-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UzRu3Q3WjuMOcSf5W6MsHNuK2VZsD52GIi3htO3RP73dzXp9B5iO9aKnZfrDQ1Z4 QIkAUv5h1+AdV7sgDNe2Yw== 0000052971-01-500010.txt : 20020410 0000052971-01-500010.hdr.sgml : 20020410 ACCESSION NUMBER: 0000052971-01-500010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACO ELECTRONICS INC CENTRAL INDEX KEY: 0000052971 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 111978958 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-34664 FILM NUMBER: 1790268 BUSINESS ADDRESS: STREET 1: 145 OSER AVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 6312735500 MAIL ADDRESS: STREET 1: 145 OSER AVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-Q 1 sept10q01.txt SEPTEMBER 30, 2001, FORM 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 {X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period ended September 30, 2001 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _________________________ Commission File Number 0-5896 JACO ELECTRONICS, INC. (Exact name of registrant as specified in its charter) NEW YORK 11-1978958 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 145 OSER AVENUE, HAUPPAUGE, NEW YORK 11788 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (631) 273-5500 Indicated by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ - Number of Shares of Registrant's Common Stock Outstanding as of November 9, 2001 - - 5,707,459 (Excluding 618,300 Shares of Treasury Stock). FORM 10-Q September 30, 2001 Page 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, June 30, 2001 2001 --------------- ----------- ASSETS Current Assets Cash $ 517,940 $ 89,523 Marketable securities 664,360 771,406 Accounts receivable - net 30,409,274 37,820,946 Inventories 55,462,996 62,212,121 Prepaid expenses and other 1,668,973 824,121 Prepaid and refundable income taxes 1,429,839 486,325 Deferred income taxes 2,171,000 2,190,000 --------- --------- Total current assets 92,324,382 104,394,442 Property, plant and equipment - net 8,268,463 8,389,651 Deferred income taxes 453,000 436,000 Excess of cost over net assets acquired - net 20,095,844 20,095,844 Other assets 3,294,194 2,998,902 ----------- ----------- $124,435,883 $136,314,839 ============ ============ See accompanying notes to condensed consolidated financial statements.
2 FORM 10-Q September 30, 2001 Page 3 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, June 30, 2001 2001 ---- ---- LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses $ 17,976,291 $ 25,004,058 Current maturities of long term debt and capitalized lease obligations 1,027,823 1,081,905 ------------- ------------ Total current liabilities 19,004,114 26,085,963 Long term debt and capitalized lease obligations 52,866,185 56,128,243 Deferred compensation 862,500 850,000 SHAREHOLDERS' EQUITY Preferred stock - authorized, 100,000 shares, $10 par value; none issued Common stock - authorized, 20,000,000, $.10 par value; issued 6,325,759 and 6,315,759 shares, respectively, and 5,707,459 and 5,697,459 shares outstanding, respectively 632,576 631,576 Additional paid-in capital 24,639,866 24,615,866 Retained earnings 28,644,051 30,146,599 Accumulated other comprehensive (loss) income (8,894) 61,107 Treasury stock (2,204,515) (2,204,515) ------------ ------------ Total shareholders' equity 51,703,084 53,250,633 ---------- ---------- $124,435,883 $136,314,839 ============ ============ See accompanying notes to condensed consolidated financial statements.
3 FORM 10-Q September 30, 2001 Page 4 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) 2001 2000 -------------- ------------- NET SALES $49,430,523 $94,158,828 COST AND EXPENSES Cost of goods sold 41,415,022 73,541,170 ---------- ---------- Gross profit 8,015,501 20,617,658 Selling, general and administrative expenses 9,392,345 11,834,056 ------------ ------------ Operating (loss) profit (1,376,844) 8,783,602 Interest expense 769,704 888,735 ------------ ------------ (Loss) earnings before income taxes (2,146,548) 7,894,867 Income tax (benefit) provision (644,000) 3,237,000 ------------ ------------ NET (LOSS) EARNINGS $(1,502,548) $ 4,657,867 ============ ============ Net (loss) earnings per common share: Basic $ (0.26) $ 0.83 ============ ============ Diluted $ (0.26) $ 0.75 ============ ============ Weighted average common shares outstanding: Basic 5,700,937 5,633,959 ============ ============ Diluted 5,700,937 6,234,768 ============ ============ See accompanying notes to condensed consolidated financial statements.
4 FORM 10-Q September 30, 2001 Page 5 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED) Additional paid-in Retained Shares Amount capital earnings --------------- -------------- ---------------- ------------------- Balance at July 1, 2001 6,315,759 $ 631,576 $ 24,615,866 $ 30,146,599 Net loss (1,502,548) Unrealized loss on marketable securities, net of deferred taxes Exercise of stock options 10,000 1,000 24,000 --------------- -------------- ---------------- -------------------- Balance at September 30, 2001 6,325,759 $ 632,576 $ 24,639,866 $ 28,644,051 =============== ============== ================ ==================== Accumulated other Total comprehensive Treasury shareholders' income (loss) stock equity --------------- ---------------- ----------------- Balance at July 1, 2001 $ 61,107 $ (2,204,515) $ 53,250,633 Net loss (1,502,548) Unrealized loss on marketable securities, net of deferred taxes (70,001) (70,001) Exercise of stock options 25,000 --------------- ---------------- ----------------- Balance at September 30, 2001 $ (8,894) $ (2,204,515) $ 51,703,084 =============== ================ ================= See accompanying notes to condensed consolidated financial statements.
5 FORM 10-Q Page 6 September 30, 2001 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) 2001 2000 ------------------ ----------------- Cash flows from operating activities Net (loss) earnings $ (1,502,548) $ 4,657,867 Adjustments to reconcile net (loss) earnings to net cash provided by (used in) operating activities Depreciation and amortization 592,139 735,220 Deferred compensation 12,500 46,250 Deferred income tax expense (benefit) 41,032 (113,600) Provision for doubtful accounts 176,900 360,703 Changes in operating assets and liabilities, Decrease (increase) in operating assets - net 12,225,238 (25,517,995) (Decrease) increase in operating liabilities - net (7,027,767) 7,588,449 ------------------ ----------------- Net cash provided by (used in) operating activities 4,517,494 (12,243,106) ------------------ ----------------- Cash flows from investing activities Capital expenditures (69,723) (1,133,573) Increase in marketable securities (1,987) (1,969) Increase in other assets (329,542) (21,362) ------------------ ----------------- Net cash used in investing activities (401,252) (1,156,904) ------------------ ----------------- Cash flows from financing activities Borrowings under line of credit 44,782,170 87,922,848 Payments under line of credit (48,241,778) (73,943,121) Principal payments under equipment financing and term loans (253,217) (211,427) Payment of fractional shares (559) Proceeds from exercise of stock options 25,000 ------------------ ----------------- Net cash (used in) provided by financing activities (3,687,825) 13,767,741 ------------------ ----------------- NET INCREASE IN CASH 428,417 367,731 ------------------ ----------------- Cash at beginning of period 89,523 617,603 ------------------ ----------------- Cash at end of period $ 517,940 $ 985,334 ================== ================= Supplemental schedule of non-cash financing and investing activities: Equipment acquired under capital lease obligations $ 396,685 See accompanying notes to condensed consolidated financial statements.
6 FORM 10-Q September 30, 2001 Page 7 JACO ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION 1) The accompanying condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring accrual adjustments, which are in the opinion of management, necessary for a fair presentation of the consolidated financial position and the results of operations at and for the periods presented. Such financial statements do not include all the information or footnotes necessary for a complete presentation. Therefore, they should be read in conjunction with the Company's audited consolidated statements for the year ended June 30, 2001 and the notes thereto included in the Company's annual report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. 2) The Company has a $70,000,000 term loan and revolving line of credit facility with its banks, which is based principally on eligible accounts receivables and inventories as defined in the loan agreement. The agreement was amended effective September 30, 2001 to (i) extend the maturity date to September 14, 2003, and (ii) change the requirements of certain financial covenants. The interest rate is based on the average 30-day LIBOR plus 1% to 2-1/4% depending on the Company's performance for the immediately preceding four fiscal quarters measured by a certain financial ratio. The applicable interest rate may be adjusted quarterly and borrowings under this facility are collateralized by substantially all of the assets of the Company. 3) For interim financial reporting purposes, the Company uses the gross profit method for computing inventories, which consists of goods held for resale. 4) On September 18, 2001, the Company announced that its Board of Directors authorized the repurchase of up to 250,000 shares of its outstanding common stock. Purchases may be made from time to time in market or private transactions at prevailing market prices. 5) On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business Combinations," and Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. However, certain provisions of this statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS No. 142. The new standards require that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value-based test. The Company has adopted, as of July 1, 2001, the provisions of SFAS Nos. 141 and 142. Accordingly, the results for the three months ended September 30, 2001 excludes approximately $279,000 of such amortization, as compared to approximately $222,000, which was included in the comparable period last year. By December 31, 2001, the Company will have completed a transitional fair value-based impairment test of goodwill to determine if the fair value is less than the recorded value at July 1, 2001. Impairment losses, if any, resulting from the transitional testing will be recognized in the quarter ended December 31, 2001 as a cumulative effect of a change in accounting principle. 7 FORM 10-Q September 30, 2001 Page 8 The following table presents a reconciliation of net (loss) earnings and net (loss) earnings per common share amounts, as reported in the Company's statement of operations, to those amounts adjusted for goodwill and intangible asset amortization determined in accordance with the provisions of SFAS No. 142. Three Months Ended September 30, 2001 2000 ----- ----- (Unaudited) (Unaudited) Dollars in thousands except per share data Reported net (loss) earnings $ (1,503) $ 4,658 Add back: goodwill amortization 213 Add back: franchise agreement amortization 9 -------- ------- Adjusted net (loss) earnings $ (1,503) $ 4,880 ========= ======= BASIC (LOSS) EARNINGS PER SHARE: Reported net (loss) earnings $ (0.26) $ 0.83 Goodwill amortization 0.04 Franchise agreement amortization 0.00 -------- ------- Adjusted net (loss) earnings $ (0.26) $ 0.87 ======== ====== DILUTED (LOSS) EARNINGS PER SHARE: Reported net (loss) earnings $ (0.26) $ 0.75 Goodwill amortization 0.03 Franchise agreement amortization 0.00 -------- ------- Adjusted net (loss) earnings $ (0.26) $ 0.78 ======== ======
6) In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement is effective for fiscal years beginning after December 15, 2001. This supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," while retaining many of the requirements of such statement. The Company is currently evaluating the impact of the statement. 7) On June 6, 2000, the Company acquired all of the issued and outstanding shares of common stock, no par value, of Interface Electronics Corp. ("Interface"), a distributor of electronic parts, components and equipment, located in Massachusetts. The purchase price was $15,400,000 payable in cash at the closing, plus a deferred payment of $3,960,000 provided that certain conditions, as defined in the purchase agreement, were met. As of September 30, 2001, $3,760,000 of the deferred payment has been paid. The remaining $200,000 has been provided for in the accompanying balance sheet. An additional $25,000 has been provided for in the accompanying balance sheet due to a purchase price adjustment. On the second anniversary of the closing date a deferred payment of up to $2,640,000 shall be paid if certain conditions, as defined in the purchase agreement, are met. When the remaining contingency is resolved, the Company shall record the current fair value of the consideration paid as additional goodwill. 8 FORM 10-Q September 30, 2001 Page 9 The acquisition has been accounted for as a purchase and the operations of Interface have been included in the Company's Statement of Operations since the date of acquisition, June 6, 2000. Included in other assets are the costs of the identifiable intangible assets acquired, principally an employment agreement which is being amortized on a straight-line basis over five years, and a franchise agreement which was being amortized on a straight-line basis over fifteen years until the Company's adoption of SFAS No. 142. The excess of the purchase price and related expenses over the net tangible and identifiable intangible assets acquired amounted to approximately $17,486,000 and was being amortized on a straight-line basis over twenty years until the Company's adoption of SFAS No. 142. 8) On February 25, 2000, the Company purchased the operating assets of PGI, Industries, Inc., ("PGI") an exporter of electronic components, located in Ronkonkoma, New York. The purchase price was $1,200,000 paid in cash, plus a deferred payment of $100,000 payable over the next two years based on certain conditions, as defined in the purchase agreement. As of September 30, 2001, $50,000 of the deferred payment has been paid. When the remaining contingency is resolved, the Company shall record the current fair value of the consideration issued as additional costs of the acquired enterprise. The acquisition has been accounted for as a purchase and the operations of PGI have been included in the Company's Statement of Operations since the date of acquisition, February 25, 2000. The excess of the purchase price over the fair value of the assets acquired, approximately $260,000, was being amortized on a straight-line basis over twenty years until the Company's adoption of SFAS No. 142. 9) Total comprehensive income and its components for the three months ended September 30, 2001 and 2000 are as follows: Three Months Ended September 30, -------------------------------- 2001 2000 -------------- ------------- Net (loss) income (1,502,548) 4,657,867 Unrealized loss on marketable securities (109,033) (3,897) Deferred tax benefit 39,032 1,400 -------------- ------------- Comprehensive (loss) income (1,572,549) 4,655,370 ============== ============= Accumulated other comprehensive income is comprised of unrealized gains and losses on marketable securities, net of the related tax effect. 9 FORM 10-Q September 30, 2001 Page 10 10) The number of shares used in the Company's basic and diluted earnings per share computations are as follows: Three Months Ended September 30, -------------------------------- 2001 2000 -------------- ------------- Weighted average common shares outstanding net of treasury shares, for basic earnings per share 5,700,937 5,633,959 Common stock equivalents for stock options 600,809 -------------- ------------- Weighted average common shares outstanding for diluted earnings per share 5,700,937 6,234,768 ============== ============= The diluted loss per common share for the three months ended September 30, 2001 is based only on the weighted average number of common shares outstanding during the period, as the inclusion of 311,753 common share equivalents would have been antidilutive. 11) The Company has two reportable segments: electronics parts distribution and contract manufacturing. The Company's primary business activity is conducted with small and medium size manufacturers, located in North America, that produce electronic equipment used in a variety of industries. Information pertaining to the Company's operations in different geographic areas for the three months ended September 30, 2001 and 2000 is not considered material to the financial statements. The Company's chief operating decision maker utilizes net sales and net earnings information in assessing performance and making overall operating decisions and resource allocations. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies included in the Company's annual report to shareholders. Information about the Company's segments is as follows: 10 FORM 10-Q September 30, 2001 Page 11 Three Months Ended September 30, 2001 2000 --------- ------- (in thousands) Net sales from external customers Electronics components distribution $42,438 $87,767 Contract manufacturing 6,993 6,392 ------- ------- $49,431 $94,159 ====== ====== Intersegment net sales Electronics components distribution $ 114 $ 128 Contract manufacturing _____ _____ $ 114 $ 128 ========= ========= Operating (loss) profit Electronics components distribution $ (1,574) $ 8,259 Contract manufacturing 197 525 ------- ------- $ (1,377) $ 8,784 ======= ===== Interest expense Electronics components distribution $ 604 $ 752 Contract manufacturing 166 137 -------- -------- $ 770 $ 889 ====== ======= Income tax (benefit) provision Electronics components distribution $ (654) $ 3,078 Contract manufacturing 10 159 -------- --------- $ (644) $ 3,237 ========= ========= Identifiable assets Electronics components distribution $107,552 $138,719 Contract manufacturing 16,884 13,655 -------- -------- $124,436 $152,374 ======= ======= Capital expenditures Electronics components distribution $ 70 $ 333 Contract manufacturing 801 ------ -------- $ 70 $ 1,134 ====== ========= Depreciation and amortization Electronics components distribution $ 369 $ 536 Contract manufacturing 223 199 -------- -------- $ 592 $ 735 ======= ======= 11 FORM 10-Q September 30, 2001 Page 12 JACO ELECTRONICS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information, this filing includes forward-looking statements that involve risks and uncertainties, including, but not limited to, general industry and economic conditions, the impact of competitive products, product demand and market acceptance risks, fluctuations in operating results, delays in development of highly-complex products, the ability of the Company to continue to expand its operations, the level of costs incurred in connection with the Company's expansion efforts and the financial strength of the Company's customers and suppliers and other risks detailed from time to time in the Company's Securities and Exchange Commission filings. The forward-looking statements in this filing involve risks and uncertainties which could cause actual results, performance or trends, including margins, SG&A expenses as a percentage of revenues and earnings per diluted share, to differ materially from those expressed in the forward-looking statements. The Company believes that all forward-looking statements made by it have a reasonable basis, but there can be no assurance that management's expectations, beliefs or projections as expressed in the forward-looking statements will actually occur or prove to be correct. Actual results may differ materially from such information set forth herein. GENERAL Jaco is a distributor of electronic components, provider of contract manufacturing and value-added services. Products distributed by Jaco include semiconductors, capacitors, resistors, electromechanical devices, flat panel displays and monitors, and power supplies used in the assembly and manufacturing of electronic equipment. The Company's customers are primarily small and medium sized manufacturers. The trend for these customers has been to shift certain manufacturing functions to third parties (outsourcing). The Company intends to seek to capitalize on this trend toward outsourcing by increasing sales of products enhanced by value-added services. Value-added services currently provided by Jaco consist of automated inventory management services, kitting (e.g. supplying sets of specified quantities of products to a customer that are prepackaged for ease of feeding the customer's production lines), and contract manufacturing through Nexus Custom Electronics, Inc., a wholly owned subsidiary of the Company. The Company is also expanding in the flat panel display value-added market, which includes full system integration, kitting and the implementation of touch technologies. 12 FORM 10-Q September 30, 2001 Page 13 Results of Operations The following table sets forth certain items in the Company's statements of operations as a percentage of net sales for the periods shown: Three Months Ended September 30, ---------------------------------- 2001 2000 --------------- ------------ Net sales 100.0% 100.0% Cost of goods sold 83.8 78.1 --------------- --------------- Gross profit 16.2 21.9 Selling, general and administrative expenses 19.0 12.6 --------------- --------------- Operating (loss) profit (2.8) 9.3 Interest expense 1.5 0.9 --------------- --------------- Loss (earnings) before income taxes (4.3) 8.4 Income tax (benefit) provision (1.3) 3.5 --------------- --------------- NET (LOSS) EARNINGS (3.0)% 4.9% ============== =============== COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000 - ------------------------------------------------------------------------------- Net sales for the three months ended September 30, 2001 were $49.4 million compared to $94.2 million for the three months ended September 30, 2000, a decrease of approximately $44.8 million or 48%. The decrease in net sales is primarily attributable to the continuing weak demand for electronic components throughout the electronics industry. Additionally, many of our customers have excess inventory based on current usage. Gross profit was $8.0 million for the three months ended September 30, 2001, a decrease of $12.6 million, or 61%, compared to $20.6 million for the three months ended September 30, 2000. Gross profit margins were 16.2% compared to 21.9%, respectively. During the three months ended September 30, 2001, demand for components continued to weaken, thereby resulting in a decrease in our margins. We do not foresee any material increase in margins until such time as the industry rebounds. Selling, general and administrative ("SG&A") expenses were $9.4 million for the three months ended September 30, 2001, a decrease of $2.4 million, or 20.6%, compared to $11.8 million for the three months ended September 30, 2000. As a percentage of net sales, SG&A expenses increased to 19.0% during the current quarter, compared to 12.6% during the same quarter last year. The decrease in spending is attributable to lower staffing levels required as a result of the decrease in demand for product and a decrease in variable costs, such as commissions paid to sales personnel, as a result of the reduction in sales. Management is continuing to review all SG&A expenses, and will continue to reduce costs that are deemed discretionary. 13 FORM 10-Q September 30, 2001 Page 14 Interest expense decreased to $0.8 million for the three months ended September 30, 2001, as compared to $0.9 million for the three months ended September 30, 2000, or approximately 13%. The reduction in interest expense was primarily the result of a decrease in interest rates. Additionally, due to the decrease in sales, there has been a reduction in Accounts Receivable and management has implemented inventory reduction programs. These factors have resulted in a reduction in bank borrowings. Net loss for the three months ended September 30, 2001 was $1.5 million, $0.26 per share diluted, compared to net earnings for the three months ended September 30, 2000 of $4.7 million, or $0.75 per share diluted. The loss for the current quarter is primarily the result of the decrease in sales and reduction in gross profit margin. LIQUIDITY AND CAPITAL RESOURCES Our agreement with our banks, as amended effective September 30, 2001, expires on September 14, 2003. The agreement provides us with a $70 million term loan and revolving line of credit facility based principally on eligible accounts receivable and inventories as defined in the agreement. The interest rate of the credit facility is based on the average 30-day LIBOR rate plus 1.0%-2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. The outstanding balance on the revolving line of credit facility was $51.1 million at September 30, 2001. Borrowings under this facility are collateralized by substantially all of our assets. The agreement contains provisions for maintenance of certain financial ratios, all of which we were in compliance with at September 30, 2001, and prohibits the payment of cash dividends. For the three months ended September 30, 2001, our cash provided by operating activities was approximately $4.5 million, as compared to net cash used in operating activities of $12.2 million for the same period last fiscal year. The increase in net cash provided is primarily attributable to a decrease in accounts receivable and inventory. This was partially offset by a decrease in accounts payable and accrued expenses for the three months ended September 30, 2001. The decrease in accounts receivable and inventory was the result of the decrease in net sales for the three months ended September 30, 2001, as compared to the same period last year. Net cash used in investing activities decreased to $0.4 million for the three months ended September 30, 2001, as compared to $1.2 million for the three months ended September 30, 2000. The decrease is primarily attributable to a reduction in capital expenditures. Net cash used in financing activities was $3.7 million for the three months ended September 30, 2001 as compared to net cash provided by financing activities of $13.8 million for the comparable period last fiscal year. The increase in net cash used is primarily attributable to the decrease in net borrowings under the line of credit of approximately $17.4 million. Our cash expenditures may vary significantly from current levels, based on a number of factors, including, but not limited to future acquisitions, if any. For the three months ended September 30, 2001 and September 30, 2000, our inventory turnover was 2.8x and 5.1x, respectively. The average days outstanding of our accounts receivable at September 30, 2001 were 63 days, as compared to 46 days at September 30, 2000. We believe that cash flow from operations and funds available under our credit facility will be sufficient to fund our capital needs for at least the next twelve months. Inflation Inflation has not had a significant impact on the Company's operations during the last three fiscal years. 14 FORM 10-Q September 30, 2001 Page 15 Quantitative and Qualitative Disclosure about Market Risk. We are exposed to interest rate changes with respect to our credit facility which bears interest at the higher of the prime rate or the federal funds rate plus 0.5%, or at our option, at a rate equal to the average 30-day LIBOR rate plus 1.0% to 2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. At October 31, 2001 $46.3 million was outstanding under the credit facility. Changes in the LIBOR interest rate during the fiscal year will have a positive or negative effect on our interest expense. Each 1.0% fluctuation in the LIBOR interest rate will increase or decrease interest expense for us by approximately $0.5 million based on outstanding borrowings at October 31, 2001. The impact of interest rate fluctuations on other floating rate debt is not material. 15 FORM 10-Q September 30, 2001 Page 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings Nothing to Report Item 2. Changes in Securities and Use of Proceeds Nothing to Report Item 3. Defaults Upon Senior Securities Nothing to Report Item 4. Submission of Matters to a Vote of Security Holders Nothing to Report Item 5. Other Information Nothing to Report Item 6. Exhibits and Reports on Form 8-K a) Exhibits: 99.8.12 Amendment to Second Restated and Amended Loan and Security Agreement dated November 14, 2001 b) Reports on Form 8-K: None 16 S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JACO ELECTRONICS, INC. (Registrant) BY: /s/ Jeffrey D. Gash --------------------------------------- Jeffrey D. Gash, Chief Financial Officer (Principal Financial Officer) DATED: November 14, 2001 EX-99.8.12 3 bankamendment.txt AMENDMENT TO LOAN November 14, 2001 JACO ELECTRONICS, INC. ("Jaco") 145 Oser Avenue Hauppauge, NY 11788 NEXUS CUSTOM ELECTRONICS, INC. ("Nexus") Prospect Street Brandon, VT 05733 INTERFACE ELECTRONICS CORP. ("Interface") 124 Grove Street Franklin, MA 02028 Gentlemen: Reference is made to the Second Restated and Amended Loan and Security Agreement in effect between us as successor by merger to BNY Financial Corporation which was merged into GMAC Commercial Credit LLC ("GMAC"), as Agent and Lender, and Fleet Bank, N.A., f/k/a Natwest Bank, N.A ("Fleet") as Lender, dated September 13, 1995, as supplemented and amended from time to time, (the "Agreement"). Both GMAC and Fleet may hereinafter be referred to jointly as the "Lenders", and individually, as a "Lender". Initially capitalized terms not defined herein shall have the meanings ascribed to such terms in the Agreement. WHEREAS, you have requested that we amend the Agreement as follows below; and WHEREAS, the Lenders are willing to agree to such amendments, subject to the terms and conditions hereof. NOW THEREFORE IT IS HEREBY AGREED AS FOLLOWS: 1. The definition of "Contract Rate" as set forth in paragraph 1 of the Agreement, as amended by an Amendment letter dated August 1, 1997, and by an Amendment letter dated June 6, 2000 is hereby deleted and replaced with the following: " 'Contract Rate' means an interest rate per annum equal to (i) the applicable LIBO Rate, plus one and three quarter percent (1.75%) in the case of LIBO Rate Loans first continued or converted thereto prior to June 30, 2000, (ii) in the case of LIBO Rate Loans first continued or converted thereto, in the quarter ending September 30, 2000 or thereafter, the applicable LIBO Rate plus the margin ("LIBO Margin") stated opposite the ratio range of Funded Debt to net earnings before interest, taxes, depreciation, amortization, extraordinary gains and non cash losses and all other non-cash charges on a consolidated basis ("EBITDA") during the immediately preceding four fiscal quarters as stated in the table immediately below: 1 Funded Debt/EBITDA LIBO Margin greater than 3.5 to 1 2 1/4% 3.0 to 3.5 to 1 2% 2.5 to 3.0 to 1 1 3/4% 2.0 to 2.5 to 1 1 1/2% 1.5 to 2.0 to 1 1 1/4% less than 1.5 to 1 1% The Contract Rate applicable to LIBO Rate Loans shall be adjusted quarterly." 2. The definition of "Inventory Borrowing Base" appearing in Section 1 of the Agreement, shall be amended at the end of the Temporary Increase Period (as defined below) so that the percentage of "60%" appearing in the first line of such definition, shall be replaced with the percentage "55%". 3. Effective as of September 30, 2001, ("the "Amendment Effective Date") hereof, and only for the period commencing on the Amendment Effective Date and ending on June 29, 2002 (the "Temporary Increase Period"), the phrase "$30,000,000" appearing on the eighth line of Section 4(a) of the Agreement shall be deleted in its entirety and replaced with the phrase "$35,000,000". At the end of the Temporary Increase Period, the Debtor shall repay any excess amounts outstanding with respect to the Inventory Borrowing Base, so as to reflect that the loan amounts outstanding with respect to inventory shall not exceed the maximum amount allowed to be outstanding with respect to inventory under the terms of the Agreement at such time, and the amended figure stated above shall at such time revert back to the amount of "$30,000,000". 4.Section 17(e) of the Agreement shall be deleted in its entirety and replaced with the following: 2 "(e) Maintain at all times, from and after the Amended Effective Date, a consolidated net worth (all amounts which would be included under shareholder's equity on a consolidated balance sheet of Debtor, determined in accordance with generally accepted accounting principles), in an amount not less than $47,000,000, which amount shall be increased at the end of each quarter on a cumulative basis by an amount equal to 50% of the consolidated net profit after taxes, if any, for such quarter. For purposes of calculating this covenant, any writedown for impairment of goodwill, will not be taken into account in making the calculation under this covenant." 5.Section 18(e) of the Agreement shall be deleted in its entirety and replaced with the following: "(e) Permit at any time, from and after the Amended Effective Date, the ratio of Indebtedness to Tangible Net Worth to be more than 3.0 to 1.0 for purposes of this Paragraph 18(e), "Indebtedness" shall mean consolidated total liabilities of Debtor and its Subsidiaries determined in accordance with generally accepted accounting principles consistently applied. "Tangible Net Worth" shall mean the excess of consolidated total assets of Debtor and its Subsidiaries over consolidated total liabilities of Debtor and its Subsidiaries, each to be determined in accordance with generally accepted accounting principles consistently applied, excluding however, from the determination of consolidated total assets, all assets which would be classified as intangible assets under generally accepted accounting principles, including without limitation, goodwill, patents, trademarks, trade names, copyrights and franchises." 6. Section 17(d) of the Agreement shall be deleted in its entirety and replaced by the following section 17(d): "17(d) Debtor shall maintain at all times, on a consolidated basis, a ratio of EBIT to total interest charges due during any quarter of no less than 1.5 to 1 calculated on rolling four quarter basis, beginning on September 30, 2002. "EBIT" shall mean earnings before interest, taxes, extraordinary gains, and extraordinary non cash losses." 7. Section 17(f) of the Agreement shall be deleted in its entirety and replaced with the following Section 17(f). "17(f) Maintain at all times a ratio of the sum of (i) cash and cash equivalents, plus (ii) accounts receivable to Current Liabilities of not less than .40 to 1 as of 6/30/00 and at all times thereafter. For purposes of this paragraph "Current Liabilities" shall mean all liabilities treated as current liabilities in accordance with generally accepted accounting principles consistently applied, including without limitation, all obligations payable on demand or within one year after the date on which the determination is made, together with Obligations under this Agreement exclusive of any amounts outstanding under the Term Loans Notes." 3 8. Section 17(h) of the Agreement, as amended by a certain amendment dated June 6, 2000, in effect between you and us (the "Amendment"), shall be deleted in its entirety and replaced by the following Section 17(h): "17(h) Maintain at all times the insurance required by the Agreement and cause each Subsidiary to maintain insurance with responsible insurance companies on such of its properties in such amounts and against such risks as is customarily maintained by similar businesses." 9. Section 18(d) of the Agreement is hereby amended by deleting the following language from the first sentence of such Section 18(d): "(III) liability or indebtedness incurred by Debtor in a public offering of debt securities by the Debtor, (iv) liability or indebtedness incurred by the Debtor in a private offering of debt securities by the Debtor". The said deleted language appeared on the second and third lines on page 18 of the Agreement. 10. Section 18(g) of the Agreement shall be deleted in its entirety and replaced by the following: "The Debtors shall attain at the end of each quarter, on a consolidated basis, EBITDA for such quarter, in amounts of no less than the amounts stated opposite the fiscal quarters stated below: Fiscal Quarter Minimum EBIDTA Amount 1 quarter ended 9/30/01 ($1,000,000) 1 quarter ended 12/31/01 ($500,000) 1 quarter ended 3/31/02 $1,100,000 1 quarter ended 6/30/02 $1,800,000 11. In consideration for the amendments stated herein, Debtor shall pay Agent for the pro rata share of each Lender an amendment fee of $20,000. Jaco, Nexus and Interface hereby authorize the Agent to automatically charge the Debtors' account with the amount of such fee on the date of execution of this Letter Agreement. 4 12. Not withstanding anything contrary to the Agreement, or elsewhere you hereby agree that the Agent on behalf of the Lenders may audit each or all of you at any time it so determines provided however that while no Event of Default has occurred under the Agreement you shall only be liable for expenses in connection of three such audits per year and hereby agree that we may charge your account with a per diem charge per auditor of $750.00 up to a maximum amount for each calendar year of $25,000.00. After the occurrence of an Event of Default under the Agreement the forgoing limitations shall not be applicable. 13. By their signatures below, Jaco, Nexus and Interface hereby ratify the Agreement and agree to be jointly and severally liable for all Obligations under the Agreement and agree that all of the outstanding amounts of the Loans under the Agreement, as of the date hereof, shall be valid and binding Obligations of each of them, and shall be deemed Obligations outstanding under the Agreement, and hereby agree and promise to repay to the Agent, for the benefit of the Lenders, such Obligations (including but not limited to all applicable interest) in accordance with the terms of the Agreement, but in no event, later than the Termination Date (for purposes hereof, "Termination Date" shall mean September 14, 2003, or any extended termination date, or any earlier termination date, whether by acceleration or otherwise). 14. By their signatures below, Jaco, Nexus and Interface hereby ratify and affirm to the Agent that as of the date hereof, they are in full compliance with all covenants under the Agreement and certify that all representations and warranties of the Agreement are true and accurate as of the date hereof, with the same effect as if they had been made as of the date hereof. Except as herein specifically amended, the Agreement shall remain in full force and effect in accordance with its original terms, except as previously amended. If the foregoing accurately reflects our understanding, kindly sign the enclosed copy of this letter and return it to our office as soon as practicable. Very truly yours, GMAC COMMERCIAL CREDIT LLC, (as Agent and Lender) By:/s/Peter D. Brady -------------------- Title:Senior Vice President 5 AGREED AND ACCEPTED: JACO ELECTRONICS, INC. FLEET BANK, N.A. By: /s/Jeffrey D. Gash By: /s/Kevin Brown ------------------- ---------------------- Title: Vice President Title: Senior Vice President NEXUS CUSTOM ELECTRONICS, INC. INTERFACE ELECTRONICS CORP. By: /s/Jeffrey D. Gash By: /s/Jeffrey D. Gash ---------------------- ------------------------- Title: Vice President Title: Vice President RATIFICATION OF GUARANTOR By its signature below, Jaco Overseas, Inc. hereby ratifies its guaranty of the Agreement, as such Agreement has been amended from time to time, including but not limited to a certain amendment dated June 6, 2000, (the "Amendment") and hereby agrees to be liable for all of the Obligations under the Guaranty with respect to the Agreement as amended from time to time, including but not limited to by this amendment and the Amendment, and hereby agrees that the said Guaranty shall continue to apply and remain in full force and effect with respect to the amended Agreement and hereby agrees and consents that a certain General Loan and Security Agreement dated January 20, 1989, shall continue to be in full force and effect and apply to the amended Agreement, and it further hereby agrees to make all payments of all its Obligations under the said Guaranty and General Loan and Security Agreement to GMAC Commercial Credit LLC as Agent and Lender, and to Fleet Bank, N.A. as Lender, as successors in interest to the previous Agent and Lenders respectively. RATIFIED, ACCEPTED AND CONSENTED: JACO OVERSEAS, INC. By: /s/Jeffrey D. Gash ------------------------------ Title: Vice President 6 -----END PRIVACY-ENHANCED MESSAGE-----