-----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, TA6+YcYdQ3SSADJ+LSEPXu4ncrcfCUNxCwTcgRm04dilHjgfoZyjuttwopVcq9j1 P1DctM6lt0umeluAyxFcfg== 0000052971-99-000014.txt : 19991227 0000052971-99-000014.hdr.sgml : 19991227 ACCESSION NUMBER: 0000052971-99-000014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 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-K SEC ACT: SEC FILE NUMBER: 000-05896 FILM NUMBER: 99718906 BUSINESS ADDRESS: STREET 1: 145 OSER AVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 5162735500 MAIL ADDRESS: STREET 1: 145 OSER AVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 10-K 1 FORM 10-K JACO ELECTRONICS, INC. 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, 1999 [ ] 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 or organization) (I.R.S. Employer 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: ______ 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. [X] The aggregate market value of Common Stock held by non-affiliates of the Company, computed by reference to the closing price on September 24, 1999 was $10,206,301 Number of shares outstanding of each class of Common Stock, as of September 24, 1999: 3,653,521 shares (excluding 412,200 shares of treasury stock). DOCUMENTS INCORPORATED BY REFERENCE: PartIII: Definitive Proxy Statement to be filed on or before October 28, 1999, under Regulation 14A, in connection with the Company's 1999 Annual Meeting of Shareholders. 1 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 is a distributor of electronic components and a provider of contract manufacturing and value-added services 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, flat panel displays and monitors and power supplies, which are used in the manufacture and assembly of electronic products. The Company also provides a variety of value-added services including automated inventory management services, integrating and assembling various custom components with flat panel displays (FPD's) to customer specifications (box-build), kitting the component requirements of customers, and furnishing contract manufacturing services. Value-added services are intended to attract new customers and increase sales to existing customers. In addition, these services are designed to respond to an industry trend of outsourcing, in which purchasing and warehousing functions are shifted 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 that by expanding the range of value-added services it will enhance its value to customers. 2 The Company's core customer base consists primarily of small and medium-sized manufacturers ("OEMs") that produce electronic equipment used in a wide variety of industries, including manufacturers of telecommunication, computer networking, computer peripheral, medical instrumentation and aerospace equipment. In the fiscal year ended June 30, 1999, the Company distributed electronic components to thousands of customers, none of which individually represented more than 5% 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. During the fiscal year ended June 30, 1999, Jaco added several strategic suppliers to its line card, including Fairchild's power semiconductor product line that Fairchild acquired from Samsung during the first half of the fiscal year ended June 30, 1999, and Xecom, a manufacturer of miniaturized modems. The Company's computer system provides detailed on-line information regarding the availability of the Company's entire 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 communication with customers from computer to computer or through electronic data interchange ("EDI"), and through technically competent product managers and Field Application Engineers (FAE's). Jaco's FAE's located across the United States, provide design support and technical assistance to Jaco's customers with detailed data solutions employing the latest technologies. In many cases Jaco's FAE's are factory-trained. 3 Industry Overview The electronics distribution industry has become an increasingly important sales channel for component manufacturers. Distributors market manufacturers' products to a broader range of OEMs than such manufacturers could economically serve with their direct sales forces. Today, distributors have become an integral part of their customers purchasing and inventory process. Distributors offer customers the ability to outsource their purchasing and warehousing responsibilities. EDI permits distributors to receive timely scheduling of component requirements from customers enabling them to provide these value-added services. Distributors also work with their suppliers to ensure that manufacturers' components are integrated into the design of new products. 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. 4 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, and resistors. Passive products accounted for approximately 51%, 52% and 47% of the Company's net distribution sales in the fiscal years ended June 30, 1997, June 30, 1998 and June 30, 1999, 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, flat panels and flat panel monitors, touchscreens and controllers. These products represented approximately 49%, 48% and 53% of the Company's net distribution sales in the fiscal years ended June 30, 1997, June 30, 1998 and June 30, 1999, 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: o Automated Inventory Management Services. Comprehensive, state-of-the-art solutions that effortlessly manage the customers inventory reordering, stocking and administration. These services reduce paperwork, inventory, cycle time, and the overall cost of doing business. It is a fully integrated solution to a customers inventory management. o 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. o 5 o Contract Manufacturing. The Company also furnishes turnkey contract manufacturing printed circuit boards ("PCBs") for OEMs using both conventional pin-through-hole and, on an increasing basis, 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. o Flat Panel Display. The Company provides turnkey integration utilizing flat panel displays. FPDs and other devices such as touchscreen and cables are integrated to customer's specifications providing an assembled product "Box Build". 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%, 4% and 5% respectively, of net sales in the fiscal years ended June 30, 1997, June 30, 1998 and June 30, 1999 respectively. The Company's sales personnel are trained to identify the Company's 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. 6 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, Arizona and Illinois. 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, 1999, 93% of the Company's sales were produced by Company sales personnel and 7% by independent sales representatives. No one sales representative produced more than 2% of the Company's sales. The Company believes that the termination of any independent sales representative would not have a material adverse effect upon its business. Backlog As the trend toward outsourcing increases, customers have been entering into just-in-time contracts with distributors, instead of placing orders. Orders constituting the Company's backlog are subject to delivery rescheduling, price negotiations and cancellations by the customer, sometimes without penalty or notice. Therefore, backlog is not necessarily indicative of future sales for any particular period. 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. 7 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. Jaco has completed the redesign and development of an entirely new Distribution Software System. All of the dates in this new database are eight (8) characters, including the century. The system has been tested and has been in place since September 1, 1998. The system includes financial systems, Electronic Data Interchange (EDI), customer order entry, purchase order entry to manufacturers, warehousing and inventory control. 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 such 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 3.3 times for the fiscal year ended June 30, 1999. Approximately 71% 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. 8 Contract Manufacturing. The Company conducts its contract manufacturing operations through Nexus at an approximately 32,600 square foot facility located in Brandon, Vermont. Nexus 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, 1999, the Company invested approximately $1.2 million 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 by the 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 established 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 electronic components based in Schaumburg, Illinois. Management believes that the acquisition of QPS has contributed to the expansion of the Company's national, dedicated distribution network by firmly establishing the Company's presence in the Midwest marketplace. 9 Acquisition of Corona Electronics, Inc. On January 21, 1997, the Company acquired all of the outstanding shares of capital stock of Corona Electronics, Inc. ("Corona"), an electronics component distributor located in Orange County, California. Management believes that the acquisition of Corona will strengthen the Company's presence in the Southern California marketplace. Suppliers Manufacturers of 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 California Micro Devices Corporation, International Resistive Company, Inc., Johanson Dielectric 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, 1999, of the Company's top ten suppliers only Kemet and Samsung accounted for more than 10% of net sales and the remaining eight each accounted for between 8.7% and 1.1% 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 may affect its results of operations in post-termination periods. 10 The Company generally purchases products from manufacturers pursuant to non-exclusive distributor agreements. Selection as an authorized distributor is a valuable marketing tool for the 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 assurances 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. 11 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 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, 1999, the Company had a total of 393 employees, of which 114 were employed by Nexus. Of total employees, 10 were engaged in administration, 50 were managerial and supervisory employees, 149 were in sales and 184 performed warehouse, manufacturing and clerical functions. Of these employees, Nexus employed two in administration, 14 in management and supervisory positions, one in sales and 97 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. Item 2. Properties 12 All of the Company's facilities are leased except for the Brandon, Vermont property which is owned by Nexus. Jaco currently leases 16 facilities located in the States of Arizona, California, 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 500 square feet to approximately 4,000 square feet. Base rents for such properties range from approximately $400 per month to approximately $9,000 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 one year to as long as five 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 $46,000 net of all expenses, including taxes, utilities, insurance, maintenance and repairs, and has a term which expires on December 31, 2003. In Fiscal 1996, 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 through April 30, 2003, from an unaffiliated party, approximately 10,000 square feet of office and warehouse space in Westlake Village, California for a base rent of approximately $10,550 per month. Jaco maintains both a purchasing and sales office at this location, as well as warehouse facilities. 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. 13 Item 3. Legal Proceedings. 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. Item 4. Submission of Matters To A Vote of Security Holders. No response to this Item is required. 14 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 1998. Fiscal Year 1998: High Low First quarter ended September 30, 1997 $8.12 $7.25 Second quarter ended December 31, 1997 $7.31 $6.00 Third quarter ended March 31, 1998 $7.50 $6.12 Fourth quarter ended June 30, 1998 $7.00 $5.62 Fiscal Year 1999: High Low First quarter ended September 30, 1998 $6.38 $2.50 Second quarter ended December 31, 1998 $6.88 $3.31 Third quarter ended March 31, 1999 $5.09 $2.50 Fourth quarter ended June 30, 1999 $4.31 $2.50
(b) As of September 23, 1999 there were approximately 120 holders of record of the Company's Common Stock who management believes held for more than 1,300 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 the Company's credit facility (the "Credit Facility") contains provisions that prohibit the Company from paying cash dividends on its Common Stock. 15
Item 6. Selected Consolidated Financial Data. Year ended June 30, 1995 1996 1997 1998 1999 -------- -------- -------- -------- ----- (in thousands, except per share data) Statement of operations data Net sales $138,683 $167,149 $155,098 $153,674 $140,711 Cost of goods sold 109,902 133,105 122,993 121,796 113,335 ------- ------- ------- --------- ------- Gross profit 28,781 34,044 32,105 31,878 27,376 Selling, general and administrative expenses 23,552 26,247 27,640 28,707 27,642 -------- -------- -------- ----------- -------- Operating profit (loss) 5,229 7,797 4,465 3,171 (266) Interest expense 2,010 1,347 971 1,140 1,309 --------- --------- ---------- ------------ -------- Earnings (loss)before income taxes 3,219 6,450 3,494 2,031 (1,575) Income tax expense (benefit) 1,303 2,600 1,415 847 (418) --------- --------- --------- ------------- --------- NET EARNINGS $ 1,916 $ 3,850 $ 2,079 $ 1,184 $ (1,157) ========= ========= ========= ============ ========= Earnings per common share* Net earnings per common share $.78 $1.11 $.53 $.31 $(.31) === ==== === === ==== Earnings per common share - assuming dilution Net earnings per common share $.78 $1.08 $.53 $.30 $(.31) === ==== === === ====== Weighted average common and Common equivalent shares Outstanding Basic 2,440,841 3,479,707 3,899,181 3,836,700 3,698,270 ========= ========= ========= ========= ========= Diluted 2,461,091 3,554,018 3,947,687 3,921,518 3,698,270 ========= ========= ========= ========= ========== Balance sheet data Working capital $ 30,741 $ 36,964 $ 41,146 $ 42,481 $41,998 Total assets 56,323 61,143 69,996 73,419 72,931 Long-term obligations 23,666 8,791 15,553 17,037 18,886 Shareholders' equity 13,227 34,304 35,892 36,625 34,868
* 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. In addition, all earnings per common share amounts for all periods have been restated to conform to the SFAS No. 128 computation. 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results 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's 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, 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. 17 Results of Operations The following table sets forth certain items in the Company's statement of operations as a percentage of net sales for the periods shown:
1999 1998 1997 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of goods sold 80.5 79.3 79.3 ----- ----- ----- Gross profit 19.5 20.7 20.7 Selling, general and administrative expenses 19.7 18.7 17.8 ----- ----- ----- Operating profit (loss) (0.2) 2.0 2.9 Interest expense 0.9 0.7 0.6 ----- ----- ----- Earnings (loss) before income taxes (1.1) 1.3 2.3 Income tax expense (benefit) (0.3) 0.5 1.0 ----- ----- ----- NET EARNINGS (LOSS) (0.8%) 0.8% 1.3% ===== ===== =====
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1999 ("FISCAL 1999") WITH FISCAL YEAR ENDED JUNE 30, 1998 ("FISCAL 1998") Net sales for the fiscal year ended June 30, 1999 were $140,711,000, a decrease of $12,963,000, or 8.4%, as compared to $153,674,000 reported for Fiscal 1998. The Company's net sales were impacted throughout the fiscal year by continued industry wide pricing pressures, compounded by weak demand for components which has impacted the electronics industry for over three years. Toward the end of Fiscal 1999, the Company experienced an increase in activity in many product sectors. As the new fiscal year begins, demand for product continues to be strong. The Company believes it is positioned well for growth, having continued expanding its Flat Panel Display Group, strengthening its Field Application Engineering (FAE) Program, and by adding sales and marketing personnel. 18 Gross profit margins as a percentage of net sales were 19.5% in Fiscal 1999 compared to 20.7% in Fiscal 1998. The decrease was attributable to industry wide pressures and a shift in product mix toward a greater amount of active components, including flat panel devices, which historically, have a lower gross profit margin compared to passive components. Selling, General and Administrative expenses ("SG&A") were $27.6 million in Fiscal 1999, a decrease of $1.1 million, or 3.7%, compared to $28.7 million in Fiscal 1998. Due to the weakness in the electronics industry during Fiscal 1999, the Company had implemented cost containment measures. Additionally, SG&A decreased as a result of the decrease in gross profit dollars compared to Fiscal 1998. Variable costs such as commissions paid to sales personnel decreased. The decreases were partially offset by a bad debt of approximately $630,000 during the fourth quarter of fiscal 1999 and additional staffing of sales and marketing personnel toward the end of Fiscal 1999 in anticipation of an improvement in demand for electronic components. Interest expense increased to approximately $1.3 million in Fiscal 1999, as compared to $1.1 million in Fiscal 1998. The 14.8% increase in interest expense was primarily attributable to increased net borrowings due to the Company's purchases of its common stock under its stock repurchase program, fixed asset additions primarily for contract manufacturing, operational expenditures made to upgrade the Company's core financial and reporting software, and an increase in borrowing rates. Net loss for Fiscal 1999 was $1,157,000, or $.31 per share diluted, as compared to net earnings for Fiscal 1998 of $1,184,000, or $.30 per share diluted. During Fiscal 1999, the decrease in net earnings was primarily attributable to the decrease in net sales and decrease in gross profit dollars attributable to the overall industry weakness as it related to electronic components. The Company is cautiously optimistic that it is better positioned for increased performance during the future period based on the strengthening of the electronics industry and expenditures made during Fiscal 1999. 19 COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1998 WITH FISCAL YEAR ENDED JUNE 30, 1997 ("FISCAL 1997") Net sales for the year ended June 30, 1998 decreased approximately 1.0% to $153,674,000 as compared to $155,098,000 reported for the same Fiscal 1997 period. Fiscal 1998 results reflect the continuing industry-wide pressures on pricing, compounded by the softening demand for electronic components. The decrease in component sales through the Company's distribution operations was partially offset by a $6.4 million, or 64%, increase in sales from contract manufacturing. The Company's long term plan includes optimizing value-added services, such as Flat Panel Displays and contract manufacturing. Gross profit margins, as a percentage of net sales, remained constant at 20.7% in Fiscal 1998, compared to Fiscal 1997. While unit pricing continued to decline during Fiscal 1998, as a result of price protection and inventory rotation extended to the Company by its suppliers, the Company was able to maintain gross profit margins. Selling, General and Administrative (SG&A) expenses were $28.7 million in Fiscal 1998, an increase of $1.1 million, or 3.9% from $27.6 million in Fiscal 1997. The Company's addition of sales and sales management personnel, the expansion of the Field Application Engineering (FAE) Program, and the addition of the Flat Panel Display Group have contributed to the increase in SG&A expenses. Due to the continuing weakness in the electronics industry, the Company closely reviewed SG&A and implemented cost containment measures in the fiscal year ended June 30, 1998, which, it believed, would not have a negative impact on sales. 20 Interest expense increased to approximately $1.1 million in Fiscal 1998, as compared to approximately $1.0 million in Fiscal 1997. The 17% increase in interest expense was primarily the result of additional borrowings under the credit facility for the acquisition of new inventory as further franchises were added in Fiscal 1998. The Company believed that the addition of such product lines would have a favorable impact on sales during future periods. The Company's acquisition of approximately $700,000 of new equipment to support the growth in contract manufacturing also contributed to the increase in interest expense. Net earnings for Fiscal 1998 were $1.2 million, or approximately $.30 per share fully diluted, as compared to $2.1 million, or approximately $.53 per share fully diluted for Fiscal 1997. During Fiscal 1998, the decrease in net earnings was primarily attributable to the increase in SG&A. Liquidity and Capital Resources 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 agreement which expires September 13, 2000. The interest rate of the credit facility is based on the average 30 day LIBOR rate plus 3/4% to 1-1/4% depending on the Company's 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 $16,963,575 at June 30, 1999. The term loan, with a remaining balance of $375,000 at June 30, 1999, requires monthly principal payments of $17,857, together with interest through September 13, 2000, with a final payment of $107,146 due on September 13, 2000. 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 compliance with at June 30, 1999, and prohibits the payment of cash dividends. 21 During Fiscal 1999, the Company's net cash provided by operating activities was approximately $1.4 million, as compared to net cash provided by operating activities of approximately $1.6 million for Fiscal 1998, a decrease of $.2 million. The principal portion of the cash flow resulted from the decrease in inventory. This was offset by an increase in accounts receivable. Net borrowing under the Company's line of credit was approximately $1.5 million. The additional borrowing is partially attributable to the purchase of $.8 million of treasury stock along with capital expenditures for equipment required to support the contract manufacturing business, and software developed to operate the Company's distribution business. The Company's cash expenditures may vary significantly from current levels, based on a number of factors, including, but not limited to, future acquisitions, if any. For Fiscal 1999 and Fiscal 1998, inventory turnover was 3.3x and 3.5x, respectively. The average days outstanding of the Company's accounts receivable at June 30, 1999 was 59 days, as compared to 52 days at June 30, 1998. The Board of Directors of the Company had authorized the purchase of up to 250,000 shares of its common stock under a stock repurchase program. During Fiscal 1999 the Board of Directors authorized the repurchase of up to an additional 400,000 shares of the Company's common stock. The purchase may be made by the Company from time to time on the open market at the Company's discretion and will be dependent on market conditions. Through September 24, 1999, the Company has purchased 412,200 shares of its common stock for aggregate consideration of $2,204,515 under this program. The Company believes that cash flow from operations and funds available under its credit facility will be sufficient to fund the Company's capital needs for at least the next twelve months. Year 2000 Compliance 22 The year 2000 ("Y2K") issue is the result of computer programs using a two-digit format, as opposed to four digits, to indicate the year. Such computer systems will be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to disruptions in operations. In April 1996, the Company developed a three-phase program for Y2K information systems compliance. Phase I was to identify those systems with which the Company has exposure to Y2K issues. Phase II was the development and implementation of action plans to be Y2K compliant in all areas by late 1998. Phase III, to be fully completed by mid 1999, is the final major area of exposure to ensure compliance. The Company has identified three major areas determined to be critical for successful Y2K compliance: (1) financial and informational system applications, (2) manufacturing applications and (3) third party relationships. As of September 1, 1998, Jaco completed the redesign and development of an entirely new distribution software system. All of the dates in this new database are 8 characters, including the century. The system has been tested and has been in operation since September 1, 1998. The systems include customer order entry, purchase order entry to the Company's manufacturers, warehousing and inventory control. The financial systems, Accounts Payable and General Ledger have been Y2K compliant since April 1997. The Accounts Receivable system is Y2K complaint as of September 1, 1998. Jaco's distribution facilities: warehouse, shipping and other physical handling have been tested and are believed to be Y2K compliant. The Company, as it relates to the contract manufacturing operations in accordance with Phase I of the program, is in the process of conducting an internal review of all systems and contacting all software suppliers to determine major areas of exposure to Y2K issues. In the financial and information system area a number of applications have been identified as Y2K compliant due to their recent implementation. The contract manufacturing core financial and reporting systems are not Y2K compliant but are scheduled to be complete and fully tested by late 1999. As a contingency plan, these systems can be performed manually. The costs relating to Y2K compliance in the contract manufacturing area are not expected to be material to the Company. In the third party area, the Company has contacted most of its major suppliers and vendors. These parties state that they intend to be Y2K compliant by the year 2000. The Company's management is in the process of developing a "worst-case scenario" with respect to Y2K non-compliance and to develop contingency plans designed to minimize the effects of such scenario. Although management believes that it is very unlikely that the worst-case scenario will occur, contingency plans will be developed and will address both IT (Information Technology) system and non-IT system (items containing embedded chips, such as elevators electronic door locks, telephone, etc.)failure. In the event of Y2K - related IT system failure, the Company would be unable to ship orders because its power system would not be functioning. In such event, the Company plans to use its own generators as a back-up power source. In terms of non-IT and third-party Y2K non compliance, the worst - case scenario for the Company would involve the loss of supply of component parts or other materials from one or more of its major suppliers. The Company believes it has made contingency plans with its vendors to have product available. There is still uncertainty about the broader scope of the Year 2000 issue as it may affect the Company and third parties that are critical to our operations. For example, lack of readiness by electrical and water utilities, financial institutions, governmental agencies or other providers of general infrastructure could pose significant impediments to the Company's ability to carry on our normal operations. The Company intends to request assurances of Y2K readiness from its telephone and utilities suppliers. However, management has been informed that some suppliers have either declined to provide the requested assurances, or have limited the scope of assurances to which they are willing to permit. If suppliers of services that are critical to the Company's operations were to experience business disruptions as a result of their lack of Y2K readiness their problems could have a material adverse affect on the financial position and results of operations of the Company. The impact of a failure of readiness by critical suppliers cannot be estimated with confidence, and the effectiveness of contingency plans to mitigate the effect of any such failure is largely untested. Management cannot provide an assurance that there will be no material adverse effects to the financial condition or results of operations of the Company as a result of Y2K issues. The Company has spent to date approximately $1.8 million to replace the core financial and reporting software systems for its distribution business. The Company has utilized outside consultants to undertake a portion of the work. 23 Inflation Inflation has not had a significant impact on the Company's operations during the last three fiscal years. Item 7A. Quantitative and Qualitative Disclosure about Market Risk. The Company is exposed to interest rate change market risk with respect to its credit facility with a financial institution which is priced based on the average 30 day LIBOR rate plus 3/4% to 1 1/4% depending on the Company's performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. At August 31, 1999, $17,083,821 was outstanding under the credit facility. Changes in the LIBOR interest rate during the fiscal year ending June 30, 2000 will have a positive or negative effect on the Company's interest expense. Each 1% fluctuation in the LIBOR interest rate will increase or decrease interest expense for the Company by approximately $171,000. The impact of interest rate fluctuations on other floating rate debt of the Company is not material. Item 8. Financial Statements and Supplementary Data. For an index to the financial statements and supplementary data, see Item 14(a). Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. No response to this Item is required. 24 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, 1999. 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, 1999. 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, 1999. 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, 1999. 25 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 Operations 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-26 (a) (2) Financial Statement Schedule included in Part IV of this Report Report of Independent Certified Public Accountants on Schedule II F-27 Schedule II - Valuation and Qualifying Accounts F-28
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. 26 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, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1996 ("the Company's 1996 10-K"), Exhibit 3.1.1. 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, incorporated by reference to the Company's 1996 10-K, Exhibit 10.2.2. 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. 27 10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference to the Company's 1993 10-K, Exhibit 10.6. 10.6.1 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit A to the Company's Definitive Proxy Statement, dated November 3, 1997 for the Annual Meeting of Shareholders held on December 9, 1997). 10.6.2 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit A to the Company's Definitive Proxy Statement, dated November 2, 1998 for the Annual Meeting of Shareholders held on December 7, 1998) 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. 10.12 Restricted Stock Plan (filed as Exhibit B to the Company's Definitive Proxy Statement, dated November 3, 1997 for the Annual Meeting of Shareholders held on December 9, 1997). 10.12.1 Form of Escrow Agreement under the Restricted Stock Plan, incorporated by reference to the Company's Registration Statement on Form S-8/S-3, Commission File No. 333 -49877, filed April 10, 1998 Exhibit 4.2. 10.12.2 Form of Stock Purchase Agreement under the Restricted Stock Plan, incorporated by reference to the Company's Registration Statement on Form S-8/S-3, Commission File No. 333 - 49877, filed April 10, 1998 Exhibit 4.3. 10.12.3 Form of Stock Option Agreement, incorporated by reference to the Company's Registration Statement on Form S-8/S-3, Commission File No. 333 -49877, filed April 10, 1998 Exhibit 4.4. 10.12.4 Restricted Stock Plan (filed as Exhibit B to the Company's Definitive Proxy Statement, dated November 2, 1998 for the Annual Meeting of Shareholders held on December 7, 1998). 10.13 Employment agreement between Joel Girsky and the Company, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.13 10.14 Employment agreement between Charles Girsky and the Company, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.14 10.15 Employment agreement between Jeffrey D. Gash and the Company, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 10.15 21.1 Subsidiaries of the Company. 23.1 Consent of Grant Thornton LLP. 28 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. 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 yea ended June 30, 1994, Exhibit 99.5. 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. 29 99.8.1 Amendment to the Second Restated and Amended Loan and Security Agreement, dated as of April 10, 1996, incorporated by reference to the Company's 1996 10-K, Exhibit 99.8.1. 99.8.2 Amendment to the Second Restated and Amended Loan and Security Agreement, dated as of August 1, 1997, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1998, Exhibit 99.8.2 99.8.3 Amendment to Second Restated and Amended Loan and Security Agreement dated July 1, 1998, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 99.8.3 99.8.4 Amendment to Second Restated and Amended Loan and Security Agreement dated September 21, 1998 incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit 99.8.4 (b) Reports on Form 8-K filed during last quarter of the period covered by this Report: None. 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 Operations 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-26 Report of Independent Certified Public Accountants on Schedule F-27 Schedule II - Valuation and Qualifying Accounts F-28
F-1 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, 1998 and 1999 and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1999. 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, 1998 and 1999, and the consolidated results of their operations and cash flows for each of the three years in the period ended June 30, 1999 in conformity with generally accepted accounting principles. GRANT THORNTON LLP Melville, New York August 20, 1999 F-2 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30,
ASSETS 1998 1999 ------------- ------------- CURRENT ASSETS Cash $ 562,556 $922,247 Marketable securities 764,810 881,622 Accounts receivable, less allowance for doubtful accounts of $1,268,000 in 1998 and $440,000 in 1999 21,887,618 23,408,900 Inventories 35,737,288 33,224,719 Prepaid expenses and other 1,203,198 660,782 Prepaid and refundable income taxes 610,132 990,855 Deferred income taxes 772,500 336,000 ------------ ------------- Total current assets 61,538,102 60,425,125 PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 6,102,445 6,983,761 DEFERRED INCOME TAXES 333,000 390,000 EXCESS OF COST OVER NET ASSETS ACQUIRED, less accumulated amortization of $719,000 in 1998 and $895,000 in 1999 3,776,912 3,588,449 OTHER ASSETS 1,668,830 1,543,328 ----------- ------------ $73,419,289 $ 72,930,663 ========== ===========
The accompanying notes are an integral part of these statements. F-3 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (continued) June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1999 -------------- ------------- CURRENT LIABILITIES Accounts payable $16,633,389 $15,923,157 Current maturities of long-term debt and capitalized lease obligations 663,198 791,814 Accrued expenses 1,760,862 1,712,162 ----------- ------------ Total current liabilities 19,057,449 18,427,133 LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS 17,036,593 18,885,664 DEFERRED COMPENSATION 700,000 750,000 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock - authorized, 100,000 shares, $10 par value; none issued Common stock - authorized, 10,000,000 shares, $.10 par value; 4,065,721 shares issued and 3,866,221 and 3,653,521 shares outstanding, respectively 406,572 406,572 Additional paid-in capital, net 22,396,295 22,531,295 Retained earnings 15,077,957 13,920,807 Accumulated other comprehensive income 164,385 213,707 Treasury stock - 199,500 and 412,200 shares, respectively, at cost (1,419,962) (2,204,515) ----------- ------------ 36,625,247 34,867,866 ------------ ------------- $73,419,289 $72,930,663 =========== =========== The accompanying notes are an integral part of these statements.
F-4 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Year ended June 30,
1997 1998 1999 ------------- ------------- -------------- Net sales $155,097,745 $153,674,226 $140,710,825 Cost of goods sold 122,993,172 121,796,083 113,334,627 ----------- ----------- ------------ Gross profit 32,104,573 31,878,143 27,376,198 Selling, general and administrative expenses 27,639,567 28,706,520 27,642,724 ------------ ------------ ------------ Operating profit (loss) 4,465,006 3,171,623 (266,526) Interest expense 971,253 1,140,362 1,308,624 -------------- ------------- ------------- Earnings (Loss) before income taxes 3,493,753 2,031,261 (1,575,150) Income tax provision (benefit) 1,415,000 847,000 (418,000) ------------- -------------- ---------------- NET EARNINGS (LOSS) $ 2,078,753 $ 1,184,261 $ (1,157,150) ============= ============= ============== Net earnings per common share Basic $0.53 $0.31 $(0.31) ==== ==== ===== Diluted $0.53 $0.30 $(0.31) ==== ==== ====== Weighted-average common shares and common equivalent shares outstanding Basic 3,899,181 3,836,700 3,698,270 ========= ========= ========= Diluted 3,947,687 3,921,518 3,698,270 ========= ========= ==========
The accompanying notes are an integral part of these statements. F-5 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 1997, 1998 and 1999
Accumulated Additional other paid-in Retained comprehensive Shares Amount capital Earnings income -------- -------- ---------------- --------- ------------ Balance at July 1, 1996 3,955,721 $395,572 $22,024,795 $11,814,943 $ 68,245 Net earnings 2,078,753 Unrealized gain on marketable securities - net 51,955 Comprehensive income Issuance of common stock in connection with acquisition 20,000 2,000 155,500 Purchase of treasury stock ________ _______ _________ ______ ________ Balance at June 30, 1997 3,975,721 397,572 22,180,295 13,893,696 120,200 Net earnings 1,184,261 Unrealized gain on marketable securities - net 44,185 Comprehensive income Issuance of restricted stock 90,000 9,000 621,000 Deferred compensation expense Purchase of treasury stock ________ _______ _________ _______ _________ Balance at June 30, 1998 4,065,721 406,572 22,801,295 15,077,957 164,385 Net loss (1,157,150) Unrealized gain on marketable securities - net 49,322 Comprehensive loss Deferred compensation expense Purchase of treasury stock _________ _______ _________ _______ _________ Balance at June 30, 1999 4,065,721 $406,572 $22,801,295 $13,920,807 $213,707 =========== ======== =========== =========== ===========
F-6 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 1997, 1998 and 1999
Deferred Total Treasury compen- shareholders' stock sation equity -------- -------- -------------- Balance at July 1, 1996 $ 34,303,555 ------------ Net earnings 2,078,753 Unrealized gain on marketable securities - net 51,955 ------------ Comprehensive income 2,130,708 Issuance of common stock in connection with acquisition 157,500 Purchase of treasury stock $(700,000) (700,000) ------------ ------------ Balance at June 30, 1997 (700,000) 35,891,763 ------------ Net earnings 1,184,261 Unrealized gain on marketable securities - net 44,185 ------------ Comprehensive income 1,228,446 Issuance of restricted stock $ (540,000) 90,000 Deferred compensation expense 135,000 135,000 Purchase of treasury stock (719,962) (719,962) ----------- ------------ ----------- Balance at June 30, 1998 (1,419,962) (405,000) 36,625,247 ------------ Net loss (1,157,150) Unrealized gain on marketable securities - net 49,322 ------------ Comprehensive loss (1,107,828) Deferred compensation expense 135,000 135,000 Purchase of treasury stock (784,553) (784,553) ------------ ------------ ----------- Balance at June 30, 1999 (2,204,515) (270,000) $ 34,867,866 ============ ========== ===========
The accompanying notes are an integral part of this statement. F-7 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended June 30,
1997 1998 1999 ------------- ------------ ----------- Cash flows from operating activities Net earnings (loss) $ 2,078,753 $ 1,184,261 $ (1,157,150) Adjustments to reconcile net earnings to net cash provided by (used in) operating activities Depreciation and amortization 1,050,666 1,356,457 1,587,766 Deferred compensation 50,000 185,000 185,000 Deferred income tax (benefit) expense (119,000) 33,000 351,000 Loss (gain)on sale of equipment 9,941 2,717 (918) Provision for doubtful accounts 255,931 475,816 981,622 Changes in operating assets and liabilities, net of effects of acquisitions Decrease (increase) in accounts receivable 1,603,022 (355,660) (2,502,904) (Increase) decrease in inventories (1,767,196) (2,426,087) 2,512,569 (Increase) decrease in prepaid expenses and other (615,364) 156,419 542,416 Increase in prepaid and refundable income taxes (902,545) (81,889) (380,723) (Decrease) increase in accounts payable (594,557) 800,191 (710,232) Increase (decrease) in accrued expenses 235,950 291,933 (48,700) ------------- ------------- ------------- Net cash provided by operating activities 1,285,601 1,622,158 1,359,746 ------------- ------------- ------------- Cash flows from investing activities Increase in marketable securities (59,943) (68,049) (39,139) Capital expenditures (943,352) (1,068,775) (1,603,361) Proceeds from the sale of equipment 42,867 120,515 9,689 Business acquisitions, net of cash acquired (4,742,249) Increase in other assets (176,728) (258,905) (7,834) ------------- ------------- ------------- Net cash used in investing activities (5,879,405) (1,275,214) (1,640,645) ------------- ------------- ------------- Cash flows from financing activities Borrowings from line of credit 161,931,215 152,258,926 53,507,313 Borrowings under term loan for equipment 575,000 Payments of line of credit (155,834,207) (151,076,073) (51,851,995) Principal payments under equipment financing (289,727) (586,345) (590,889) Payments under term loan (214,286) (214,286) (214,286) Purchase of treasury stock (700,000) (719,962) (784,553) Proceeds from issuance of restricted stock 90,000 ------------- ------------- ------------- Net cash provided by (used in) financing activities 4,892,995 (247,740) 640,590 ------------- ------------- ------------- NET INCREASE IN CASH 299,191 99,204 359,691 Cash at beginning of year 164,161 463,352 562,556 ------------- ------------- ------------- Cash at end of year $ 463,352 $ 562,556 $ 922,247 ============= ============= ============= Supplemental cash flow disclosures: Interest paid $ 815,000 $ 1,301,000 $ 1,310,000 Income taxes paid 2,502,000 929,000 22,000 Supplemental schedule of noncash financing and investing activities: Equipment under capital leases $ 531,561 $ 1,165,781 $ 552,544
The accompanying notes are an integral part of these statements. F-8 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997, 1998 and 1999 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, flat panel displays, power supplies, computers and computer subsystems, produced by others, for the manufacture and assembly of electronic products. In addition, 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, 1997, 1998 and 1999, export sales amounted to approximately $4,102,000, $4,537,000 and $4,810,000, 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 unrealized gains of $257,782 and $335,455 in 1998 and 1999, respectively. Changes in the fair value of "available for sale securities" are included in accumulated other comprehensive income, net of the 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-9 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 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 the straight-line method over the estimated useful life of the assets. The Company capitalizes costs incurred for internally developed software where economic and technological feasibility has been established. These capitalized software costs are being amortized on a straight-line basis over the estimated useful life of seven years. 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. The Company periodically reviews and evaluates whether there has been a permanent impairment in the value of its intangibles. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows. 7. Income Taxes 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 a subsidiary of the Company, 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. 8. Earnings (Loss) Per Common Share In fiscal 1998, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per Share." SFAS No. 128 replaces the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects F-10 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and, where appropriate, restated to conform to the SFAS No. 128 computation. 9. Financial Instruments and Business Concentrations Financial instruments which potentially subject the Company to concentration of credit risk consist principally of accounts receivable. Concentration of credit risk with respect to accounts receivable is generally mitigated due to the large number of entities comprising the Company's customer base, their dispersion across geographic areas and industries, along with the Company's policy of maintaining credit insurance. The Company routinely addresses the financial strength of its customers and, historically has limited its accounts receivable credit risk. However, during the fourth quarter of fiscal 1999 the Company recorded approximately $630,000 of additional bad debt expense. 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, 2000, with two participating banks. 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, 1999, purchases from three suppliers accounted for 19%, 14% and 9%, respectively, of net sales. As is common in the electronics distribution industry, from time to time the Company has experienced terminations of relationships with suppliers. There can be no assurance that, in the event a supplier cancelled its distributor agreement with the Company, the Company will be able to replace the sales with sales of other products. F-11 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 10. 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. 11. Comprehensive Income During 1999, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income. SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 had no impact on the Company's earnings or stockholder's equity. SFAS 130 requires unrealized holding gains or losses on debt and equity securities available for sale, which prior to adoption were only reported separately in stockholder's equity, to be included in comprehensive income and accumulated other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. 12. Segment Reporting The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 requires that the Company disclose certain information about its operating segments defined as "components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance." Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments. 13. Advertising Advertising costs are expensed as incurred and totaled $177,575, $257,281 and $250,198 for the years ended June 30, 1997, 1998 and 1999, respectively. F-12 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999
NOTE B - INVENTORY Inventories consist of the following: June 30, 1998 1999 Finished goods and goods held for resale $30,490,288 $29,048,654 Work-in-process 555,000 686,180 Raw materials 4,692,000 3,489,885 ----------- ------------ $35,737,288 $33,224,719 ========== ==========
NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of: Useful Life June 30, --------------------- in years 1998 1999 ---------- ------------ ------------ Land, building and improvements 10 to 30 $1,468,708 $1,468,708 Machinery and equipment 3 to 7 6,028,756 7,488,477 Internally developed software costs 7 1,123,897 1,769,857 Transportation equipment 3 to 5 32,063 64,109 Leasehold improvements 5 to 10 599,757 601,218 ---------- ------------ 9,253,181 11,392,369 Less accumulated depreciation and amortization (including $326,134 in 1998 and $635,195 in 1999 of capitalized lease amortization) 3,150,736 4,408,608 --------- ---------- $6,102,445 $6,983,761 ========= =========
Included in machinery and equipment are assets recorded under capitalized leases at June 30, 1998 and 1999 for $1,789,913 and $2,342,457, respectively. F-13 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999
NOTE D - INCOME TAXES The components of the Company's provision for income taxes is as follows: June 30, --------------------------------- 1997 1998 1999 ------------- ----------- ------------- Federal Current $1,262,000 $663,000 $(887,000) Deferred (119,000) 33,000 351,000 ---------- -------- ---------- 1,143,000 696,000 (536,000) State 272,000 151,000 118,000 ---------- ------- -------- $1,415,000 $847,000 $(418,000) ========= ======= =========
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, -------------------------------------------- 1997 1998 1999 -------- --------- -------- Statutory Federal tax rate 34.0% 34.0% (34.0)% State income taxes, net of Federal tax benefit 5.1 5.0 5.0 Sales expense for which no tax benefit arises 1.8 2.4 2.4 Other (.4) .3 .1 ------ ------ ------ Effective tax rate 40.5% 41.7% (26.5) % ==== ==== ========
F-14 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999
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: 1998 1999 ------------ ------------- Deferred tax assets Net operating loss carryforwards $ 260,000 $ 389,000 Allowance for bad debts 463,000 161,000 Inventory valuation 874,000 869,000 Deferred compensation 255,000 274,000 Other deferred tax assets 198,500 243,000 ---------- --------- 2,050,500 1,936,000 Deferred tax liabilities Depreciation (458,000) (683,000) Other (68,000) (80,000) Unrealized gain on marketable securities available for sale (94,000) (122,000) ----------- ---------- 1,430,500 1,051,000 Valuation allowance (325,000) (325,000) ---------- ----------- Net deferred tax asset $1,105,500 $ 726,000 ========= ========
F-15 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 NOTE D - INCOME TAXES (continued) At June 30, 1999, the Company, through an acquisition, has available a Federal net operating loss carryforward of approximately $714,000. 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 1998, $169,000 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 such deferred tax asset will result in the reduction of the excess of cost over net assets acquired. F-16 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999
NOTE E - EARNINGS PER COMMON SHARE For the year ended June 30, For the year ended June 30, 1997 1998 ---------------------------------------- ---------------------------------------- Income Shares Per Income Shares Per (Numer- (Denomi- Share (Numer- (Denomi- Share ator) nator) Amount ator) nator) Amount --------- --------- ------- --------- --------- ------- Basic earnings per share; income available to common shareholders $2,078,753 3,899,181 $0.53 $1,184,261 3,836,700 $0.31 Effect of dilutive securities Stock options 48,506 84,818 ---------------- ----------- --------------- ---------- Diluted earnings per share; income available to common shareholders plus assumed conversions $2,078,753 3,947,687 $0.53 $1,184,261 3,921,518 $0.30 ========= ========= ========= =========
For the year ended June 30, 1999 ---------------------------------------- Income Shares Per (Numer- (Denomi- Share ator) nator) Amount --------- --------- ------- Basic earnings per share; income available to common shareholders $(1,157,150) 3,698,270 $(0.31) Effect of dilutive securities Stock options ---------------- ----------- Diluted earnings per share; income available to common shareholders plus assumed conversions $(1,157,150) 3,698,270 $(0.31) =========== =========
Options to purchase 485,296 shares of common stock at a price range of $2.69 to $12.75 and warrants to purchase 70,000 shares of common stock at $22.95 were outstanding during fiscal 1999. They were not included in the computation of diluted earnings per share because the inclusion of common stock equivalents would have been anti-dilutive. F-17 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999
NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS Debt and capitalized lease obligations are as follows: June 30, --------------------------------- 1998 1999 --------- --------- Term loan and revolving line of credit (a) $15,897,542 $17,338,575 Other term loans (b) 133,863 621,797 Equipment note (c) 115,998 5,251 Capitalized lease obligations (d) 1,825,066 1,966,520 ----------- ----------- 17,972,469 19,932,143 Less amounts representing interest on capitalized lease obligations 272,678 254,665 ------------ ------------ 17,699,791 19,677,478 Less current maturities 663,198 791,814 ------------ ------------ $17,036,593 $18,885,664 ========== ==========
(a) Term Loan 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. The agreement was amended to: (i) extend the maturity date to September 13, 2000, (ii) change the interest rate to a rate based on the average 30 day LIBOR rate plus 3/4% to 1-1/4% depending on the Company's performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and (iii) change the requirements of certain financial covenants. The applicable interest rate may be adjusted quarterly and borrowings under this facility are collateralized by substantially all of the assets of the Company. The outstanding balance on the revolving line of credit facility was $16,963,575 at June 30, 1999, with an associated interest rate of 6.28%. Pursuant to the same agreement, at June 30, 1999, a term loan with a remaining balance of $375,000 requires monthly principal payments of $17,857, together with interest through September 13, 2000, with a final payment of $107,146 due on September 13, 2000. The agreement contains provisions for maintenance of certain financial ratios, all of which the Company is in compliance with, and prohibits the payment of cash dividends. F-18 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (continued) (b) Other Term Loans Other term loans as of June 30, 1999 are as follows: Monthly Date of loan Balance Term payment March 16, 1995 $ 10,184 60 months $ 1,160 March 16, 1995 83,440 84 months 2,730 January 14, 1999 528,173 60 months 9,829 ------- $621,797
The above loans are collateralized by the related equipment acquired, having a carrying value of approximately $770,000 at June 30, 1999 and $331,000 at June 30, 1998. 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% per annum, respectively. (c) Equipment Note The equipment note is payable through September 1999, bearing an implicit interest rate of 9.68%, and is collateralized by the related equipment. (d) Capitalized Lease Obligations The Company leases certain equipment under agreements accounted for as capital leases. During fiscal 1999, the Company acquired approximately $553,000 of equipment through a capital lease. The obligations for the equipment require the Company to make monthly payments through September 2003, with implicit interest rates from 7.0% to 8.5%. F-19 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999
NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (continued) The following is a summary of the aggregate annual maturities of debt and capitalized lease obligations as of June 30, 1999: Capitalized Debt leases Year ending June 30, 2000 $ 371,800 $ 532,603 2001 17,269,135 541,368 2002 139,486 501,006 2003 116,628 353,048 2004 68,574 38,495 ------------ --------- $ 17,965,623 $1,966,520 ============ =========
NOTE G - 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, 2000 $ 1,128,731 2001 990,297 2002 947,108 2003 897,361 2004 354,589 ---------- $ 4,318,086
F-20 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999
NOTE G - 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, 2000 $ 598,000 2001 627,900 2002 659,327 2003 692,293 2004 354,589 ---------- $2,932,109
The Company's rent expense was approximately $602,000 for each of the years ended June 30, 1997, 1998 and 1999, respectively, in connection with the above lease. Rent expense on office and warehouse facilities leases for the years ended June 30, 1997, 1998 and 1999 was approximately $962,000, $1,033,000 and $1,131,000, respectively, net of sublease income of approximately $115,000, $115,000 and $110,000, respectively. 2. Other Leases The Company also leases various office equipment and automobiles under noncancellable operating leases expiring through June 2004. The minimum rental commitments required under these leases at June 30, 1999 are as follows:
Year ending June 30, 2000 $148,419 2001 74,596 2002 55,791 2003 22,075 2004 13,416 -------- $314,297
F-21 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 NOTE G - COMMITMENTS AND CONTINGENCIES (continued) 3. Employment Agreements The Company has entered into employment agreements with certain executive officers which provide for annual base salary aggregating $675,000 through June 30, 2003 and contain provisions for severance payments in the event of a change of control as defined in the agreements. The Company's agreement with its Chairman and Executive Vice President provide for cash bonuses equal to 4% and 2%, respectively, of the Company's earnings before income taxes for each fiscal year in which such earnings are in excess of $1,000,000 or 6% and 3%, respectively, of the Company's earnings before income taxes if such earnings are in excess of $2,500,000 up to a maximum annual cash bonus of $720,000 and $360,000, respectively. In addition, the Company's agreement with its Chairman provides for a deferred compensation which accrues at a rate of $50,000 per year and becomes payable in a lump sum at the later of (i) the Chairman's attainment of age 60 (which has occurred), or (ii) his cessation of employment, with or without cause, at any time. 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 H - 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, 1997, 1998 and 1999, the Company contributed to this plan approximately $91,000, $132,000 and $96,000, respectively. NOTE I - SHAREHOLDERS' EQUITY In connection with the Company's 1995 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 $12.75 per share public offering price, which expire on October 20, 1999. F-22 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 NOTE I - SHAREHOLDERS' EQUITY (continued) 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 and pricing 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. In December 1997, the shareholders of the Company approved an increase in the amount of shares reserved for the 1993 plan to 600,000 from 293,333, of which 433,899 are outstanding at June 30, 1999. 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. Each outside director who was serving on December 31 of each calendar year subsequent to 1993 was granted options to purchase 2,933 shares of the Company's common stock annually. The Outside Directors Plan expired on January 1, 1998, with a total of 26,397 options outstanding. 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. In June 1997, the Company appointed an additional outside director to the Board of Directors who received 10,000 options to purchase the Company's common stock at the fair market value on the date of grant. In September 1998, two outside directors were each granted 7,500 options to purchase the Company's common stock at the fair market value on the date of grant. These 25,000 options were not granted pursuant to any of the Company's existing stock option plans. F-23 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999
NOTE I - SHAREHOLDERS' EQUITY (continued) Outstanding options granted to employees, directors and officers for the last three fiscal years are summarized as follows: Weighted Nonqualified average stock options exercise -------------------------- Price range Shares price ----------- ------- ---------- Outstanding at July 1, 1996 $ 4.77 - 12.75 200,000 $ 7.65 Granted $ 7.00 - 8.50 150,265 7.15 Exercised Outstanding at June 30, 1997 $ 4.77 - 12.75 350,265 7.44 Granted $ 6.25 8,799 6.25 Expired $ 12.75 (2,500) 12.75 --------- Outstanding at June 30, 1998 $ 4.77 - 12.75 356,564 7.37 Granted $ 2.69 - 4.13 265,000 3.34 Expired $ 4.77 - 12.75 (136,268) 4.79 --------- Outstanding at June 30, 1999 $ 2 .69 - 12.75 485,296 5.68 ========= Amounts exercisable at June 30, 1999 $ 2 .69 - 12.75 485,296 5.68 =========
The following table summarizes information concerning currently outstanding and exercisable nonqualified stock options:
Weighted- Number average Weighted- outstanding remaining average and contractual exercise Range of exercise prices exercisable life (months) price ---------------------------- ------------- -------------- ------------ $2.69 - $ 4.76 265,000 54 months $ 3.34 $4.77 - $ 9.00 162,430 33 months $ 5.32 $9.01 - $12.75 57,866 17 months $ 12.62
F-24 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 NOTE I - SHAREHOLDERS' EQUITY (continued) The weighted-average option fair value on the grant date was $1.82, $1.88 and $1.38 for options issued during the years ended June 30, 1997, 1998 and 1999, respectively. The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"); it applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for the Plan and does not recognize compensation expense for such Plan. If the Company had elected to recognize compensation expense based upon the fair value at the grant dates for awards under these plans consistent with the methodology prescribed by SFAS No. 123, the Company's reported net earnings and earnings per share would be reduced to the pro forma amount indicated below for the years ended June 30:
1997 1998 1999 --------------- -------------- ---------------- Net earnings (loss) As reported $2,078,753 $1,184,261 $(1,157,150) Pro forma 1,805,602 1,167,761 (1,523,550) Net earnings (loss) per common share - basic As reported $.53 $.31 $(.31) Pro forma .46 .30 (.41) Net earnings (loss) per common share - diluted As reported $.53 $.30 $(.31) Pro forma .46 .30 (.41)
These pro forma amounts may not be representative of future disclosures because they do not take into effect pro forma compensation expense related to grants made before fiscal 1996. The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the fiscal years ended June 30, 1997, 1998 and 1999, respectively, expected volatility of 25%, 35% and 55%; risk-free interest rates of 6.32%, 5.42% and 5.08% and expected term of 3 years for all years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the use of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-25 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 NOTE I - SHAREHOLDERS' EQUITY (continued) The Board of Directors of the Company has authorized the purchase of up to 250,000 shares of its common stock under a stock repurchase program. In fiscal 1998, the Board of Directors authorized the repurchase of up to an additional 400,000 shares of the Company's common stock. The purchases may be made by the Company from time to time on the open market at the Company's discretion and will be dependent on market conditions. To date, the Company has purchased 412,200 shares of its common stock for aggregate consideration of $2,204,515 under this program. In June 1997, the Company's Board of Directors approved the adoption of a restricted stock plan, which was subsequently ratified by shareholders during the Company's December 1997 annual meeting. The plan enables the Board of Directors or Plan Committee to have sole discretion and authority to determine who may purchase restricted stock, the number of shares, the price to be paid and the restrictions placed upon the stock. Pursuant to this plan, the Company has issued 90,000 shares of common stock to certain employees at a purchase price of $1.00 per share. Shares purchased are subject to a four-year vesting period and the Company recognized $135,000 of compensation expense during fiscal 1999 and 1998 in connection with this plan. NOTE J - ACQUISITIONS During August 1996 and January 1997, the Company purchased QPS Electronics, Inc. and Corona Electronics, Inc., respectively, both of which are electronic component distributors. Aggregate consideration paid for the acquisitions approximated $4,700,000, of which $157,500 was paid through the issuance of 20,000 shares of the Company's common stock. These acquisitions have been accounted for by the purchase method and, as such, the fair value of the assets and liabilities acquired have been recorded on the date of the respective acquisitions. The respective results of their operations are included with those of the Company from the date of acquisition. The excess of the purchase price over the fair value of the assets acquired, approximately $3,053,000, is being amortized using the straight-line method over a period of twenty years. F-26 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999 NOTE K - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION 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 fiscal years 1997, 1998 and 1999, is not considered material to the financial statements. The Company's chief operating decision maker utilizes net sales and net earnings (loss) 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. Information about the Company's segments is as follows:
Year ended June 30, ------------------------------------ 1997 1998 1999 --------- --------- ------- (in thousands) Net sales from external customers Electronics components distribution $ 145,091 $ 137,297 $ 127,401 Contract manufacturing 10,007 16,377 13,310 --------- --------- --------- $ 155,098 $ 153,674 $ 140,711 ========= ========= ========= Intersegment net sales Electronics components distribution $ 242 $ 593 $ 336 Contract manufacturing 382 111 --------- --------- $ 242 $ 975 $ 447 ========= ========= ========= Operating profit (loss) Electronics components distribution $ 3,994 $ 2,251 $ (868) Contract manufacturing 471 921 602 --------- --------- --------- $ 4,465 $ 3,172 $ (266) ========= ========= ========= Interest expense Electronics components distribution $ 532 $ 662 $ 768 Contract manufacturing 439 478 541 --------- --------- --------- $ 971 $ 1,140 $ 1,309 ========= ========= ========= Income tax expense (benefit) Electronics components distribution $ 1,402 $ 662 $ (374) Contract manufacturing 13 185 (44) --------- --------- --------- $ 1,415 $ 847 $ (418) ========= ========= =========
F-27 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) June 30, 1997, 1998 and 1999
NOTE K - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (continued) Year ended June 30, ------------------------------------ 1997 1998 1999 --------- --------- ------- (in thousands) Identifiable assets Electronics components distribution $61,515 $60,929 $62,259 Contract manufacturing 8,481 12,490 10,672 ------- ------- ------- $69,996 $73,419 $72,931 ======= ======= ======= Capital expenditures Electronics components distribution $ 810 $ 1,002 $ 396 Contract manufacturing 133 67 1,207 ------- ------- ------- $ 943 $ 1,069 $ 1,603 ======= ======= ======= Depreciation and amortization Electronics components distribution $ 742 $ 913 $ 1,049 Contract manufacturing 309 443 539 ------- ------- ------- $ 1,051 $ 1,356 $ 1,588 ======= ======= =======
F-28 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 20, 1999, 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, 1999. 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 20, 1999 F-29 Jaco Electronics, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years ended June 30, 1997, 1998 and 1999
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, 1997 $758,000 $256,000 $ 95,000 (a)(c) $263,000 (b) $ 846,000 ======= ======= ======== ======= ========== Year ended June 30, 1998 $846,000 $476,000 $226,000 (a) $280,000 (b) $1,268,000 ======= ======= ======= ======== ========= Year ended June 30, 1999 $1,268,000 $982,000 $ 12,000 (a) $1,822,000 (b) $ 440,000 ========== ======== ======= ========== =========
(a) Recoveries of accounts. (b) Represents write-offs of uncollectible accounts. (c) Includes balance attributable to acquired subsidiary. F-30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: September 27, 1999 By: Joel H. Girsky ------------------------------ Joel H. Girsky, Chairman of the Board, President and Treasurer (Principal Executive 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 Registrant and in the capacities and on the dates indicated. Date: September 27, 1999 /s/ Joel H. Girsky ------------------------------- Joel H. Girsky, Chairman of the Board, President and Treasurer (Principal Executive Officer) Date:September 27, 1999 /s/ Jeffrey D. Gash ------------------------------- Jeffrey D. Gash, Vice President-Finance and Secretary (Principal Financial and Accounting Officer) Date:September 27, 1999 /s/ Stephen A. Cohen -------------------------------- Stephen A. Cohen, Director Date:September 27, 1999 /s/ Edward M. Frankel --------------------------------- Edward M. Frankel, Director Date:September 27, 1999 /s/ Charles B. Girsky ---------------------------------- Charles B. Girsky, Executive Vice President and Director Date:September 27, 1999 /s/ Joseph F. Hickey, Jr. ---------------------------------- Joseph F. Hickey, Jr., Director EX-23.1 2 CONSENT OF GRANT THORNTON LLP CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have issued our reports dated August 20, 1998 accompanying the consolidated financial statements and schedule of Jaco Electronics, Inc. as of June 30, 1998 and 1999 and for each of the three years in the period ended June 30, 1999 contained in this annual report of Jaco Electronics, Inc. on Form 10-K for the year ended June 30, 1999. We hereby consent to the incorporation by reference of the aforementioned reports in the Registration Statement of Jaco Electronics, Inc. on Form S-8/S-3 (File No. 33-89994, effective March 3, 1995), as amended by Post-Effective Amendment No. 1 to the Registration Statement of Jaco Electronics, Inc. on Form S-8/S-3 (File No. 33-49873, effective April 10, 1998), and the Registration Statement of Jaco Electronics, Inc. on Form S-8/S-3 (File No. 333-49877, effective April 10, 1998). GRANT THORNTON LLP Melville, New York September 24, 1999 The following subsidiaries, all of which were 100% directly owned, were included in the Registrant's consolidated financial statements. EX-21.1 3 SUBSIDIARIES OF THE COMPANY Name of Subsidiary State or Jurisdiction of Incorporation Distel, Inc. California RC Components, Inc. Massachusetts Quality Components, Inc. Texas Jaco Overseas, Inc. Virgin Islands Nexus Custom Electronics, Inc. New Jersey Jaco Electronics Canada, Inc. Canada Corona Electronics, Inc. California EX-27.1 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the audited consolidated balance sheet as of June 30, 1999 and the audited consolidated statement of operations for the year ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. year JUN-30-1999 JUL-01-1998 JUN-30-1999 922,247 881,622 23,848,900 440,000 33,224,719 60,425,125 11,392,369 4,408,608 72,930,663 18,427,133 19,635,664 0 0 406,572 34,461,294 72,930,663 140,710,825 140,710,825 113,334,627 113,334,627 27,642,724 0 1,308,624 (1,575,150) (418,000) (1,157,150) 0 0 0 (1,157,150) (0.31) (0.31)
-----END PRIVACY-ENHANCED MESSAGE-----