10-Q 1 jaco10qmar2002.txt JACO ELECTRONICS, INC 10-Q MARCH 31, 2002 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 {X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period ended March 31, 2002 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to _________________________ Commission File Number 0-5896 JACO ELECTRONICS, INC. ---------------------- (Exact name of registrant as specified in its charter) NEW YORK 11-1978958 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 145 OSER AVENUE, HAUPPAUGE, NEW YORK 11788 ------------------------------------------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (631) 273-5500 Indicated by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ - Number of Shares of Registrant's Common Stock Outstanding as of May 10, 2002 - 5,707,459 (Excluding 618,300 Shares of Treasury Stock). FORM 10-Q March 31, 2002 Page 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, June 30, 2002 2001 -------------- --------- ASSETS Current Assets Cash $ 400,379 $ 89,523 Marketable securities 730,886 771,406 Accounts receivable - net 29,934,982 37,820,946 Inventories 53,222,706 62,212,121 Prepaid expenses and other 1,311,777 824,121 Prepaid and refundable income taxes 1,770,909 486,325 Deferred income taxes 2,129,000 2,190,000 --------- --------- Total current assets 89,500,639 104,394,442 Property, plant and equipment - net 7,233,133 8,389,651 Deferred income taxes 502,000 436,000 Excess of cost over net assets acquired - net 20,263,733 20,095,844 Other assets 3,294,797 2,998,902 --------- --------- $120,794,302 $136,314,839 ============ ============ See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002 Page 3 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, June 30, 2002 2001 -------------- -------------- LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses $ 27,886,523 $ 25,004,058 Current maturities of long term debt and capitalized lease obligations 955,920 1,081,905 ---------- ---------- Total current liabilities 28,842,443 26,085,963 Long term debt and capitalized lease obligations 41,321,335 56,128,243 Deferred compensation 887,500 850,000 SHAREHOLDERS' EQUITY Preferred stock - authorized, 100,000 shares, $10 par value; none issued Common stock - authorized, 20,000,000, $.10 par value; issued 6,325,759 and 6,315,759 shares, respectively, and 5,707,459 and 5,697,459 shares outstanding, respectively 632,576 631,576 Additional paid-in capital 24,639,866 24,615,866 Retained earnings 26,648,506 30,146,599 Accumulated other comprehensive income 26,591 61,107 Treasury stock (2,204,515) (2,204,515) ---------- ----------- Total shareholders' equity 49,743,024 53,250,633 ---------- ---------- $120,794,302 $136,314,839 ============ ============ See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002 Page 4 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, (UNAUDITED) 2002 2001 ----------- ----------- NET SALES $49,297,412 $83,680,954 COST AND EXPENSES Cost of goods sold 42,100,445 68,313,422 ---------- ---------- Gross profit 7,196,967 15,367,532 Selling, general and administrative expenses 7,726,038 11,585,251 --------- ---------- Operating (loss) profit (529,071) 3,782,281 Interest expense 493,479 1,094,788 --------- ---------- (Loss) earnings before income taxes (1,022,550) 2,687,493 Income tax (benefit) provision (348,000) 1,102,000 --------- ---------- NET (LOSS) EARNINGS $(674,550) $1,585,493 ========== ========== Net (loss) earnings per common share: Basic $ (0.12) $ 0.28 ========== ========== Diluted $ (0.12) $ 0.26 ========== ========== Weighted average common shares outstanding: Basic 5,707,459 5,692,537 ========= ========== Diluted 5,707,459 6,165,278 ========= ========== See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002 Page 5 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, (UNAUDITED) 2002 2001 ----------- ----------- NET SALES $141,133,247 $278,075,434 COST AND EXPENSES Cost of goods sold 119,319,217 222,013,053 ----------- ----------- Gross profit 21,814,030 56,062,381 Selling, general and administrative expenses 25,311,713 35,471,510 ---------- ---------- Operating (loss) profit (3,497,683) 20,590,871 Interest expense 1,802,410 3,152,849 --------- ---------- (Loss) earnings before income taxes (5,300,093) 17,438,022 Income tax (benefit) provision (1,802,000) 7,150,000 ----------- ---------- NET (LOSS) EARNINGS $(3,498,093) $10,288,022 ============ =========== Net (loss) earnings per common share: Basic $ (0.61) $ 1.82 ========== ========== Diluted $ (0.61) $ 1.66 ========== ========== Weighted average common shares outstanding: Basic 5,705,269 5,660,295 ========= ========== Diluted 5,705,269 6,209,932 ========= ========== See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002 Page 6 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) Additional paid-in Retained Shares Amount capital earnings ------------ ----------- -------------- ---------------- Balance at July 1, 2001 6,315,759 $ 631,576 $ 24,615,866 $ 30,146,599 Net loss (3,498,093) Unrealized loss on marketable securities, net of deferred taxes Exercise of stock options 10,000 1,000 24,000 ------------ ----------- -------------- ---------------- Balance at March 31, 2002 6,325,759 $ 632,576 $ 24,639,866 $ 26,648,506 ============ =========== ============== ================
Accumulated other Total comprehensive Treasury shareholders' income stock equity ------------- ------------- -------------- Balance at July 1, 2001 $ 61,107 $ (2,204,515) $ 53,250,633 Net loss (3,498,093) Unrealized loss on marketable securities, net of deferred taxes (34,516) (34,516) Exercise of stock options 25,000 -------------- ------------ -------------- Balance at March 31, 2002 $ 26,591 $ (2,204,515) $ 49,743,024 ============== ============ ============== See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002 Page 7 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, (UNAUDITED) 2002 2001 -------------- -------------- Cash flows from operating activities Net (loss) earnings $ (3,498,093) $ 10,288,022 Adjustments to reconcile net (loss) earnings to net cash provided by (used in) operating activities Depreciation and amortization 1,765,267 2,320,995 Deferred compensation 37,500 138,750 Deferred income tax expense (benefit) 14,032 (792,000) Gain on sale of equipment (7,048) Provision for doubtful accounts 216,400 1,064,401 Changes in operating assets and liabilities, Decrease (increase) in operating assets - net 14,766,854 (42,178,132) Increase in operating liabilities - net 3,107,465 10,387,116 -------------- -------------- Net cash provided by (used in) operating activities 16,402,377 (18,770,848) -------------- -------------- Cash flows from investing activities Capital expenditures (169,646) (1,830,704) Proceeds from sale of equipment 37,673 Increase in marketable securities (13,028) (54,737) Business acquisitions - deferred payments (243,297) (3,792,807) Increase in other assets (398,645) (204,848) -------------- -------------- Net cash used in investing activities (786,943) (5,883,096) -------------- -------------- Cash flows from financing activities Borrowings under line of credit 116,403,926 254,637,255 Payments under line of credit (130,919,186) (230,291,235) Principal payments under equipment financing and term loans (814,318) (672,897) Payment of fractional shares (559) Proceeds from exercise of stock options 25,000 436,625 -------------- -------------- Net cash (used in) provided by financing activities (15,304,578) 24,109,189 -------------- -------------- NET INCREASE (DECREASE) IN CASH 310,856 (544,755) -------------- -------------- Cash at beginning of period 89,523 617,603 -------------- -------------- Cash at end of period $ 400,379 $ 72,848 ============== ============== Supplemental schedule of non-cash financing and investing activities: Equipment acquired under capital lease obligations $ 396,685 $ 1,535,169 Accrued acquisition costs $ 217,193 See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2002 Page 8 JACO ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION 1) The accompanying condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring accrual adjustments, which are in the opinion of management, necessary for a fair presentation of the consolidated financial position and the results of operations at and for the periods presented. Such financial statements do not include all the information or footnotes necessary for a complete presentation. Therefore, they should be read in conjunction with the Company's audited consolidated statements for the year ended June 30, 2001 and the notes thereto included in the Company's annual report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. 2) The Company has a $70,000,000 revolving line of credit facility with its banks, which is based principally on eligible accounts receivables and inventories as defined in the loan agreement. The agreement was amended to (i) extend the maturity date to September 14, 2003, and (ii) change the requirements of certain financial covenants. The interest rate is based on the average 30-day LIBOR plus 1% to 2-1/4% depending on the Company's performance for the immediately preceding four fiscal quarters measured by a certain financial ratio. The applicable interest rate may be adjusted quarterly and borrowings under this facility are collateralized by substantially all of the assets of the Company. 3) For interim financial reporting purposes, the Company uses the gross profit method for computing inventories, which consists of goods held for resale. 4) On September 18, 2001, the Company announced that its Board of Directors authorized the repurchase of up to 250,000 shares of its outstanding common stock. Purchases may be made from time to time in market or private transactions at prevailing market prices. 5) On July 20, 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business Combinations," and Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No. 141 is effective for all business combinations completed after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. However, certain provisions of this statement apply to goodwill and other intangible assets acquired between July 1, 2001 and the effective date of SFAS No. 142. The new standards require that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to at least an annual assessment for impairment by applying a fair value-based test. The Company has adopted, as of July 1, 2001, the provisions of SFAS Nos. 141 and 142. Accordingly, the results for the three and nine months ended March 31, 2002 excludes approximately $280,000 and $847,000, respectively, of such amortization, as compared to approximately $273,000 and $717,000, which were included in the comparable periods last year. The Company performed a transitional fair value based impairment test and determined that no impairment of goodwill or intangible existed as of December 31, 2001. FORM 10-Q March 31, 2002 Page 9 The following table presents a reconciliation of net (loss) earnings and net (loss) earnings per common share amounts, as reported in the Company's statement of operations, to those amounts adjusted for goodwill and intangible asset amortization determined in accordance with the provisions of SFAS No. 142. Three Months Ended Nine Months Ended March 31, March 31, ------------------- ------------------ 2002 2001 2002 2001 ---- ---- ---- ---- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Dollars in thousands except Dollars in thousands except per share data per share data -------------- ---------------- Reported net (loss) earnings $ (675) $ 1,585 $ (3,498) $ 10,288 Add back: goodwill amortization 264 690 Add back: franchise agreement amortization 9 27 ------------- ---------- ------------ ------------ Adjusted net (loss) earnings $ (675) $ 1,858 $ (3,498) $ 11,005 ============= ========== ============ ============ BASIC (LOSS) EARNINGS PER SHARE: Reported net (loss) earnings $ (0.12) $ 0.28 $ (0.61) $ 1.82 Goodwill amortization 0.05 0.12 Franchise agreement amortization 0.00 0.00 ------------- ---------- ------------ ------------ Adjusted net (loss) earnings $ (0.12) $ 0.33 $ (0.61) $ 1.94 ============= ========== ============ ============ DILUTED (LOSS) EARNINGS PER SHARE: Reported net (loss) earnings $ (0.12) $ 0.26 $ (0.61) $ 1.66 Goodwill amortization 0.04 0.11 Franchise agreement amortization 0.00 0.00 ------------- ---------- ------------ ------------ Adjusted net (loss) earnings $ (0.12) $ 0.30 $ (0.61) $ 1.77 ============= ========== ============ ============
6) In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard ("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement is effective for fiscal years beginning after December 15, 2001. This supercedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," while retaining many of the requirements of such statement. The adoption of SFAS 144 is not expected to have a material impact or effect on the Company's financial position or it's results of operations. 7) On June 6, 2000, the Company acquired all of the issued and outstanding shares of common stock, no par value, of Interface Electronics Corp. ("Interface"), a distributor of electronic parts, components and equipment, located in Massachusetts. The purchase price was $15,400,000 payable in cash at the closing, plus a deferred payment of $3,953,297. On the second anniversary of the closing date a deferred payment of up to $2,640,000 shall be paid if certain conditions, as defined in the purchase agreement, are met. When the remaining contingency is resolved, the Company shall record the current fair value of the consideration paid as additional goodwill. FORM 10-Q March 31, 2002 Page 10 The acquisition has been accounted for as a purchase and the operations of Interface have been included in the Company's Statement of Operations since the date of acquisition. Included in other assets are the costs of the identifiable intangible assets acquired, principally an employment agreement which is being amortized on a straight-line basis over five years, and a franchise agreement which was being amortized on a straight-line basis over fifteen years until the Company's adoption of SFAS No. 142. The excess of the purchase price and related expenses over the net tangible and identifiable intangible assets acquired amounted to approximately $17,604,000 at March 31, 2002 and was being amortized on a straight-line basis over twenty years until the Company's adoption of SFAS No. 142. 8) On February 25, 2000, the Company purchased the operating assets of PGI Industries, Inc., ("PGI") an exporter of electronic components, located in Ronkonkoma, New York. The purchase price was $1,200,000 paid in cash, plus a deferred payment of $100,000 which has been paid. The acquisition has been accounted for as a purchase and the operations of PGI have been included in the Company's Statement of Operations since the date of acquisition. The excess of the purchase price over the fair value of the assets acquired, approximately $310,000 at March 31, 2002, was being amortized on a straight-line basis over twenty years until the Company's adoption of SFAS No. 142. 9) Total comprehensive income (loss) and its components for the three and nine months ended March 31, 2002 and 2001 are as follows: Three Months Ended Nine Months Ended March 31, March 31, --------------------------- --------------------------- 2002 2001 2002 2001 ----------- ------------ ------------ ----------- Net (loss) income $(674,550) $1,585,493 $(3,498,093) $10,288,022 Unrealized gain (loss) on marketable securities 5,469 (96,588) (53,548) (209,423) Deferred tax (expense) benefit (2,000) 35,000 19,032 76,000 ----------- ------------ ------------ ----------- Comprehensive (loss) income $(671,081) $1,523,905 $(3,532,609) $10,154,599 =========== ============ ============ =========== Accumulated other comprehensive income is comprised of unrealized gains and losses on marketable securities, net of the related tax effect.
FORM 10-Q March 31, 2002 Page 11 10) The number of shares used in the Company's basic and diluted earnings per share computations are as follows: Three Months Ended Nine Months Ended March 31, March 31, --------------------------- --------------------------- 2002 2001 2002 2001 ----------- ------------ ------------ ----------- Weighted average common shares outstanding net of treasury shares, for basic earnings per share 5,707,459 5,692,537 5,705,269 5,660,295 Common stock equivalents for stock options 472,741 549,637 ----------- ------------ ------------ ----------- Weighted average common shares outstanding for diluted earnings per 5,707,459 6,165,278 5,705,269 6,209,932 share =========== ============ ============ ===========
Excluded from the calculation of earnings per share are options to purchase 944,521 and 947,454 shares of the Company's common stock for the three and nine months ended March 31, 2002, respectively, as compared to 45,000 shares for the three and nine months ended March 31, 2001, as their inclusion would have been antidilutive. Common stock equivalents for stock options are calculated using the treasury stock method. 11) The Company has two reportable segments: electronics parts distribution and contract manufacturing. The Company's primary business activity is conducted with small and medium size manufacturers, located in North America, that produce electronic equipment used in a variety of industries. Information pertaining to the Company's operations in different geographic areas for the three and nine months ended March 31, 2002 and 2001 is not considered material to the financial statements. The Company's chief operating decision maker utilizes net sales and net earnings information in assessing performance and making overall operating decisions and resource allocations. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies included in the Company's annual report to shareholders. Information about the Company's segments is as follows: FORM 10-Q March 31, 2002 Page 12 Three Months Ended Nine Months Ended March 31, March 31, --------- --------- 2002 2001 2002 2001 -------- -------- -------- ------- (in thousands) (in thousands) Net sales from external customers Electronics components distribution $46,411 $76,060 $127,012 $257,483 Contract manufacturing 2,886 7,621 14,121 20,592 ------- ------- -------- -------- $49,297 $83,681 $141,133 $278,075 ====== ====== ======= ======= Intersegment net sales Electronics components distribution $ 27 $ 402 $ 196 $ 784 Contract manufacturing 9 9 -------- --------- ------- ------- $ 36 $ 402 $ 205 $ 784 ======== ========= ======= ======= Operating (loss) profit Electronics components distribution $ (184) $ 3,415 $ (3,209) $ 19,386 Contract manufacturing (345) 367 (289) 1,205 --------- ------- --------- --------- $ (529) $ 3,782 $ (3,498) $ 20,591 ===== ===== ======== ======= Interest expense Electronics components distribution $ 374 $ 925 $ 1,381 $ 2,692 Contract manufacturing 119 170 421 461 -------- -------- ------- ------- $ 493 $ 1,095 $ 1,802 $ 3,153 ====== ======== ========= ========= Income tax (benefit) provision Electronics components distribution $ (190) $ 1,021 $ (1,560) $ 6,845 Contract manufacturing (158) 81 (242) 305 ----------- -------- ----------- --------- $ (348) $ 1,102 $ (1,802) $ 7,150 ========= ========= =========== ========= Identifiable assets Electronics components distribution $107,534 $153,252 $107,534 $153,252 Contract manufacturing 13,260 19,590 13,260 19,590 -------- -------- -------- -------- $120,794 $172,842 $120,794 $172,842 ======= ======= ======= ======= Capital expenditures Electronics components distribution $ 11 $ 543 $ 139 $ 1,072 Contract manufacturing 31 759 ---- ------- ------- -------- $ 11 $ 543 $ 170 $ 1,831 ====== ======= ======= ========= Depreciation and amortization Electronics components distribution $ 347 $ 579 $ 1,089 $ 1,655 Contract manufacturing 228 256 676 666 -------- -------- ------- ------- $ 575 $ 835 $ 1,765 $ 2,321 ======= ======= ========= =========
FORM 10-Q March 31, 2002 Page 13 JACO ELECTRONICS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for the historical information, this filing includes forward-looking statements that involve risks and uncertainties, including, but not limited to, general industry and economic conditions, the impact of competitive products, product demand and market acceptance risks, fluctuations in operating results, delays in development of highly-complex products, the ability of the Company to continue to expand its operations, the level of costs incurred in connection with the Company's expansion efforts and the financial strength of the Company's customers and suppliers and other risks detailed from time to time in the Company's Securities and Exchange Commission filings. The forward-looking statements in this filing involve risks and uncertainties which could cause actual results, performance or trends, including margins, SG&A expenses as a percentage of revenues and earnings per diluted share, to differ materially from those expressed in the forward-looking statements. The Company believes that all forward-looking statements made by it have a reasonable basis, but there can be no assurance that management's expectations, beliefs or projections as expressed in the forward-looking statements will actually occur or prove to be correct. Actual results may differ materially from such information set forth herein. GENERAL Jaco is a distributor of electronic components, provider of contract manufacturing and value-added services. Products distributed by Jaco include semiconductors, capacitors, resistors, electromechanical devices, flat panel displays and monitors, and power supplies used in the assembly and manufacturing of electronic equipment. The Company's customers are primarily small and medium sized manufacturers. The trend for these customers has been to shift certain manufacturing functions to third parties (outsourcing). The Company intends to seek to capitalize on this trend toward outsourcing by increasing sales of products enhanced by value-added services. Value-added services currently provided by Jaco consist of automated inventory management services, kitting (e.g. supplying sets of specified quantities of products to a customer that are prepackaged for ease of feeding the customer's production lines), and contract manufacturing through Nexus Custom Electronics, Inc., a wholly owned subsidiary of the Company. The Company is also expanding in the flat panel display value-added market, which includes full system integration, kitting and the implementation of touch technologies. FORM 10-Q March 31, 2002 Page 14 Results of Operations The following table sets forth certain items in the Company's statements of operations as a percentage of net sales for the periods shown: Three Months Ended Nine Months Ended March 31, March 31, ------------------------ ----------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 85.4 81.7 84.6 79.8 -------- -------- -------- -------- Gross profit 14.6 18.3 15.4 20.2 Selling, general and administrative expenses 15.7 13.8 17.9 12.8 -------- -------- -------- -------- Operating (loss) profit (1.1) 4.5 (2.5) 7.4 Interest expense 1.0 1.3 1.3 1.1 -------- -------- -------- -------- (Loss) earnings before income taxes (2.1) 3.2 (3.8) 6.3 Income tax (benefit) provision (0.7) 1.3 (1.3) 2.6 -------- -------- -------- -------- NET (LOSS) EARNINGS (1.4)% 1.9% (2.5)% 3.7% ========== ========== ========== ==========
COMPARISON OF THE THREE AND NINE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001 -------------------------------------------------------------------------------- Net sales for the three and nine months ended March 31, 2002 were $49.3 million and $141.1 million, respectively, compared to $83.7 million and $278.1 million for the three and nine months ended March 31, 2001, respectively, representing decreases of 41.1% and 49.2%. The electronics industry continues to be impacted by weak demand for components. However, we did realize a 16% sequential increase in quarterly net sales as we believe some of the excess inventory at our customers has been utilized. During the current quarter, our flat panel display (FPD) sales represented approximately 16% of our total distribution sales, and continues to be an area of our business that has not been as significantly effected by the technology slump as other areas of our business. For the current quarter, passive components represented approximately 38% of our distribution sales and active components including FPD represented approximately 62%. FORM 10-Q March 31, 2002 Page 15 Gross profit was $7.2 million, or 14.6% and $21.8 million, or 15.4% for the three and nine months ended March 31, 2002, respectively, compared to $15.4 million, or 18.3% and $56.1 million, or 20.2% for the three and nine months ended March 31, 2001. We continue to see downward pressure on our gross profit margins as a result of weak demand for components. Additionally, we have experienced an increase in the sale of certain semiconductors that have historically sold at lower margins than other components. We do not anticipate any increase in our gross profit margins for the foreseeable future. Selling, general and administrative expenses ("SG&A") were $7.7 million and $25.3 million for the three and nine months ended March 31, 2002, respectively, compared to $11.6 million and $35.5 million for the three and nine months ended March 31, 2001, respectively. This represents a decrease of $3.9 million, or 33.3%, and $10.2 million, or 28.6%, for the three and nine months respectively. During the quarter, we have continued to reduce costs that management deems non-essential to our anticipated future growth. The full effect of the most recent cost reductions will be realized during the fourth quarter, which should slightly reduce our SG&A. Interest expense decreased to $0.5 million and $1.8 million for the three and nine months ended March 31, 2002, respectively, compared to $1.1 million and $3.2 million for the three and nine months ended March 31, 2001, respectively, representing decreases of 54.9% and 42.8%. This decrease is attributable to a reduction in bank borrowings and favorable borrowing rates that have existed for the last year. We do not anticipate our borrowings to increase during the next quarter. Net loss for the three and nine months ended March 31, 2002 was $0.7 million, or $0.12 per share diluted, and $3.5 million, or $0.61 per share diluted, respectively, compared to net earnings of $1.6 million, or $0.26 per share diluted and $10.3 million, or $1.66 per share diluted for the three and nine months ended March 31, 2001, respectively. The net loss was primarily attributable to the weak condition of the electronics industry resulting in a significant reduction in sales. The reduction in SG&A has enabled us to reduce the net loss during the quarter compared to the December 2001 quarter. LIQUIDITY AND CAPITAL RESOURCES Our agreement with our banks, as amended, expires on September 14, 2003. The agreement provides us with a $70 million revolving line of credit facility based principally on eligible accounts receivable and inventories as defined in the agreement. The current interest rate of the credit facility is based on the average 30-day LIBOR rate plus 1.0%-2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. The outstanding balance on the revolving line of credit facility was $40.0 million at March 31, 2002. Borrowings under this facility are collateralized by substantially all of our assets. The agreement, as amended on February 6, 2002, contains provisions for maintenance of certain financial ratios, all of which we were in compliance with as of March 31, 2002, and prohibits the payment of cash dividends. For the nine months ended March 31, 2002, our cash provided by operating activities was approximately $16.4 million, as compared to net cash used in operating activities of $18.8 million for the same period last fiscal year. The increase in net cash provided is primarily attributable to a decrease in accounts receivable and inventory. The decrease in accounts receivable and inventory was the result of the decrease in net sales for the nine months ended March 31, 2002, as compared to the same period last year. Net cash used in investing activities decreased to $0.8 million for the nine months ended March 31, 2002, as compared to $5.9 million for the nine months ended March 31, 2001. The decrease is primarily attributable to deferred payments related to the acquisition of Interface Electronics Corp. of $0.2 million for the nine months ended March 31, 2002, as compared to $3.8 million for the nine months ended March 31, 2001. Net cash used in financing activities was $15.3 million for the nine months ended March 31, 2002 as compared to net cash provided by financing activities of $24.1 million for the comparable period last fiscal year. The increase in net cash used is primarily attributable to the decrease in the outstanding balance on the revolving line of credit facility from $54.6 million as of June 30, 2001 to $40.0 million as of March 31, 2002, which was a result of the decreases in accounts receivable and inventory. FORM 10-Q March 31, 2002 Page 16 For the nine months ended March 31, 2002 and March 31, 2001, our inventory turnover was 2.9x and 4.4x, respectively. The average days outstanding of our accounts receivable at March 31, 2002 were 61 days, as compared to 48 days at March 31, 2001. We believe that cash flow from operations and funds available under our existing credit facility will be sufficient to fund our capital needs for the foreseeable future. However, our cash expenditures may vary significantly from current levels, based on a number of factors, including, but not limited to future acquisitions, if any. Historically, we have been able to obtain amendments to our existing credit facility to satisfy financial covenants. While there can be no assurances that such financing or future amendment if needed, will be available, management believes we will be able to continue to obtain financing on acceptable terms. Inflation Inflation has not had a significant impact on our operations during the last three fiscal years. Quantitative and Qualitative Disclosure about Market Risk. We are exposed to interest rate changes with respect to our credit facility which bears interest at the higher of the prime rate or the federal funds rate plus 0.5%, or at our option, at a rate equal to the average 30-day LIBOR rate plus 1.0% to 2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. At April 30, 2002, $36.8 million was outstanding under the credit facility. Changes in the LIBOR interest rate during the fiscal year will have a positive or negative effect on our interest expense. Each 1.0% fluctuation in the LIBOR interest rate will increase or decrease interest expense for us by approximately $0.4 million based on outstanding borrowings at April 30, 2002. The impact of interest rate fluctuations on other floating rate debt is not material. FORM 10-Q March 31, 2002 Page 17 PART II - OTHER INFORMATION Item 1. Legal Proceedings Nothing to Report Item 2. Changes in Securities and Use of Proceeds Nothing to Report Item 3. Defaults Upon Senior Securities Nothing to Report Item 4. Submission of Matters to a Vote of Security Holders Nothing to Report Item 5. Other Information Nothing to Report Item 6. Exhibits and Reports on Form 8-K a) Exhibits: None b) Reports on Form 8-K: None S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JACO ELECTRONICS, INC. (Registrant) BY: /s/ Jeffrey D. Gash ------------------------------ Jeffrey D. Gash, Chief Financial Officer (Principal Financial Officer) DATED: May 14, 2002