employing both pin-through-hole ("PTH") and surface mount
technologies ("SMT"). PTH is a method of assembling PCBs in which component
leads are inserted and soldered into plated holes in the board. SMT is a method
of assembling PCBs in which components are fixed directly to the surface of the
board, rather than being inserted into holes. The SMT process allows for more
miniaturization, cost savings and shorter lead paths between components (which
results in greater signal speed). In the fiscal year ended June 30, 1996, the
Company invested approximately $237,000 primarily in SMT machinery and
equipment, as part of the Company's ongoing program to expand Nexus' operations.
Nexus maintains strict quality control procedures for its
products, including use of total quality management ("TQM") systems. Incoming
raw material and components are checked by the Nexus quality control personnel.
During the production stage, quality control personnel check all work in process
at several points in the production process. Finally, after the assembly stage,
Nexus conducts random testing of finished products.
Nexus' manufacturing facility has earned ISO 9002 certification.
The ISO is a Geneva-based organization dedicated to the development of worldwide
standards for quality management guidelines and quality assurance. Nexus'
receipt of ISO 9002 certification demonstrates that Nexus' manufacturing
operations meet establish world standards. Management believes sophisticated
customers increasingly are requiring their manufacturers to be ISO
9002-certified for purposes of quality assurance.
Acquisition of Q.P.S. Electronics, Inc. On August 2, 1996, the
Company acquired the operating assets of Q.P.S. Electronics, Inc. ("QPS"), a
distributor of quality active and passive
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electronic components based in Schaumburg, Illinois. Management expects that the
acquisition of QPS will contribute to the expansion of the Company's national,
dedicated distribution network by establishing the Company's presence in the
Northern Mid-West of the United States.
SUPPLIERS
Manufacturers of passive and active electronic components are
increasingly relying on the marketing, customer service and other resources of
distributors who market their product lines to customers not normally served by
the manufacturer, and to supplement the manufacturer's direct sales efforts in
other accounts often by providing value-added services not offered by the
manufacturer. Manufacturers seek distributors who have strong relationships with
desirable customers, are financially strong, have the infrastructure to handle
large volumes of products and can assist customers in the design and use of the
manufacturers' products. Currently, the Company has non-exclusive distribution
agreements with many manufacturers, including General Instrument Corporation,
Globe Motors (a division of Labinal Components and Systems, Inc.), International
Resistive Company, Inc., Kemet Electronics Corporation, Mitel Inc., Rohm
Company, Limited, Samsung Semiconductor, Inc., TDK Corporation of America,
Vishay Intertechnology, Inc., and Zetex, Inc. Management continuously seeks to
identify potential new suppliers and obtain additional distributorships for new
lines of products. Management believes that such expansion and diversification
will increase the Company's sales and market share.
In the fiscal year ended June 30, 1996, of the Company's top ten
suppliers, two, Kemet, Samsung, accounted for 18.1% , and 10.7 %, respectively,
of net sales and the remaining eight each accounted for between 6.7% and 1.5% of
net sales. No other supplier accounted for more than 1% of net sales. As is
common in the electronics distribution industry, from time to time the Company
has experienced terminations of relationships with suppliers which affected its
results of operations in post-termination fiscal periods.
The Company generally purchases products from manufacturers
pursuant to nonexclusive distributor agreements. Selection as an authorized
distributor is a valuable marketing tool for the
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Company because customers receive warranty protection and support from
manufacturers when they purchase products from the Company. As an authorized
distributor, the Company is able to offer customers marketing and engineering
support from the product manufacturers, which enhances the Company's ability to
attract new customers and close sales.
Most of the Company's distributor agreements are cancelable by
either party, typically upon 30 to 90 days' notice. These agreements typically
provide for price protection, stock rotation privileges and the right to return
inventory. Price protection is typically in the form of a credit to the
distributor for any inventory in the distributor's possession for which the
manufacturer reduces its prices. Stock rotation privileges typically allow the
Company to exchange inventory in an amount up to 5% of a prior period's
purchases. Upon termination of a distributor agreement, the right of return
typically requires the manufacturer to repurchase the Company's inventory at the
Company's adjusted purchase price. The Company believes that the above-described
provisions of its distributorship agreements generally have served to reduce the
Company's exposure to loss from unsold inventory. As such price protection and
stock rotation privileges are limited in scope, there can be no assurance that
the Company will not experience significant losses from unsold inventory in the
future.
COMPETITION
The electronics distribution industry is highly competitive,
primarily with respect to price and product availability. The Company believes
that the breadth of customer base, services and product lines, its level of
technical expertise and the quality of its services generally are also
particularly important. The Company competes with large national distributors
such as Arrow Electronics, Inc. and Avnet, Inc., as well as regional and
specialty distributors, many of whom distribute the same or competitive
products. Many of the Company's competitors have significantly greater name
recognition and greater financial and other resources than those of the Company.
The PCB contract manufacturing industry is highly fragmented and
is characterized by relatively high levels of volatility, competition and
pricing and margin pressure. Many large contract
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manufacturers operate high-volume facilities and primarily focus on high-volume
product runs. In contrast, certain contract manufacturers, such as Nexus, focus
on low-to-medium volume and service-intensive products, where the finished
product often requires a greater amount of overall labor.
The Company believes that contract manufacturers which are
affiliated or integrated with electronics distributors have competitive
advantages over comparably-sized, stand-alone contract manufacturers.
Distributors can reduce the risk of inventory obsolescence through stock
rotation privileges and inventory price protection and can also take advantage
of material acquisition skills, just-in-time delivery expertise and broad
supplier relationships.
EMPLOYEES
At August 31, 1996, the Company had a total of 394 employees, of
which 101 were employed by Nexus. Of total employees, 11 were engaged in
administration, 55 were managerial and supervisory employees, 143 were in sales
and 185 performed warehouse, manufacturing and clerical functions. Of these
employees, Nexus employed one in administration, nine in management and
supervisory positions, four in sales and 87 in warehouse, manufacturing and
clerical functions. There are no collective bargaining contracts covering any of
the Company's employees. The Company believes its relationship with its
employees is satisfactory.
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ITEM 2. PROPERTIES
All of the Company's facilities are leased except for the
Brandon, VT property which is owned by Nexus. Jaco currently leases 16
facilities located in the States of Arizona, California, Colorado, Florida,
Illinois, Maryland, Massachusetts, Minnesota, New York, North Carolina, Oregon,
Texas and Washington, two of which are multipurpose facilities used principally
as administrative, sales, and purchasing offices, as well as warehouses, and the
remainder of which are used exclusively by Jaco as sales offices. Jaco's
satellite sales offices range in size from approximately 1,000 square feet to
approximately 7,200 square feet. Base rents for such properties range from
approximately $1,000 per month to approximately $5,700 per month. Depending on
the terms of each particular lease, in addition to base rent, Jaco may also be
responsible for portions of real estate taxes, utilities and operating costs, or
increases in such costs over certain base levels. The lease terms range from
month-to-month to as long as three years. All facilities are linked by computer
terminals to Jaco's Hauppauge, New York headquarters. The following paragraphs
set forth certain information regarding Jaco's two principal leased facilities:
(i) Jaco leases from Bemar Realty Company, a partnership
consisting of Messrs. Joel H. Girsky and Charles B. Girsky, approximately 72,000
square feet of office and warehouse space at 145 Oser Avenue, Hauppauge, New
York. The lease provides for a current monthly base rent of approximately
$42,000 net of all expenses, including taxes, utilities, insurance, maintenance
and repairs, and has a term which expires on December 31, 2003. Jaco negotiated
a renewal of the lease and the current rental rate is similar to that currently
being charged for comparable properties in the area. Approximately 26,000 square
feet of space is sublet by Jaco to an unaffiliated third party. In addition to
its headquarters, Jaco maintains purchasing and sales offices and warehouse
facilities at its Hauppauge location.
(ii) Jaco leases from an unaffiliated party, on a month-to-month
basis, approximately 10,000 square feet of office and warehouse space in
Westlake Village, California for a base rent of approximately $8,400 per month.
Jaco maintains both a purchasing and sales office at this location, as well as
warehouse facilities.
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Nexus currently owns and occupies a 32,000 square foot facility
located in Brandon, Vermont, that is used for manufacturing, storage and office
space. The building was acquired by the Company on March 11, 1994 as part of the
acquisition of all of the outstanding shares of capital stock of Nexus.
The Company believes that its present facilities will be adequate
to meet its needs for the foreseeable future.
ITEM 3. Legal Proceedings.
The Company is not a party to any material pending legal
proceedings.
ITEM 4. Submission of Matters To A Vote of Security Holders.
No response to this Item is required.
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PART II
ITEM 5. Market For the Company's Common Stock and Related Security
Holder Matters.
(a) The Company's common stock (the "Common Stock") is traded on
The Nasdaq National Market under the symbol "JACO". The stock prices listed
below represent the high and low closing sale prices of the Common Stock, as
reported by The Nasdaq National Market, for each fiscal quarter beginning with
the first fiscal quarter of 1995. Stock prices prior to February 14, 1995 have
been adjusted to give effect to the 10% stock dividend paid on March 10, 1995
and stock prices of all periods have been adjusted to give effect to the 4-for-3
stock split which was distributed to shareholders of record as of September 22,
1995.
FISCAL YEAR 1995: HIGH LOW
First quarter ended September 30, 1994 $ 5.28 $ 3.75
Second quarter ended December 31, 1994 $ 5.45 $ 3.92
Third quarter ended March 31, 1995 $ 5.54 $ 4.26
Fourth quarter ended June 30, 1995 $ 7.31 $ 5.06
FISCAL YEAR 1996: HIGH LOW
First quarter ended September 30, 1995 $13.88 $ 6.28
Second quarter ended December 31, 1995 $16.00 $10.50
Third quarter ended March 31, 1996 $12.38 $ 9.75
Fourth quarter ended June 30, 1996 $12.63 $ 9.75
(b) As of August 31, 1996 there were approximately 194 holders of
record of The Company's Common Stock who management believes held for more than
2,476 beneficial owners.
(c) The Company has never declared or paid cash dividends on its
Common Stock. The Company intends to retain its earnings, if any, for use in its
business and to support growth and does not anticipate paying cash dividends in
the foreseeable future. In addition, the agreement governing
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the Company's credit facility (the "Credit Facility") contains provisions that
prohibit the Company from paying cash dividends on its Common Stock.
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Item 6. Selected Consolidated Financial Data
Year ended June 30,
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
STATEMENT OF OPERATING DATA (in thousands, except per share data)
Net sales $ 77,358 $ 96,675 $ 105,213 $ 138,683 $ 167,149
Cost of goods sold 59,951 75,630 83,038 109,902 133,105
---------- ---------- ---------- ---------- ----------
Gross profit 17,407 21,045 22,175 28,781 34,044
Selling, general and
administrative expenses 15,753 17,786 19,155 23,552 26,247
---------- ---------- ---------- ---------- ----------
Operating profit 1,654 3,259 3,020 5,229 7,797
Interest expense 1,172 1,078 1,117 2,010 1,347
---------- ---------- ---------- ---------- ----------
Earnings before income
taxes and cumulative effect
of a change in accounting
for income taxes 482 2,181 1,903 3,219 6,450
Income tax expense 170 797 714 1,303 2,600
---------- ---------- ---------- ---------- ----------
Earnings before cumulative
effect of a change in
accounting for income
taxes 312 1,384 1,189 1,916 3,850
Cumulative effect of a change in
accounting for income taxes 241
---------- ---------- ---------- ---------- ----------
NET EARNINGS $ 312 $ 1,384 $ 1,430 $ 1,916 $ 3,850
========== ========== ========== ========== ==========
PER SHARE DATA *
Earnings per common share
before cumulative effect of
a change in accounting $ 0.12 $ 0.55 $ 0.47 $ 0.78 $ 1.08
Cumulative effect of a change
in accounting 0.09
---------- ---------- ---------- ---------- ----------
Net earnings per common share $ 0.12 $ 0.55 $ 0.56 $ 0.78 $ 1.08
========== ========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding 2,506,001 2,522,980 2,551,173 2,461,091 3,554,018
========== ========== ========== ========== ==========
BALANCE SHEET DATA
Working capital $ 13,614 $ 14,910 $ 15,160 $ 30,741 $ 36,964
Total assets 35,547 36,056 45,685 56,323 61,143
Long-term obligations 8,225 8,058 9,694 23,666 8,791
Shareholders' equity 8,520 9,905 11,202 13,227 34,304
* All per share information has been restated to give effect to a 10% stock
dividend paid on March 10, 1995 and a 4-for-3 stock split distributed to
shareholders of record as of September 22, 1995.
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ITEM 7. Management's Discussion and Analysis of Financial Condition and
Result of Operations
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995:
Statements in this filing, and elsewhere, which look forward in
time involve risks and uncertainties which may effect the actual results of
operations. The following important factors, among others, have affected and,
in the future, could affect the Company's actual results: dependence on a
limited number of suppliers for products which generate a significant portion
of the Company sales, the effect upon the Company of increases in tariffs or
duties, changes in trade treaties, strikes or delays in air or sea
transportation and possible future United States legislation with respect to
pricing and/or import quotas on products imported from foreign countries, and
general economic downturns in the electronics distribution industry which may
have an adverse economic effect upon manufacturers, end-users of electronic
components and electronic component distributors.
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 Nexus.
In March 1994, the Company entered the contract manufacturing
business through the acquisition of all the outstanding shares of capital stock
of Nexus, paying approximately $1,800,000 which was financed in part from a
$1,500,000 term loan obtained under the Company's Credit Facility. See Notes D
and I of Notes to Consolidated Financial Statements. Since March 1994, the
Company devoted significant efforts to improving the performance of Nexus
including: capital expenditures of approximately $700,000 to improve Nexus'
capabilities for surface mount technology in the assembly of PCBs; consolidation
of Nexus' operational facilities from three buildings into one building;
utilization of Jaco's sales force in the Northeast to generate new customers for
Nexus; and reduction in the cost of components purchased by Nexus by
consolidating such purchases with other components purchased by Jaco.
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The Company's sales from value-added services represented $18.0
million, or 11.0 % of net sales in the year ended June 30, 1996, $18.1 million,
or 13% of net sales in the year ended June 30, 1995, and $8.9 million or 8% of
net sales in the year ended June 30, 1994. Of these sales, sales from contract
manufacturing through Nexus, which was acquired in March 1994, were $10.8
million or 6.5% of net sales in the year ended June 30, 1996, $12.1 million or
8.7% of net sales in the year ended June 30, 1995 and $2.7 million or 2.6% of
net sales in the year ended June 30, 1994.
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's
statements of earnings as a percentage of net sales for the periods shown:
YEAR ENDED JUNE 30,
1994 1995 1996
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 78.9 79.2 79.6
----- ----- -----
Gross profit 21.1 20.8 20.4
Selling, general and administrative expenses 18.2 17.0 15.7
----- ----- -----
Operating profit 2.9 3.8 4.7
Interest expense 1.1 1.5 .8
----- ----- -----
Earnings before income taxes and cumulative effect
of a change in accounting 1.8 2.3 3.9
Income tax expense .7 .9 1.6
----- ----- -----
Earnings before cumulative effect of a change in
accounting 1.1 1.4 2.3
Cumulative effect of a change in accounting for
income taxes .3 -- --
----- ----- -----
Net earnings 1.4% 1.4% 2.3%
===== ===== =====
19
20
COMPARISON OF YEAR ENDED JUNE 30, 1996 ("FISCAL 1996") WITH YEAR ENDED JUNE 30,
1995 ("FISCAL 1995")
Net sales for the fiscal year ended June 30, 1996 increased 20.5%
to $167,149,000, as compared to $138,683,000 reported for the same fiscal 1995
period. The increase in sales is the result of strong overall demand for
electronic components in the electronics industry, the Company's continued
expansion as a national distributor into new territories, and the addition of
sales personnel in existing locations. The Company has recently expanded its
product offerings to include the flat panel display market. Though sales were
minimal during fiscal 1996, the Company anticipates that flat panel display
sales will contribute to the Company's sales growth in the future. Sales from
contract manufacturing (Nexus) decreased by approximately $1.0 million during
fiscal 1996, compared to fiscal 1995, due to the loss of two major customers.
The Company believes that it has replaced the lost business and anticipates
increases in contract manufacturing sales during future periods.
Gross profit margins, as a percentage of net sales, decreased
slightly from 20.8% in fiscal 1995 to 20.4% in fiscal 1996. This was primarily
due to a softening in demand for components during the second half of fiscal
1996. The Company is hopeful that it will be able to raise margins realized from
the contract manufacturing group during fiscal 1997.
Selling, general and administrative (SG&A) expenses were $26.2
million in fiscal 1996, an increase of $2.7 million, or 11.4%, from $23.6
million in fiscal 1995. The continued geographic expansion of the Company by
opening sales offices in Arizona and Colorado, the higher commissions paid based
on sales growth, the addition of sales personnel in existing locations and the
hiring of additional support personnel to handle increased sales all attributed
to the increase in SG&A. As a percentage of fiscal 1996 net sales, SG&A declined
to 15.7% from 17.0% in fiscal 1995. Close attention to cost containment resulted
in the reduction. The Company believes that if net sales continue to increase,
SG&A will decrease as a percentage of net sales.
20
21
Interest expense decreased to $1.3 million in fiscal 1996 from
$2.0 million in fiscal 1995. The 33% decrease was primarily the result of a
reduction in borrowings as a result of the reduction in indebtedness under the
Company's Credit Facility by application of the net proceeds from the public
offering completed during the second quarter of fiscal 1996.
Net earnings for fiscal 1996 were $3.8 million, an increase of
approximately $1.9 million, or approximately 100% as compared to the same period
in fiscal 1995. The increase in the net earnings is principally the result of
increases in sales, control of SG&A expenses and a reduction in interest
expense.
COMPARISON OF YEAR ENDED JUNE 30, 1995 WITH YEAR ENDED JUNE 30, 1994 ("FISCAL
1994")
Net sales were $138.7 million for fiscal 1995, an increase of
$33.5 million or 32% as compared to $105.2 million for fiscal 1994. The increase
in sale was the result of several factors, including strong overall demand for
components in the electronics industry generally, and the establishment of new
offices and expansion of sales forces in existing offices to grow the
distribution business. In addition, revenue from contract manufacturing by Nexus
increased to approximately $12.1 million in fiscal 1995, from $2.7 million in
fiscal 1994. Nexus was acquired in March 1994. Accordingly, the results of its
operations for only three and a half months of fiscal 1994 were included in
fiscal 1994 results of operations.
Gross profit margins, as a percentage of net sales, decreased
slightly from 21.1% in fiscal 1994 to 20.8% in fiscal 1995. This was primarily
due to intense price competition relating to disk drives. The Company realized
an improvement in gross profit margins in its distribution business during the
second half of fiscal 1995 as a result of strong demand for products other than
disk drives, which have lower gross profit margins. The Company believes that
the continuation of such demand, combined with emphasis on components which are
more profitable than disk drives, should enable gross profit margins to improve.
21
22
Selling, general and administrative expenses were $23.6 million
in fiscal 1995, an increase of $4.4 million, or 22.9%, from $19.2 million in
fiscal 1994. The addition of two new sales offices, coupled with the hiring of
additional sales personnel both for the new offices and existing sales offices
and the inclusion of a full year of Nexus' operating results, produced the
increase. Selling, general and administrative expenses, as a percentage of 1995
net sales, declined to 17.0% from 18.2% in fiscal 1994. Strict attention to cost
containment resulted in the reduction.
Interest expense increased to $2.0 million in fiscal 1995 from
$1.1 million in fiscal 1994. This increase was primarily attributable to rising
interest rates, borrowings to support sales growth and additional borrowings
used in connection with the acquisition of Nexus.
Net earnings for fiscal 1995 were $1.9 million, an increase of
approximately $500,000 or 34.0%, as compared to $1.4 million for fiscal 1994,
after taking into account the cumulative effect of a change in accounting for
income taxes of $241,000 in the fiscal year ended June 30, 1994. Earnings before
the change in accounting for income taxes increased $727,000 (61%) in fiscal
1995 as compared to fiscal 1994. Growth in the Company's distribution business
was primarily responsible for the growth in earnings. Nexus realized modest
profits after its first full year as a subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
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 an aggregate of 275,000 shares
offered by certain officers and directors of the Company. On December 8, 1995,
the underwriters of the public offering exercised a portion of their
overallotment option for an additional 160,000 shares at a price per share equal
to that of the public offering. The Company's net proceeds from the public
offering of approximately $17,140,000, after deducting the underwriters'
commission and costs of the public offering, were used to reduce its bank
indebtedness. In connection with the public offering, the Company also issued
stock warrants,
22
23
to the representative underwriters, to purchase up to 70,000 shares of common
stock at an exercise price per share equal to 180% of the public offering price,
which expire on October 20, 1999.
The Company maintains a total Credit Facility of $30,000,000,
$1,500,000 (the outstanding balance of which at August 31, 1996 was
approximately $982,000) 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 (during fiscal 1996, the borrowing rate was further reduced to LIBOR plus
2.0%). The Company must comply with various financial covenants, with all of
which the Company believes itself to be in compliance. As of August 31, 1996,
the Company had outstanding borrowings of $10.3 million, with additional
borrowing capacity of $19.7 million available under the revolving line of
credit.
Working capital increased to $37.0 million as of June 30, 1996,
as compared to $30.7 million as of June 30, 1995, an increase of $6.3 million or
approximately 21%. The increase was primarily attributable to increased accounts
receivable and inventory related to increased level of sales.
During fiscal 1996, the Company's net cash used in operating
activities decreased to $1.6 million from $4.0 million in fiscal 1995 as a
result of increases in earnings offset by increases in accounts receivable and
inventory. In fiscal 1996, the Company decreased its borrowings under its Credit
Facility by $14.6 million principally as a result of the application of the net
proceeds from the public offering. The Company's cash expenditures may vary
significantly from its current expectations, based on a number of factors,
including but not limited to, future acquisitions, if any.
For fiscal 1995 and 1996, inventory turnover was 4.6x and 4.7x,
respectively. The average age of the Company's accounts receivable at June 30,
1996 was 48 days, as compared to 50 days at June 30, 1995. The Company did not
experience any significant trade collection difficulties during fiscal 1996.
23
24
On April 15, 1996, the Company's Board of Directors authorized
the purchase of up to 250,000 shares of its common stock or approximately 6.3%
of the then outstanding shares, under a stock repurchase program. As of
September 20, 1996, the Company has repurchased 87,500 shares at an average
market price of $8.00 per share.
INFLATION
Inflation has not had a significant impact on the Company's
operations during the last three fiscal years.
ITEM 8. Financial Statements and Supplementary Data.
For an index to the financial statements and supplementary data,
see Item 14(a).
ITEM 9. Disagreements on Accounting and Financial Disclosure.
No response to this Item is required.
24
25
PART III
ITEM 10. Directors and Executive Officers of the Company.
Incorporated herein by reference is the information to appear
under the caption "Election of Directors" in the Company's definitive proxy
statement for its Annual Meeting of Shareholders which will be filed with the
Securities and Exchange Commission not later than October 28, 1996.
ITEM 11. Executive Compensation.
Incorporated herein by reference is the information to appear
under the caption "Executive Compensation" in the Company's definitive proxy
statement for its Annual Meeting of Shareholders which will be filed with the
Securities and Exchange Commission not later than October 28, 1996.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference is the information to appear
under the caption "Principal Shareholders; Shares Held by Management" in the
Company's definitive proxy statement for its Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission not later than
October 28, 1996.
ITEM 13. Certain Relationships and Related Transactions.
Incorporated herein by reference is the information to appear
under the caption "Certain Transactions" in the Company's definitive proxy
statement for its Annual Meeting of Shareholders which will be filed with the
Securities and Exchange Commission not later than October 28, 1996.
25
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Page
(a) (1) Financial Statements included in Part II, Item 8, of this Report:
Index to Consolidated Financial Statements and Schedule F-1
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Earnings F-5
Consolidated Statement of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-24
(a) (2) Financial Statement Schedule included in Part IV of this Report:
Report of Independent Certified Public Accountant on Schedule II F-25
Schedule II - Valuation and Qualifying Accounts F-26
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
Exhibit
No.
- -------
3.1 Restated Certificate of Incorporation adopted November, 1987,
incorporated by reference to the Company's definitive proxy
statement distributed in connection with the Company's annual
meeting of shareholders held in November, 1987, filed with the
SEC on November 3, 1986, as set forth in Appendix A to the
aforesaid proxy statement.
3.1.1 Certificate of Amendment of the Certificate of Incorporation,
adopted December, 1995.
26
27
3.2 Restated By-Laws adopted June 18, 1987, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1987 ("the Company's 1987 10-K"), Exhibit 3.2.
4.1 Form of Common Stock Certificate, incorporated by reference
to the Company's Registration Statement on Form S-1, Commission
File No. 2-91547, filed June 9, 1984, Exhibit 4.1.
10.1 Sale and leaseback with Bemar Realty Company (as assignee of
Hi-Tech Realty Company), incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30,
1983, Exhibit 10(1), pages 48-312.
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty
Company (as assignee of Hi-Tech Realty Company), incorporated by
reference to the Company's Registration Statement on Form S-1,
Commission File No. 2-91547, filed June 9, 1984, Exhibit 10.2.
10.2.2 Lease Between the Company and Bemar Realty Company, dated January
1, 1996.
10.3 Employment Agreement between Joel Girsky and the Company, dated
December 29, 1989, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1990 ("the
Company's 1990 10-K"), Exhibit 10.3 pages 47-52.
10.4 1980 Stock Incentive Plan, incorporated by reference to the
Company's Registration Statement on Form S-1, Commission File No.
2-91547, filed June 9, 1984, Exhibit 10.4, pages 168-172.
10.5 Restated 1981 Incentive Stock Option Plan, incorporated by
reference to the Company's 1987 10-K, Exhibit 10.1.
10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference
to the Company's 1993 10-K, Exhibit 10.6.
10.7 Stock Purchase Agreement, dated as of February 8, 1994 by and
among the Company and Reilrop, B.V. and Guaranteed by Cray
Electronics Holdings PLC, incorporated by reference to the
Company's Current Report on Form 8-K, dated March 11, 1994.
10.8 1993 Stock Option Plan for Outside Directors, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994, Exhibit 10.8.
27
28
10.9 Employment Agreement between Joel Girsky and the Company, dated
October 5, 1994, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994,
Exhibit 10.9.
10.10 Authorized Electronic Industrial Distributor Agreement, dated as
of August 24, 1970 by and between AVX and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 1995, Exhibit 10.10.
10.11 Electronics Corporation Distributor Agreement, dated November 15,
1974, by and between Kemet and the Company, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, Exhibit 10.11.
21.1 Subsidiaries of the Company.
23.1 Consent of Grant Thornton LLP.
27. Financial Data Schedule.
99.1 General Loan and Security Agreement dated January 20, 1989,
between the Company as borrower and The Bank of New York
Commercial Corporation ("BNYCC") as secured party, incorporated
by reference to the Company's Current Report on Form 8-K, filed
January 31, 1989, Exhibit 28(1).
99.2 Loan and Security Agreement - Accounts Receivable and Inventory,
dated January 20, 1989, between the Company and BNYCC,
incorporated by reference to the Company's Current Report on Form
8-K filed January 31, 1989, Exhibit 28(2).
99.3 Letter of Credit and Security Agreement, dated January 20, 1989,
between the Company and BNYCC, incorporated by reference to the
Company's Current Report on Form 8-K filed January 31, 1989,
Exhibit 28(3).
99.4 Amendment to Term Loan Notes (the "Term Notes") executed by the
Company in favor of BNYCC dated January 13, 1992, together with
Letters from R.C. Components, Inc., Quality Components, Inc.,
Micatron, Inc. and Distel, Inc., each a subsidiary of the Company
and a guarantor of the obligations evidenced by the Term Notes,
to BNYCC acknowledging the amendment to the Term Notes for the
extension of the maturity date of each such note, incorporated by
reference to the Company's 1992 10-K, Exhibit 28.4.
99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between
the Company and BNYCC, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994,
Exhibit 99.5.
28
29
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in
favor of BNYCC, dated March 11, 1994, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1994, Exhibit 99.6.
99.7 Restated and Amended Loan and Security Agreement, dated April 25,
1995, among the Company, Nexus and BNYCC, together with an
Amendment to Term Loan Note executed by the Company in favor of
BNYCC and Letter executed by R.C. Components, Inc., Quality
Components, Inc., Micatron, Inc., Distel, Inc. and Jaco Overseas,
Inc., incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, Exhibit 99.7.
99.8 Second Restated and Amended Loan and Security Agreement dated
September 13, 1995 among the Company, Nexus Custom Electronics,
Inc., BNYCC and NatWest Bank, N.A. ("Second Restated and Amended
Loan and Security Agreement"), incorporated by reference to the
Company's Registration Statement on Form S-2, Commission File No.
33-62559, filed October 13, 1995, Exhibit 99.8.
99.8.1 Amendment to the Second Restated and Amended Loan and Security
Agreement, dated as of April 10, 1996.
(b) Reports on Form 8-K filed during last quarter of the period
covered by this Report:
None.
29
30
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULE
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3
Consolidated Statements of Earnings F-5
Consolidated Statement of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-24
Report of Independent Certified Public Accountants
on Schedule F-25
Schedule II - Valuation and Qualifying Accounts F-26
F-1
31
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
JACO ELECTRONICS, INC.
We have audited the accompanying consolidated balance sheets of Jaco
Electronics, Inc. and Subsidiaries (the "Company") as of June 30, 1995 and 1996
and the related consolidated statements of earnings, changes in shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jaco Electronics,
Inc. and Subsidiaries as of June 30, 1995 and 1996, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended June 30, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note A to the consolidated financial statements, the Company
changed its method of accounting for income taxes in fiscal 1994.
GRANT THORNTON LLP
Melville, New York
August 16, 1996
F-2
32
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 1995 1996
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 393,671 $ 164,161
Marketable securities 493,281
Accounts receivable, less allowance for doubtful
accounts of $610,000 in 1995 and $758,000
in 1996 20,437,664 22,217,130
Inventories 26,653,881 30,089,508
Prepaid expenses and other 1,256,319 739,530
Due from officers 309,808
Deferred income taxes 571,000 708,000
----------- -----------
Total current assets 49,622,343 54,411,610
PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 4,106,221 4,226,617
DEFERRED INCOME TAXES 174,000 189,000
EXCESS OF COST OVER NET ASSETS ACQUIRED, less accumulated amortization of
$297,700 in 1995 and $369,200 in 1996 1,353,031 1,241,533
OTHER ASSETS 1,067,643 1,073,969
----------- -----------
$56,323,238 $61,142,729
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
33
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
June 30,
LIABILITIES AND
SHAREHOLDERS' EQUITY 1995 1996
----------- -----------
CURRENT LIABILITIES
Accounts payable $16,651,774 $15,413,879
Current maturities of long-term debt and
capitalized lease obligations 452,995 474,082
Accrued expenses 1,300,611 1,175,973
Income taxes payable 475,702 383,970
----------- -----------
Total current liabilities 18,881,082 17,447,904
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS 23,665,624 8,791,270
DEFERRED COMPENSATION 550,000 600,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 100,000 shares, $10
par value; none issued
Common stock - authorized, 5,000,000 and 10,000,000 shares, respectively,
$.10 par value; issued and outstanding, 2,464,384 and 3,955,721 shares,
respectively 246,438 395,572
Additional paid-in capital 5,013,663 22,024,795
Unrealized gain on marketable securities 68,245
Retained earnings 7,966,431 11,814,943
----------- -----------
13,226,532 34,303,555
----------- -----------
$56,323,238 $61,142,729
=========== ===========
The accompanying notes are an integral part of these statements.
F-4
34
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended June 30,
1994 1995 1996
------------ ------------ ------------
Net sales $105,213,077 $138,683,331 $167,149,385
Cost of goods sold 83,038,254 109,902,639 133,105,227
------------ ------------ ------------
Gross profit 22,174,823 28,780,692 34,044,158
Selling, general and administrative expenses 19,154,802 23,551,196 26,246,741
------------ ------------ ------------
Operating profit 3,020,021 5,229,496 7,797,417
Interest expense 1,117,354 2,010,554 1,347,639
------------ ------------ ------------
Earnings before income taxes and cumulative effect
of a change in accounting for income taxes 1,902,667 3,218,942 6,449,778
Income tax provision 714,000 1,303,000 2,600,000
------------ ------------ ------------
Earnings before cumulative effect of a change
in accounting for income taxes 1,188,667 1,915,942 3,849,778
Cumulative effect of a change in accounting for
income taxes 241,000
------------ ------------ ------------
NET EARNINGS $ 1,429,667 $ 1,915,942 $ 3,849,778
============ ============ ============
Earnings per common share
Earnings per share before cumulative effect of a
change in accounting for income taxes $ .47 $ .78 $ 1.08
Cumulative effect of a change in accounting for
income taxes .09
------------ ------------ ------------
Net earnings per common share $ .56 $ .78 $ 1.08
============ ============ ============
Weighted average common shares and common
equivalent shares outstanding 2,551,173 2,461,091 3,554,018
============ ============ ============
The accompanying notes are an integral part of these statements.
F-5
35
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Years ended June 30, 1994, 1995 and 1996
Unrealized
Additional gain on Total
paid-in marketable Retained shareholders'
Shares Amount capital securities earnings equity
--------- -------- ----------- ---------- ----------- -----------
Balance at July 1, 1993 1,708,637 $170,864 $3,936,613 $5,797,038 $9,904,515
Cancellation of shares in satisfac-
tion of amounts due in connec-
tion with a previous acquisition (56,953) (5,695) (126,972) (132,667)
Exercise of stock options 625 62 875 937
Net earnings 1,429,667 1,429,667
--------- -------- ----------- ------- ----------- -----------
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
Issuance of common stock for
cash 1,485,000 148,500 16,991,466 17,139,966
Exercise of stock options 6,415 642 19,658 20,300
Payment for fractional shares
resulting from 4-for-3 stock
split (78) (8) 8 (1,266) (1,266)
Unrealized gain on marketable
securities $68,245 68,245
Net earnings 3,849,778 3,849,778
--------- -------- ----------- ------- ----------- -----------
BALANCE AT JUNE 30, 1996 3,955,721 $395,572 $22,024,795 $68,245 $11,814,943 $34,303,555
========= ======== =========== ======= =========== ===========
The accompanying notes are an integral part of this statement.
F-6
36
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
1994 1995 1996
------------- ------------- -------------
Cash flows from operating activities
Net earnings $ 1,429,667 $ 1,915,942 $ 3,849,778
Adjustments to reconcile net earnings to net
cash used in operating activities
Depreciation and amortization 412,704 693,290 719,899
Deferred compensation 50,000 50,000 50,000
Deferred income tax benefit (111,000) (31,000) (158,000)
Loss on sale of equipment 35,006 18,403 8,793
Provision for doubtful accounts 160,000 458,000 761,190
Changes in operating assets and liabilities, net
of effects of acquisition
Increase in accounts receivable (1,807,919) (3,759,741) (2,540,656)
Increase in inventories (1,936,676) (6,572,285) (3,435,627)
Decrease (increase) in prepaid expenses and other (224,965) (184,100) 516,789
(Decrease) increase in accounts payable 2,493,897 3,057,980 (1,237,895)
(Decrease) increase in accrued expenses (234,864) 37,695 (124,638)
(Decrease) increase in income taxes payable (392,514) 328,203 (91,732)
------------- ------------- -------------
Net cash used in operating activities (126,664) (3,987,613) (1,682,099)
------------- ------------- -------------
Cash flows from investing activities
Increase in marketable securities (379,036)
Capital expenditures (875,797) (908,153) (789,635)
Proceeds from the sale of equipment 49,302 20,000 12,047
Purchase of subsidiary, net (1,796,355)
Decrease (increase) in due from officers, net (101,878) (18,689) 309,808
(Increase) decrease in other assets 16,452 (106,956) (6,328)
------------- ------------- -------------
Net cash used in investing activities (2,708,276) (1,013,798) (853,144)
------------- ------------- -------------
Cash flows from financing activities
Proceeds from public offering - net 17,139,966
Borrowings from line of credit 110,434,283 141,391,776 173,061,732
Payments of line of credit (109,501,754) (136,774,193) (179,449,087)
Principal payments under equipment financing (269,613) (434,854) (251,626)
Borrowings (payments) under term loans 1,982,071 669,417 (8,214,286)
Proceeds from exercise of stock option 937 108,500 20,300
Payments for fractional shares (362) (1,266)
------------- ------------- -------------
Net cash provided by financing activities 2,645,924 4,960,284 2,305,733
------------- ------------- -------------
NET DECREASE IN CASH (189,016) (41,127) (229,510)
Cash and cash equivalents at beginning of year 623,814 434,798 393,671
------------- ------------- -------------
Cash and cash equivalents at end of year $ 434,798 $ 393,671 $ 164,161
============= ============= =============
Supplemental cash flow disclosures:
Interest paid $ 1,126,000 $ 1,970,000 $ 1,472,000
Income taxes paid 660,000 993,000 2,882,000
Supplemental schedule of noncash financing and investing activities:
Equipment under capital leases $ 86,000 $ 288,000 $ --
The accompanying notes are an integral part of these statements.
F-7
37
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jaco Electronics, Inc. and Subsidiaries (the "Company") is primarily
engaged in the distribution of semiconductors, capacitors, resistors,
electromechanical devices, computers and computer subsystems, produced by
others, for the manufacture and assembly of electronic products. Further,
through a fiscal 1994 acquisition, the Company provides contract
manufacturing services.
Electronics parts distribution sales include exports made principally to
customers located in Western Europe. For the years ended June 30, 1994,
1995 and 1996, export sales amounted to approximately $5,289,000,
$5,032,000 and $4,963,000, respectively.
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Jaco Electronics, Inc. and its subsidiaries, all of which are
wholly-owned. All significant intercompany balances and transactions
have been eliminated.
2. Revenue Recognition
The Company recognizes revenue as products are shipped and title passes
to customers.
3. Investments in Marketable Securities
Investments in marketable securities consist of investments in mutual
funds. Such investments have been classified as "available for sale
securities" and are reported at fair market value which is inclusive of
an unrealized gain of approximately $114,245. Changes in the fair value
of "available for sale securities" are classified as a separate
component of shareholders' equity, net of any related deferred tax
effects.
4. Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and average cost methods.
F-8
38
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
5. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
provided for using accelerated methods, principally the
double-declining balance method over the estimated useful life of the
assets related to the Company's distribution business.
Plant and equipment related to the Company's manufacturing business is
depreciated using the straight-line method.
6. Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired is amortized over periods
of ten to forty years using the straight-line method. In March 1995,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121") that establishes
accounting standards for the impairment of long-lived assets, certain
intangibles, and goodwill related to those assets to be held and used,
and for long-lived assets and certain identifiable intangibles to be
disposed of. In accordance with SFAS No. 121, it is the Company's
policy to periodically review and evaluate whether there has been a
permanent impairment in the value of intangibles. Factors considered in
the valuation include current operating results, trends and anticipated
undiscounted future cash flows.
7. Income Taxes
The Company has adopted Statement of Financial Accounting Standards No.
109 ("SFAS No. 109"), "Accounting for Income Taxes," as of July 1, 1993
and recorded income of $241,000 as the cumulative effect of a change in
accounting for income taxes. Pursuant to SFAS No. 109, deferred income
taxes are recognized for temporary differences between financial
statement and income tax bases of assets and liabilities and net
operating loss carryforwards for which income tax expenses or benefits
are expected to be realized in future years. A valuation allowance has
been established to reduce deferred tax assets attributable to the
Company's acquired subsidiary, as it is more likely than not that all,
or some portion, of such deferred tax assets will not be realized. The
effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
F-9
39
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
8. Earnings Per Common Share
Earnings per common share is based upon the weighted average number of
shares of common stock outstanding during the year and reflects the
dilutive effect of outstanding stock options. All per share information
has been restated to reflect the Company's fiscal 1995 stock dividend
and stock split.
9. Statement of Cash Flows
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
10. Financial Instruments and Business Concentrations
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of receivables.
Concentration of credit risk with respect to these receivables is
generally mitigated due to the large number of entities comprising the
Company's customer base, their dispersion across geographic areas and
the Company's policy of maintaining credit insurance. The Company
routinely addresses the financial strength of its customers and, as a
consequence, believes that its receivable credit risk exposure is
limited.
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Fair Value of Financial Instruments," requires disclosure of the
estimated fair value of an entity's financial instrument assets and
liabilities. The Company's principal financial instrument consists of a
revolving credit facility, expiring on September 13, 1998, with a bank.
The Company believes that the carrying amount of such debt approximates
the fair value as the variable interest rate approximates the current
prevailing interest rate.
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. During the year ended June 30,
1996, the Company's top three suppliers accounted for 18%, 11% and 7%,
respectively, of net sales. In June 1995, the Company's then largest
supplier canceled its distributor agreement with the Company. The
Company has
F-10
40
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
been able to replace a major portion of those sales with sales of other
product lines from other suppliers. However, there can be no assurance
that in the event a current supplier cancels its distributor agreement
with the Company, that the Company will be able to replace the related
sales with sales of other product lines.
11. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
12. Accounting Pronouncements Not Yet Adopted
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation," is also required to be
implemented in fiscal 1997 and introduces a choice in the method of
accounting used for stock-based compensation. Entities may use the
"intrinsic value" method currently based on APB No. 25 or the new "fair
value" method contained in SFAS No. 123. The Company intends to
implement SFAS No. 123 in 1997 by accounting for stock-based
compensation, if applicable, under APB No. 25. As required by SFAS No.
123, the pro forma effects on net income and earnings per share will be
determined as if the fair value-based method had been applied and
disclosed in the notes to the financial statements.
F-11
41
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE B - INVENTORY
Inventories consist of the following:
June 30,
------------------------------------
1995 1996
----------- -----------
Finished goods and goods held for resale $23,374,881 $27,025,508
Work-in-process 718,000 477,000
Raw materials 2,561,000 2,587,000
----------- -----------
$26,653,881 $30,089,508
=========== ===========
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
Useful June 30,
life -------------------------------
in years 1995 1996
---------- ------------ -----------
Land, building and improvements 10 to 30 $1,389,603 $1,419,126
Machinery and equipment 3 to 8 4,699,761 5,193,265
Transportation equipment 3 to 5 134,997 108,370
Leasehold improvements 5 to 10 687,566 661,479
---------- ----------
6,911,927 7,382,240
---------- ----------
Less accumulated depreciation and amortization
(including $607,851 in 1995 and $688,957
in 1996 of capitalized lease amortization) 2,805,706 3,155,623
---------- ----------
$4,106,221 $4,226,617
========== ==========
Included in machinery and equipment is computer equipment recorded under
capitalized leases at June 30, 1995 and 1996 for $943,038.
F-12
42
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE D - INCOME TAXES
The components of the Company's provision for income taxes is as follows:
June 30,
------------------------------------------------
1994 1995 1996
----------- ----------- -----------
Federal
Current $ 505,000 $ 1,063,000 $ 2,176,000
Deferred 111,000 (31,000) (158,000)
----------- ----------- -----------
616,000 1,032,000 2,018,000
State 98,000 271,000 582,000
----------- ----------- -----------
$ 714,000 $ 1,303,000 $ 2,600,000
=========== =========== ===========
The Company's effective income tax rate differs from the statutory U.S.
Federal income tax rate as a result of the following:
June 30,
------------------------------------
1994 1995 1996
------ ------ ------
Statutory Federal tax rate 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit 5.0 5.6 6.0
Prior period tax adjustments (3.7)
Sales expense for which no tax
benefit arises 2.4 1.7 .1
Other (.2) (.8) .2
------ ------ ------
Effective tax rate 37.5% 40.5% 40.3%
====== ====== ======
F-13
43
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE D - INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities resulting from differences
between accounting for financial statement purposes and tax purposes are
summarized as follows:
1995 1996
----------- -----------
Deferred tax assets
Net operating loss carryforwards $ 409,000 $ 409,000
Allowance for bad debts 222,000 347,000
Inventory valuation 532,000 582,000
Deferred compensation 201,000 219,000
Other deferred assets 30,000 24,000
----------- -----------
1,394,000 1,581,000
Deferred tax liabilities
Depreciation (56,000) (85,000)
Other (47,000) (47,000)
Unrealized gain on marketable securities
available for sale (46,000)
----------- -----------
1,291,000 1,403,000
Valuation allowance (546,000) (506,000)
----------- -----------
Net deferred tax asset $ 745,000 $ 897,000
=========== ===========
At June 30, 1996, the Company, through an acquisition (see Note I), has
available a Federal net operating loss carryforward of approximately
$1,121,000. Such net operating loss is subject to certain limitations and
expires in varying amounts during the fiscal years 2007 through 2009.
Further, the Company has established a valuation allowance with respect to
the net deferred tax assets attributable to this acquired subsidiary.
During fiscal 1996, $40,000 of such net deferred tax asset was recognized
as a reduction of the excess of cost over net assets acquired attributable
to the acquired subsidiary. The subsequent realization of the majority of
such deferred tax asset will result in the reduction of the excess of cost
over net assets acquired.
F-14
44
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE E - DEBT AND CAPITALIZED LEASE OBLIGATIONS
Debt and capitalized lease obligations are as follows:
June 30,
-----------------------------
1995 1996
----------- -----------
Term loans and revolving line of credit (a) $22,787,811 $ 8,186,172
Other term loans (b) 485,646 424,721
Equipment notes (c) 487,189 373,608
Capitalized lease obligations (d) 413,722 314,945
----------- -----------
24,174,368 9,299,446
Less amounts representing interest on capitalized
leases 55,749 34,094
----------- -----------
24,118,619 9,265,352
Less current maturities 452,995 474,082
----------- -----------
$23,665,624 $ 8,791,270
=========== ===========
(a) Term Loans and Revolving Line of Credit Facility
The Company's agreement with its banks, as amended, provides the
Company with a $30,000,000 term loan and revolving line of credit
facility based principally on eligible accounts receivable and
inventories of the Company as defined in the agreements expiring
September 13, 1998. Borrowings thereunder bear interest at the higher
of the (i) bank's prime rate or the Federal funds rate plus 1/2% or
(ii) at the Company's option, LIBOR plus 2.0% for fixed time periods.
Of the outstanding balance on the revolving line of credit facility,
$7,168,315 at June 30, 1996, $4,168,315 bears interest at the bank's
prime rate (8.25%) and $3,000,000 bears interest at LIBOR plus 2%
(7.63%). Pursuant to the same agreement, at June 30, 1996, a term
loan with a remaining balance of $1,017,857 requires monthly
principal payments of $17,857, together with interest at the bank's
prime rate through September 13, 1998, with a final payment of
$553,600 on September 13, 1998. Borrowings under this facility are
collateralized by substantially all of the assets of the Company. The
agreement contains provisions for maintenance of certain financial
ratios, all of which the Company is in
F-15
45
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE E - DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
compliance with, and prohibits the payment of cash dividends. The
agreement also provides for the issuance of letters of credit by the
Bank on the Company's behalf. At June 30, 1996, $500,000 of such
letters of credit were outstanding.
(b) Other Term Loans
Other term loans as of June 30, 1996 are as follows:
Monthly
Date of loan Balance Term payment
------------ ------- ---- -------
March 16, 1995 $ 46,639 60 months $1,160
March 16, 1995 161,195 84 months 2,730
March 16, 1995 216,887 84 months 4,216
---------
$ 424,721
=========
The above loans are collateralized by the related equipment acquired,
having a carrying value of approximately $464,000 at June 30, 1996
and $413,000 at June 30, 1995. The agreements contain, among other
things, restrictive covenants on one of the Company's subsidiaries,
which place limitations on: (i) consolidations, mergers and
acquisitions, (ii) additional indebtedness, encumbrances and
guarantees, (iii) loans to shareholders, officers or directors, (iv)
dividends and stock redemptions, and (v) transactions with
affiliates, all as defined in the agreements. The loans bear interest
payable monthly, at 6%, 5.5% and 1.5% over the bank's prime rate,
respectively.
(c) Equipment Notes
The equipment notes are payable through September 1999, bearing
implicit interest rates from 7.55% to 9.68%.
(d) Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for
as capital leases. The obligations for the equipment require the
Company to make monthly payments through October 1999, with implicit
interest rates from 7.07% to 7.55%.
F-16
46
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE E - DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
The following is a summary of the aggregate annual maturities of long-term
debt and capitalized lease obligations as of June 30, 1996:
Long-term Capitalized
debt leases
Year ending June 30,
1997 $ 392,563 $ 98,984
1998 418,147 99,014
1999 7,953,524 95,588
2000 86,503 21,359
2001 74,141
Thereafter 59,623
---------- --------
$8,984,501 $314,945
========== ========
NOTE F - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases certain office and warehouse facilities under
noncancellable operating leases. The leases also provide for the
payment of real estate taxes and other operating expenses of the
buildings. The minimum annual lease payments under such leases are as
follows:
Year ending June 30,
1997 $ 732,869
1998 639,172
1999 604,165
2000 629,791
2001 646,757
Thereafter 1,706,170
----------
$4,958,924
==========
F-17
47
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE F - COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, the Company leases office and warehouse facilities from a
partnership owned by two officers and directors of the Company. The
lease expires in December 2003 and requires minimum annual lease
payments as follows:
Year ending June 30,
1997 $ 516,600
1998 542,430
1999 569,550
2000 598,000
2001 627,900
Thereafter 1,706,170
----------
$4,560,650
==========
In addition, the Company is contingently liable as a guarantor of a
mortgage on such property in the amount of approximately $327,000 as of
June 30, 1996. The Company's rent expense was approximately $571,000,
$571,000 and $528,000 for the years ended June 30, 1994, 1995 and 1996,
respectively, in connection with the above lease.
Rent expense on office and warehouse facilities leases for the years
ended June 30, 1994, 1995 and 1996 was approximately $872,000, $909,000
and $846,000, respectively, net of sublease income of approximately
$147,000, $135,000 and $120,000, respectively.
2. Other Leases
The Company also leases various office equipment and automobiles under
noncancellable operating leases expiring through December 1999. The
minimum rental commitments required under these leases at June 30, 1996
are as follows:
Year ending June 30,
1997 $ 240,899
1998 176,262
1999 70,095
2000 9,618
---------
$ 496,874
=========
F-18
48
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE F - COMMITMENTS AND CONTINGENCIES (CONTINUED)
3. Employment Agreement
Effective July 1, 1993, the Company entered into an employment
agreement with its Chairman expiring July 1, 1997, pursuant to which
the Chairman receives a base annual salary of $325,000. In addition,
the Chairman will be entitled to an annual bonus equal to 4% of
earnings before income taxes, if earnings for a particular fiscal year
exceed $1,000,000 or 6% if earnings before income taxes are in excess
of $2,500,000. The agreement also provides for the continuation of the
deferred compensation arrangement first established in fiscal 1985,
whereby $50,000 per year has been accrued and becomes payable in its
entirety no later than January 15 of the year next following the last
to occur of the following events: (1) the Chairman's attainment of age
60 (fiscal 1999) or (2) cessation of the Chairman's employment with or
without cause after July 1, 1993. In the event of a change in control
resulting in termination of the Chairman's employment, the Chairman
will receive between $450,000 and $600,000 depending on the date of
termination. For the years ended June 30, 1994, 1995 and 1996, bonuses
of approximately $76,000, $193,000 and $387,000, respectively, were
earned pursuant to the Chairman's employment agreement. Further, the
Chairman had outstanding demand loans at June 30, 1995 aggregating
$309,808 which bore interest at 9-3/4% per annum and were paid in full
in September 1995. The Company's Board of Directors further adopted a
policy of requiring a majority of outside directors to approve any
further loans.
4. Other Matters
The Company is a party to legal matters arising in the general conduct
of business. The ultimate outcome of such matters is not expected to
have a material adverse effect on the Company's results of operations
or financial position.
NOTE G - RETIREMENT PLAN
The Company maintains a 401(k) Plan that is available to all employees, to
which the Company contributes up to a maximum of 1% of each employee's
salary. For the years ended June 30, 1994, 1995 and 1996, the Company
contributed to this plan approximately $61,000, $90,000 and $104,000,
respectively.
NOTE H - SHAREHOLDERS' EQUITY
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
certain officers and directors of the Company. On December 8, 1995, the
underwriters of the public offering exercised a portion of their
overallotment option for an additional 160,000 shares at a price per share
equal to that of the public offering. The Company's net proceeds from the
public offering of $17,139,966, after deducting the underwriters'
commission and costs of
F-19
49
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE H - SHAREHOLDERS' EQUITY (CONTINUED)
the public offering, were used to reduce its bank indebtedness. In
connection with the public offering, the Company also issued stock
warrants, to the representative underwriters, to purchase up to 70,000
shares of common stock at an exercise price per share equal to 180% of the
public offering price, which expire on October 20, 1999.
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 authorized
a 4-for-3 stock split. The 4-for-3 split was distributed on October 3, 1995
to shareholders of record as of September 22, 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.
The Company has stock option plans which provide for the granting of stock
options to employees, directors and officers under the following stock
option plans:
In November 1981, the Company approved the adoption of a qualified
incentive stock option plan, hereinafter referred to as the "1981 Plan."
The stock options granted under the 1981 Plan were generally exercisable
for a period of five years at a price not less than the market value on the
date of grant. The 1981 Plan terminated in November 1991. Options granted
prior to expiration of the 1981 Plan which, by their terms, do not expire
until after November 1991 remain outstanding in accordance with their terms
until their individual expiration dates. During fiscal 1996, all
outstanding options under the 1981 Plan had been exercised.
In December 1992, the Board of Directors approved the adoption of a
nonqualified stock option plan, known as the "1993 Non-Qualified Stock
Option Plan," hereinafter referred to as the "1993 Plan." The Board of
Directors or Plan Committee is responsible for the granting of and price of
these options. Such price shall be equal to the fair market value of the
common stock subject to such option at the time of grant. The options
expire five years from the date of grant and are exercisable over the
period stated in each option. The Company has reserved 293,333 shares of
common stock for the 1993 Plan, of which 158,934 options are outstanding.
In October 1993, the Board of Directors approved the adoption of a stock
option plan for outside directors, known as the "1993 Stock Option Plan for
Outside Directors," hereinafter referred to as the "Outside Directors
Plan." Each outside director who was serving as of December 31, 1993 was
granted a nonqualified stock option to purchase 14,667 shares of the
Company's common stock at the fair market value on the date of grant. Of
the 105,601 options currently available for grant under the
F-20
50
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE H - SHAREHOLDERS' EQUITY (CONTINUED)
Outside Directors Plan, each person who is an outside director on December
31 of each calendar year subsequent to 1993 shall be granted options to
purchase 2,933 shares of the Company's common stock annually. Granted
options shall expire upon the earlier of five years after the date of grant
or one year following the date on which the outside director ceases to
serve in such capacity. The Company has reserved 146,667 shares of common
stock for the Outside Directors Plan of which 41,066 options are
outstanding.
Outstanding options granted to employees, directors and officers for the
last three fiscal years are summarized as follows:
Incentive Nonqualified
stock options stock options
----------------------------- ----------------------------
Price range Shares Price range Shares
----------- ------ ----------- ------
Outstanding at June 30, 1993 $1.02-2.65 44,734
Granted $ 4.77-5.80 129,433
Exercised $1.02 (917)
------- -------
Outstanding at June 30, 1994 $1.02-2.65 43,817 $ 4.77-5.80 129,433
Granted $ 4.94 5,867
Exercised $2.65 (41,067)
------- -------
Outstanding at July 1, 1995 $1.02 2,750 $ 4.77-5.80 135,300
Granted $11.50-12.75 68,366
Exercised $1.02 (2,750) $ 4.77 (3,666)
------- -------
OUTSTANDING AT JUNE 30, 1996 -- 200,000
======= =======
AMOUNTS EXERCISABLE AT
JUNE 30, 1996 -- 200,000
======= =======
F-21
51
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE H - SHAREHOLDERS' EQUITY (CONTINUED)
On April 15, 1996, the Company announced that its Board of Directors has
authorized the purchase of up to 250,000 shares of its common stock or
approximately 6.3% of the then outstanding shares, under a stock repurchase
program. The purchases may be made by the Company from time to time in the
open market at the Company's discretion. Through August 16, 1996, the
Company purchased 37,500 shares of its common stock for aggregate
consideration of $303,750.
NOTE I - SEGMENT INFORMATION
On March 11, 1994, the Company purchased all of the outstanding common
stock of a contract manufacturer for $1,796,355 in cash, financed in part
by the Company obtaining a term loan (see Note E). The acquisition was
accounted for by the purchase method and, accordingly, the purchase price
was allocated to assets acquired and liabilities assumed based upon their
fair market value as of the date of acquisition. The amount paid in excess
of the fair market value, $378,650, as adjusted to reflect the realization
of deferred tax assets not previously recognized, is being amortized over a
ten-year period and is included in the accompanying consolidated financial
statements as of June 30, 1996, net of accumulated amortization of
$103,275. The operations of the contract manufacturer are included in the
accompanying financial statements from the date of acquisition. The fair
market values of the assets and the liabilities assumed at the date of
acquisition were as follows:
Fair value of assets acquired $ 5,455,526
Liabilities assumed (3,659,171)
-----------
Purchase price $ 1,796,355
===========
The pro forma unaudited results of operations for the year ended June 30,
1994, assuming consummation of the purchase and term loan borrowing as of
July 1, 1993, are as follows:
Net sales $108,793,684
============
Net earnings $ 799,967
============
Net earnings per share $ .31
============
F-22
52
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE I - SEGMENT INFORMATION (CONTINUED)
As a result of this acquisition, the Company now has two business segments:
electronics parts distribution and contract manufacturing. The following is
a summary of selected consolidated information for the electronics
components distribution and contract manufacturing segments.
Year ended June 30,
--------------------------------------
1994 1995 1996
-------- -------- --------
(in thousands)
Sales
Electronics components distribution $102,493 $126,545 $156,303
Contract manufacturing 2,720 12,138 10,846
-------- -------- --------
$105,213 $138,683 $167,149
======== ======== ========
Operating profit
Electronics components distribution $ 2,991 $ 4,666 $ 7,640
Contract manufacturing 29 563 157
-------- -------- --------
$ 3,020 $ 5,229 $ 7,797
======== ======== ========
Identifiable assets
Electronics components distribution $ 39,545 $ 47,909 $ 53,376
Contract manufacturing 6,140 8,414 7,543
-------- -------- --------
$ 45,685 $ 56,323 $ 60,919
======== ======== ========
Capital expenditures
Electronics components distribution $ 828 $ 342 $ 524
Contract manufacturing 48 566 266
-------- -------- --------
$ 876 $ 908 $ 790
======== ======== ========
Depreciation and amortization
Electronics components distribution $ 329 $ 397 $ 422
Contract manufacturing 84 296 298
-------- -------- --------
$ 413 $ 693 $ 720
======== ======== ========
F-23
53
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1994, 1995 and 1996
NOTE J - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL
DATA (UNAUDITED)
QUARTER ENDED
-----------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
----------- ----------- ----------- -----------
NET SALES $40,083,485 $43,589,877 $43,176,834 $40,299,189
GROSS PROFIT 8,541,214 8,821,196 8,633,057 8,048,691
NET EARNINGS 807,951 1,079,907 1,112,740 849,180
EARNINGS PER COMMON SHARE
NET EARNINGS PER COMMON
SHARE $ .32 $ .30 $ .28 $ .21
=========== =========== =========== ===========
QUARTER ENDED
-----------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995
----------- ----------- ----------- -----------
Net sales $31,087,594 $33,747,154 $35,825,167 $38,023,416
Gross profit 6,394,122 6,919,043 7,496,699 7,970,828
Net earnings 262,494 447,765 554,284 651,399
Earnings per common share
Net earnings per common
share (a) $ .11 $ .18 $ .23 $ .26
=========== =========== =========== ===========
(a) As adjusted to reflect the 10% stock dividend paid on March 10, 1995
and a 4-for-3 stock split authorized on August 30, 1995.
F-24
54
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors and Shareholders
JACO ELECTRONICS, INC.
In connection with our audit of the consolidated financial statements of Jaco
Electronics, Inc. and Subsidiaries referred to in our report dated August 16,
1996, which is included in this annual report on Form 10-K, we have also audited
Schedule II for each of the three years in the period ended June 30, 1996. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
Melville, New York
August 16, 1996
F-25
55
Jaco Electronics, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1994, 1995 and 1996
Column A Column B Column C Column D Column E
-------- -------- ------------------------------ -------- --------
Additions
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts - Deductions - at end of
Description of period expenses describe describe period
----------- --------- -------- -------- -------- ------
Allowance for doubtful accounts
Year ended June 30, 1994 $863,000 $160,000 $187,000 (b)(c) $600,000 (a) $610,000
======== ======== ======== ======== ========
Year ended June 30, 1995 $610,000 $458,000 $104,000 (b) $562,000 (a) $610,000
======== ======== ======== ======== ========
Year ended June 30, 1996 $610,000 $761,000 $153,000 (b) $766,000 (a) $758,000
======== ======== ======== ======== ========
(a) Represents write-offs of uncollectible accounts.
(b) Recoveries of accounts.
(c) Includes balance attributable to acquired subsidiary.
F-26
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
JACO ELECTRONICS, INC.
Date: September 27, 1996 By: /s/ Joel H. Girsky
--------------------------------
Joel H. Girsky, Chairman of the
Board, President and Treasurer
(Principal Executive Officer)
Date: September 27, 1996 By: /s/ Jeffrey D. Gash
--------------------------------
Jeffrey D. Gash, Vice President-
Finance (Principal Financial and
Accounting Officer)
Pursuant to the Requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
Date: September 27, 1996 /s/ Stephen A. Cohen
------------------------------------
Stephen A. Cohen, Director
Date: September 27, 1996 /s/ Edward M. Frankel
------------------------------------
Edward M. Frankel, Director
Date: September 27, 1996 /s/ Charles B. Girsky
------------------------------------
Charles B. Girsky, Executive Vice
President and Director
30
57
EXHIBIT INDEX
Exhibit
No.
- -------
3.1 Restated Certificate of Incorporation adopted November, 1987,
incorporated by reference to the Company's definitive proxy
statement distributed in connection with the Company's annual
meeting of shareholders held in November, 1987, filed with the
SEC on November 3, 1986, as set forth in Appendix A to the
aforesaid proxy statement.
3.1.1 Certificate of Amendment of the Certificate of Incorporation,
adopted December, 1995.
3.2 Restated By-Laws adopted June 18, 1987, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1987 ("the Company's 1987 10-K"), Exhibit 3.2.
4.1 Form of Common Stock Certificate, incorporated by reference
to the Company's Registration Statement on Form S-1, Commission
File No. 2-91547, filed June 9, 1984, Exhibit 4.1.
10.1 Sale and leaseback with Bemar Realty Company (as assignee of
Hi-Tech Realty Company), incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30,
1983, Exhibit 10(1), pages 48-312.
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty
Company (as assignee of Hi-Tech Realty Company), incorporated by
reference to the Company's Registration Statement on Form S-1,
Commission File No. 2-91547, filed June 9, 1984, Exhibit 10.2.
10.2.2 Lease Between the Company and Bemar Realty Company, dated January
1, 1996.
10.3 Employment Agreement between Joel Girsky and the Company, dated
December 29, 1989, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1990 ("the
Company's 1990 10-K"), Exhibit 10.3 pages 47-52.
10.4 1980 Stock Incentive Plan, incorporated by reference to the
Company's Registration Statement on Form S-1, Commission File No.
2-91547, filed June 9, 1984, Exhibit 10.4, pages 168-172.
10.5 Restated 1981 Incentive Stock Option Plan, incorporated by
reference to the Company's 1987 10-K, Exhibit 10.1.
10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference
to the Company's 1993 10-K, Exhibit 10.6.
58
10.7 Stock Purchase Agreement, dated as of February 8, 1994 by and
among the Company and Reilrop, B.V. and Guaranteed by Cray
Electronics Holdings PLC, incorporated by reference to the
Company's Current Report on Form 8-K, dated March 11, 1994.
10.8 1993 Stock Option Plan for Outside Directors, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994, Exhibit 10.8.
10.9 Employment Agreement between Joel Girsky and the Company, dated
October 5, 1994, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994,
Exhibit 10.9.
10.10 Authorized Electronic Industrial Distributor Agreement, dated as
of August 24, 1970 by and between AVX and the Company,
incorporated by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 1995, Exhibit 10.10.
10.11 Electronics Corporation Distributor Agreement, dated November 15,
1974, by and between Kemet and the Company, incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1995, Exhibit 10.11.
21.1 Subsidiaries of the Company.
23.1 Consent of Grant Thornton LLP.
27. Financial Data Schedule.
99.1 General Loan and Security Agreement dated January 20, 1989,
between the Company as borrower and The Bank of New York
Commercial Corporation ("BNYCC") as secured party, incorporated
by reference to the Company's Current Report on Form 8-K, filed
January 31, 1989, Exhibit 28(1).
99.2 Loan and Security Agreement - Accounts Receivable and Inventory,
dated January 20, 1989, between the Company and BNYCC,
incorporated by reference to the Company's Current Report on Form
8-K filed January 31, 1989, Exhibit 28(2).
99.3 Letter of Credit and Security Agreement, dated January 20, 1989,
between the Company and BNYCC, incorporated by reference to the
Company's Current Report on Form 8-K filed January 31, 1989,
Exhibit 28(3).
59
99.4 Amendment to Term Loan Notes (the "Term Notes") executed by the
Company in favor of BNYCC dated January 13, 1992, together with
Letters from R.C. Components, Inc., Quality Components, Inc.,
Micatron, Inc. and Distel, Inc., each a subsidiary of the Company
and a guarantor of the obligations evidenced by the Term Notes,
to BNYCC acknowledging the amendment to the Term Notes for the
extension of the maturity date of each such note, incorporated by
reference to the Company's 1992 10-K, Exhibit 28.4.
99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between
the Company and BNYCC, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994,
Exhibit 99.5.
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in
favor of BNYCC, dated March 11, 1994, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
June 30, 1994, Exhibit 99.6.
99.7 Restated and Amended Loan and Security Agreement, dated April 25,
1995, among the Company, Nexus and BNYCC, together with an
Amendment to Term Loan Note executed by the Company in favor of
BNYCC and Letter executed by R.C. Components, Inc., Quality
Components, Inc., Micatron, Inc., Distel, Inc. and Jaco Overseas,
Inc., incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 1995, Exhibit 99.7.
99.8 Second Restated and Amended Loan and Security Agreement dated
September 13, 1995 among the Company, Nexus Custom Electronics,
Inc., BNYCC and NatWest Bank, N.A. ("Second Restated and Amended
Loan and Security Agreement"), incorporated by reference to the
Company's Registration Statement on Form S-2, Commission File No.
33-62559, filed October 13, 1995, Exhibit 99.8.
99.8.1 Amendment to the Second Restated and Amended Loan and Security
Agreement, dated as of April 10, 1996.