10-K405 1 y40380e10-k405.txt JACO ELECTRONICS INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended ....................................... June 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________to__________________ Commission File Number 0-5896 JACO ELECTRONICS, INC. (Exact name of registrant as specified in its charter)
New York 11-1978958 (State or other jurisdiction of 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: (631) 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 14, 2000 was $76,942,664. Number of shares outstanding of each class of Common Stock, as of September 14, 2000: 5,633,959 shares. DOCUMENTS INCORPORATED BY REFERENCE: None 2 FORWARD-LOOKING STATEMENTS This report contains forward-looking statements with respect to the financial condition, results of operations and business of Jaco Electronics, Inc. You can find many of these statements by looking for words like "believes," "expects," "anticipates," "estimates" or similar expressions in this document or in documents incorporated by reference. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following: - Dependence on a limited number of suppliers for products which generate a significant portion of our sales. - Absence of long-term contracts. - 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. - Supply shortages in the electronic components industry. - General economic downturns in the electronic components industry which may have an adverse economic effect upon manufacturers, end-users of electronic components and electronic components distributors. - Volatile pricing of electronic components. - Competitive pressures in the industry may increase significantly through industry consolidation and entry of new competitors. - Costs or difficulties related to the integration of newly-acquired businesses may be greater than expected. - Limited allocation of products by suppliers may reduce availability of certain products. - Adverse changes may occur in the securities markets. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by them. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this Report. We do not undertake any obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events. 3 PART I ITEM 1. BUSINESS. Jaco Electronics, Inc. was organized in the State of New York in 1961. Our principal executive offices are located at 145 Oser Avenue, Hauppauge, New York 11788, and our telephone number is (631) 273-5500. OUR COMPANY We are a leading distributor of electronic components to industrial OEMs and contract manufacturers throughout North America. We also provide contract manufacturing services to our industrial OEM customers. We distribute products such as semiconductors, capacitors, resistors, electromechanical devices, flat panel displays and monitors and power supplies, which are used in the manufacture and assembly of electronic products, including: - telecommunications equipment - medical devices and instrumentation - military/aerospace systems - computers and office equipment - industrial equipment and controls - automotive and consumer electronics We have two distribution centers and 19 strategically located sales offices throughout the United States. We distribute more than 35,000 products from over 75 vendors, including such market leaders as Kemet Electronics Corporation, Vishay Intertechnology, Inc., and Samsung Semiconductor, Inc., to a base of over 6,000 customers through a dedicated and highly motivated sales force. To enhance our ability to distribute electronic components, we provide a variety of value-added services including automated inventory management services, assembling stock items for our customers into pre-packaged kits, integrating and assembling various custom components with flat panel displays to customer specifications (box build) and providing contract manufacturing services. Our core customer base consists primarily of small and medium-sized manufacturers that produce electronic equipment used in a wide variety of industries. RECENT DEVELOPMENTS In June 2000, we acquired Interface Electronics Corp. We paid $15.4 million in cash and assumed $3.3 million in bank debt and are obligated to make deferred payments of up to approximately $6.6 million during the next two years if certain "minimum sales" levels are achieved. Interface is a distributor of electronic components, primarily in the Northeast and Southeast United States. As a result of the Interface acquisition, we have acquired distribution rights for certain significant vendor lines in the United States. The Interface transaction affords us the opportunity to leverage a national sales presence with our warehouses, thereby providing timely and efficient product distribution to our customers located anywhere in the United States. 3 4 In February 2000, we acquired the operating assets of PGI Industries, Inc., an exporter of electronic components for approximately $1.2 million in cash. OUR INDUSTRY The electronic components 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 their customers the ability to outsource their purchasing and warehousing responsibilities. Electronic Data Interchange ("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 We currently distribute over 35,000 stock items. Our management believes that it is necessary for us to carry a wide variety of items in order to fully service our customers' requirements. Our products fall into two broad categories: "active" and "passive" components. Active components and passive components each represented approximately 50% of our net distribution sales in each of our last three fiscal years. Active components include semiconductors and computer subsystems. Semiconductors consist of such items as integrated circuits, microprocessors, transistors, diodes, dynamic random access memory ("RAM"), static RAMs, video RAMs and metal oxide field effect transistors. 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. Passive components consist primarily of capacitors, electromechanical devices, and resistors. VALUE-ADDED SERVICES We also provide a number of value-added services which are intended to attract new customers, to maintain and increase sales to existing customers and, in the case of box build and contract manufacturing, to generate revenues from new customers. Value-added services include: - Automated Inventory Management Services. We offer comprehensive, state-of-the-art solutions that effectively manage our customers' inventory reordering, stocking and administration functions. These services reduce paperwork, inventory, cycle time, and the overall cost of doing business for our customers. - Kitting. Kitting consists of assembling to a customer's specifications two or more of our 35,000 stock items into pre-packaged kits ready for use in the customer's 4 5 assembly line. Kitting services allow us to provide a partial or complete fill of a customer's order and enable the customer to more efficiently manage its inventory. - Box Build. We assemble various custom components with flat panel displays to a customer's specifications in order to provide an assembled product. - Contract Manufacturing. We also provide contract manufacturing services to our OEM customers which include procurement of customer specified components and raw materials from our network of suppliers and other suppliers, assembly of components on printed circuit boards ("PCBs"), and post assembly testing. Our manufacturing process consists of both advanced surface mount technology ("SMT") as well as conventional pin-through-hole ("PTH") interconnection technologies. The SMT process allows for more miniaturization, cost savings and shorter lead paths between components (which results in greater signal speed). SALES AND MARKETING We believe we have developed valuable long-term customer relationships and an in-depth understanding of our customers' needs and purchasing patterns. Our sales personnel are trained to identify our customers' requirements and to actively market our entire product line to satisfy those needs. We serve a broad range of customers in the computer, computer-related, telecommunications, data transmission, defense, aerospace, medical equipment and other industries. None of our customers individually represented more than five percent of net sales in any of the fiscal years ended June 30, 2000, 1999 and 1998. As an authorized distributor for key vendors, we are able to offer our customers engineering support as well as warranty protection from the product manufacturers which enhances our ability to attract new customers and close sales. We provide additional customer support through communication with customers from computer to computer or through EDI, and through technically competent product managers and Field Application Engineers ("FAEs"). Our FAEs provide design support and technical assistance to our customers with detailed data solutions employing the latest technologies. Sales are made throughout North America from the sales departments maintained at our two distribution facilities located on the East and West Coasts of the United States in California and New York and from 19 strategically located sales offices. Sales are made primarily through personal visits by our employees and by a staff of trained telephone sales personnel who answer inquiries and receive and process orders from customers. In addition, we utilize the services of independent sales representatives whose territories include parts of North America and several foreign countries. These independent sales representatives operate under agreements which are terminable by either party upon 30 days' notice and prohibit them from representing competing product lines. Independent sales representatives are authorized to solicit sales of all of our product lines. 5 6 SUPPLIERS Manufacturers of electronic components are increasingly relying on the marketing, customer service and other resources of distributors who market their product lines to customers not normally served by the manufacturer, and to supplement the manufacturer's direct sales efforts in other accounts often by providing value-added services not offered by the manufacturer. Manufacturers seek distributors who have strong relationships with desirable customers, are financially strong, have the infrastructure to handle large volumes of products and can assist customers in the design and use of the manufacturers' products. Currently, we have non-exclusive distribution agreements with many manufacturers, including California Micro Devices Corporation, International Resistive Company, Inc., Johanson Dielectrics, Inc., Kemet Electronics Corporation, Rohm Electronics U.S.A., LLC, Samsung Semiconductor, Inc., Saronix Corp., TDK Corporation of America, Vishay Intertechnology, Inc. and ZeTeX, Inc. We continuously seek to identify potential new suppliers and obtain additional distributorships for new lines of products. We believe that such expansion and diversification will increase our sales and market share. We generally purchase products from manufacturers pursuant to non-exclusive distributor agreements. As an authorized distributor, we are able to offer our suppliers marketing support. Most of our 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 us for any inventory in our possession for which the manufacturer reduces its prices. Stock rotation privileges typically allow us to exchange inventory in an amount up to five percent of a prior period's purchases. Upon termination of a distributor agreement, the right of return typically requires the manufacturer to repurchase our inventory at our adjusted purchase price. We believe that the above-described provisions of our distributorship agreements generally have served to reduce our exposure to loss from unsold inventory. Because price protection, stock rotation privileges and the right to return inventory are limited in scope, there can be no assurances that we will not experience significant losses from unsold inventory in the future. OPERATIONS Component Distribution. Inventory management is critical to a distributor's business. We constantly focus on a high number of resales or "turns" of existing inventory to reduce exposure to product obsolescence and changing customer demand. Our central computer system facilitates the control of purchasing and inventory, accounts payable, shipping and receiving, and invoicing and collection information of our distribution business. Our distribution software system includes financial systems, EDI, customer order entry, purchase order entry to manufacturers, warehousing and inventory control. Each of our sales departments and offices is electronically linked to our central computer systems which provides fully integrated on-line real-time data with respect to our inventory levels. Our inventory management system was developed internally and is considered proprietary. We track inventory turns by vendor and by product, and our inventory management system provides 6 7 immediate information to assist in making purchasing decisions and decisions as to which inventory to exchange with suppliers under stock rotation programs. Our inventory management system also uses bar-code technology along with scanning devices, which we supply to certain customers, and is networked to the facilities of such customers. In some cases, customers use computers that interface directly with our computers to identify available inventory and rapidly process orders. We also monitor supplier stock rotation programs, inventory price protection, rejected material and other factors related to inventory quality and quantity. This system enables us to more effectively manage our inventory and to respond more quickly to customer requirements for timely and reliable delivery of components. Our inventory turnover was approximately 3.7 times for the fiscal year ended June 30, 2000. Contract Manufacturing. We conduct our contract manufacturing operations through our wholly owned subsidiary Nexus Custom Electronics, Inc., at two locations. The first location is an approximately 32,000 square foot facility located in Brandon, Vermont. The second location is an approximately 30,000 square foot facility located in Woburn, Massachusetts that recently commenced operations. Nexus provides contract manufacturing services to our OEM customers, which includes procurement of customer specified components and raw materials from our network of suppliers and other suppliers, assembly of components on PCBs and post-assembly testing. OEMs then incorporate the PCBs into finished products. In assembling PCBs, Nexus is capable of employing both PTH and 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. Nexus' Vermont 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. Management believes sophisticated customers increasingly are requiring their manufacturers to be ISO 9002-certified for purposes of quality assurance. COMPETITION The electronic components distribution industry is highly competitive, primarily with respect to price and product availability. We believe that the breadth of our customer base, services and product lines, our level of technical expertise and the quality of our services generally are also particularly important. We compete with large national distributors such as Arrow Electronics, Inc. and Avnet, Inc., as well as regional and specialty distributors, such as All American Semiconductor, Inc. and Reptron Electronics, Inc., many of whom distribute the same or competitive products. Many of our competitors have significantly greater name recognition and greater financial and other resources than we do. 7 8 The electronics 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. BACKLOG As the trend toward outsourcing increases, customers have been entering into just-in-time contracts with distributors, instead of placing orders with long lead times. Orders constituting our backlog are subject to delivery rescheduling, price negotiations and cancellations by the customer, sometimes without penalty or notice. Therefore, our backlog is not necessarily indicative of future sales for any particular period. EMPLOYEES At June 30, 2000, we had a total of 471 employees, of which 143 were employed by Nexus. Of our total employees, twelve were engaged in administration, 55 were managerial and supervisory employees, 194 were in sales and 210 performed warehouse, manufacturing and clerical functions. Of these employees, Nexus employed two in administration, 17 in management and supervisory positions, one in sales and 123 in warehouse, manufacturing and clerical functions. There are no collective bargaining contracts covering any of our employees. We believe our relationship with our employees is satisfactory. ITEM 2. PROPERTIES. All of our facilities are leased except for the Brandon, Vermont property which is owned by Nexus. We currently lease 22 facilities strategically located throughout the United States, two of which are multipurpose facilities used principally as administrative, sales, and purchasing offices, as well as warehouses, one of which is used for contract manufacturing and the remainder of which are used exclusively by us as sales offices. Our satellite sales offices range in size from approximately 500 square feet to approximately 4,300 square feet. Base rents for such properties range from approximately $500 per month to approximately $5,000 per month. Depending on the terms of each particular lease, in addition to base rent, we 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 our Hauppauge, New York headquarters. The following table sets forth certain information regarding our five principal leased facilities: 8 9
LEASE BASE RENT EXPIRATION LOCATION PER MONTH SQUARE FEET USE DATE Hauppauge, NY(1) $51,000 72,000 Administrative, 12/31/03 Sales and Warehouse Franklin, MA $18,000 11,700 Sales 3/31/05 Woburn, MA $14,300 30,000 Manufacturing 7/31/05 Westlake Village, CA $10,550 10,000 Administrative, 4/30/03 Sales and Warehouse San Jose, CA $ 9,400 3,800 Sales 4/30/03
----------------- (1) Leased from a partnership owned by Joel H. Girsky and Charles B. Girsky at a current monthly rent which the Company believes represents the fair market value for such space. We sublease a portion of this space to an unaffiliated third party. Nexus owns and occupies an approximately 32,000 square foot facility located in Brandon, Vermont, that is used for manufacturing, storage and office space. We believe that our present facilities will be adequate to meet our needs for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS. We are 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 our results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No response to this Item is required. 9 10 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. (a) Our common stock is traded on the Nasdaq National Market under the symbol "JACO." The stock prices listed below represent the high and low sale prices of the common stock, as reported by the Nasdaq National Market, for each fiscal quarter beginning with the first fiscal quarter of the fiscal year ended June 30, 1999. Stock prices prior to July 25, 2000 have been adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000.
HIGH LOW FISCAL YEAR 1999: First quarter ended September 30, 1998........................... $ 4.25 $ 1.50 Second quarter ended December 31, 1998........................... 5.00 2.08 Third quarter ended March 31, 1999............................... 3.46 1.67 Fourth quarter ended June 30, 1999............................... 3.08 1.67 FISCAL YEAR 2000: First quarter ended September 30, 1999........................... 4.38 1.67 Second quarter ended December 31, 1999........................... 4.00 2.00 Third quarter ended March 31, 2000............................... 9.83 3.21 Fourth quarter ended June 30, 2000............................... 18.67 5.33 FISCAL YEAR 2001: (through September 14, 2000)..................................... 20.83 10.00
(b) On September 14, 2000, the last reported sale price of our common stock on the Nasdaq National Market was $17.06 per share (which gives effect to the 3-for-2 stock split which was effective on July 24, 2000). As of September 14, 2000, there were 134 holders of record of our common stock. We believe our stock is held by more than 1,100 beneficial owners. (c) We have never declared or paid any cash dividends on our common stock. We intend for the foreseeable future to retain future earnings for use in our business. The amount of dividends we pay in the future, if any, will be at the discretion of our Board of Directors and will depend upon our financial condition, operating results and other factors as the Board of Directors, in its discretion, deems relevant. In addition, our credit facility prohibits us from paying cash dividends on our common stock. 10 11 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA. The selected consolidated financial data set forth below contains only a portion of our financial statements and should be read in conjunction with the consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Report. The historical results are not necessarily indicative of results to be expected for any future period. The share and per share data have been adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000.
YEAR ENDED JUNE 30, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales ......................................... $ 209,325 $ 140,711 $ 153,674 $ 155,098 $ 167,149 Cost of goods sold ................................ 162,443 113,335 121,796 122,993 133,105 --------- --------- --------- --------- --------- Gross profit ...................................... 46,882 27,376 31,878 32,105 34,044 Selling, general and administrative expenses ...... 34,522 27,642 28,707 27,640 26,247 --------- --------- --------- --------- --------- Operating profit (loss) ......................... 12,360 (266) 3,171 4,465 7,797 Interest expense .................................. 1,559 1,309 1,140 971 1,347 --------- --------- --------- --------- --------- Earnings (Loss) before income taxes ............. 10,801 (1,575) 2,031 3,494 6,450 Income tax provision (benefit) .................... 4,425 (418) 847 1,415 2,600 --------- --------- --------- --------- --------- Net earnings (loss) ............................... $ 6,376 $ (1,157) $ 1,184 $ 2,079 $ 3,850 ========= ========= ========= ========= ========= Net earnings (loss) per common share Basic ............................................ $ 1.16 $ (0.21) $ 0.21 $ 0.36 $ 0.74 ========= ========= ========= ========= ========= Diluted .......................................... $ 1.11 $ (0.21) $ 0.20 $ 0.35 $ 0.72 ========= ========= ========= ========= ========= Weighted average number of common and common equivalent shares outstanding Basic ........................................... 5,498 5,547 5,755 5,849 5,220 Diluted ......................................... 5,766 5,547 5,882 5,922 5,331
AT JUNE 30, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS) Working capital ................ $ 58,384 $ 41,998 $ 42,481 $ 41,146 $ 36,964 Total assets ................... 126,329 72,931 73,419 69,996 61,143 Short-term debt ................ 807 792 663 599 474 Long-term debt ................. 40,941 18,886 17,037 15,553 8,791 Shareholders' equity ........... 42,790 34,868 36,625 35,892 34,304
11 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The following table sets forth certain items in our statement of operations as a percentage of net sales for the periods shown:
YEAR ENDED JUNE 30, 2000 1999 1998 ---- ---- ---- Net sales................................................. 100.0% 100.0% 100.0% Cost of goods sold........................................ 77.6 80.5 79.3 ---- ---- ---- Gross profit.............................................. 22.4 19.5 20.7 Selling, general and administrative expenses.............. 16.5 19.7 18.7 ---- ---- ---- Operating profit (loss)................................... 5.9 (0.2) 2.0 Interest expense.......................................... 0.8 0.9 0.7 --- --- --- Earnings (Loss) before income taxes....................... 5.1 (1.1) 1.3 Income tax provision (benefit)............................ 2.1 (0.3) 0.5 --- ----- --- Net earnings (loss)....................................... 3.0% (0.8)% 0.8% === ===== ===
COMPARISON OF FISCAL YEAR ENDED JUNE 30, 2000 ("FISCAL 2000") WITH FISCAL YEAR ENDED JUNE 30, 1999 ("FISCAL 1999") Net sales for Fiscal 2000 were $209.3 million, an increase of $68.6 million, or 48.8%, as compared to $140.7 million reported for Fiscal 1999. Our net sales benefitted from strong demand for components throughout the electronics industry. In addition, we have continued to experience strong demand for flat panels and flat panel monitors. We have also made significant investments in sales personnel and infrastructure, which has contributed to our sales growth. We continue to enhance our sales by providing value-added services related to assisting customers in procurement and inventory management. Gross profit was $46.9 million in Fiscal 2000, an increase of $19.5 million or 71.2%, compared to $27.4 million in Fiscal 1999. Gross profit margins as a percentage of net sales were 22.4% during Fiscal 2000 compared to 19.5% during Fiscal 1999. The strong demand for electronic components is primarily responsible for the increase in gross profit margins during Fiscal 2000. Selling, general and administrative ("SG&A") expenses were $34.5 million in Fiscal 2000, an increase of $6.9 million, or 24.9%, compared to $27.6 million in Fiscal 1999. As a percentage of net sales, SG&A expenses decreased in Fiscal 2000 to 16.5% compared to 19.7% in Fiscal 1999. The increase in spending is primarily attributable to expenses necessary to support the growth in sales. These expenses include additional sales and marketing personnel, investments in our infrastructure, and the additional costs associated with the acquisition of PGI 12 13 and Interface. The decrease as a percentage of net sales reflects operating efficiencies realized by us with higher revenue levels. Operating profit (loss) for Fiscal 2000 was $12.4 million as compared to $(0.3) million for Fiscal 1999. As a percentage of net sales, operating profit (loss) increased in Fiscal 2000 to 5.9% as compared to (0.2)% in Fiscal 1999. Interest expense increased to $1.6 million in Fiscal 2000, as compared to $1.3 million in Fiscal 1999. The 19.1% increase was primarily due to the additional net borrowings of approximately $15 million to acquire Interface during the fourth quarter of Fiscal 2000. We will continue to see increased interest expense to the extent of the higher borrowing levels. Net earnings for Fiscal 2000 were $6.4 million, or $1.11 per share diluted compared to a net loss for Fiscal 1999 of $1.2 million, or $.21 per share diluted. Diluted earnings per share includes the dilutive effect of outstanding stock options. The increase in net earnings was attributable to the increase in net sales, the increase in gross profit margins, the reduction in SG&A expenses and the acquisition of Interface. COMPARISON OF FISCAL 1999 WITH FISCAL YEAR ENDED JUNE 30, 1998 ("FISCAL 1998") Net sales for Fiscal 1999 were $140.7 million, a decrease of $13 million, or 8.4%, as compared to $153.7 million reported for Fiscal 1998. Our net sales were impacted throughout the fiscal year by continued industry wide pricing pressures, compounded by weak demand for components which had impacted the electronic components industry for over three years. Toward the end of Fiscal 1999, we experienced an increase in activity in many product sectors. Gross profit was $27.4 million in Fiscal 1999, a decrease of $4.5 million, or 14.1%, compared to $31.9 million in Fiscal 1998. 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. SG&A expenses 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 electronic components distribution industry during Fiscal 1999, we had implemented cost containment measures. Additionally, SG&A expenses decreased due to a reduction in variable costs such as commissions paid to sales personnel. 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. Operating profit (loss) for Fiscal 1999 was $(0.3) million as compared to $3.1 million for Fiscal 1998. As a percentage of net sales, operating profit (loss) decreased in Fiscal 1999 to (0.2)% as compared to 2.0% in Fiscal 1998. 13 14 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 our purchases of common stock under our stock repurchase program, fixed asset additions primarily for contract manufacturing, operational expenditures made to upgrade our core financial and reporting software, and an increase in borrowing rates. Net loss for Fiscal 1999 was $(1.2) million, or $(.21) per share diluted, as compared to net earnings for Fiscal 1998 of $1.2 million, or $.20 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 overall industry weakness as it related to electronic components. LIQUIDITY AND CAPITAL RESOURCES Our agreement with our banks, as amended, which expires on September 13, 2001, provides us with a $50 million term loan and revolving line of credit facility based principally on eligible accounts receivable and inventories as defined in the agreement expiring September 13, 2001. The interest rate of the credit facility is based on the average 30-day LIBOR rate plus 1.75% through the quarter ending September 30, 2000. At such time, the rate converts to the average 30-day LIBOR rate plus 1.0% to 2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. The outstanding balance on the revolving line of credit facility was $39.9 million at June 30, 2000. Borrowings under this facility are collateralized by substantially all of our assets. The agreement contains provisions for maintenance of certain financial ratios, all of which we were in compliance with at June 30, 2000, and prohibits the payment of cash dividends. For Fiscal 2000, our net cash used in operating activities was approximately $7.0 million, as compared to net cash provided by operating activities of $1.4 million for Fiscal 1999. The increase in net cash used is primarily attributable to an increase in inventory and accounts receivable as a result of the increase in net sales during the fiscal year, partially offset by an increase in accounts payable and accrued expenses and net earnings for Fiscal 2000. Net cash used in investing activities increased to $13.4 million for Fiscal 2000 as compared to $1.6 million for Fiscal 1999. The increase is primarily attributable to the acquisition of the operating assets of PGI and the purchase of Interface, representing a net cash outlay of $14.9 million. Our cash expenditures may vary significantly from current levels, based on a number of factors, including, but not limited to, future acquisitions, if any. For Fiscal 2000 and Fiscal 1999, our inventory turnover was 3.7x and 3.3x, respectively. The average days outstanding of our accounts receivable at June 30, 2000 was 57 days, as compared to 59 days at June 30, 1999. We believe that cash flow from operations and funds available under our credit facility will be sufficient to fund our capital needs for at least the next twelve months. 14 15 INFLATION Inflation has not had a significant impact on our operations during the last three fiscal years. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to interest rate changes with respect to our credit facility which bears interest at the higher of the prime rate or the federal funds rate plus 0.5%, or at our option, at a rate equal to the average 30-day LIBOR rate plus 1.0% to 2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. At June 30, 2000, $39.9 million was outstanding under the credit facility. Changes in the LIBOR interest rate during Fiscal 2000 will have a positive or negative effect on our interest expense. Each 1.0% fluctuation in the LIBOR interest rate will increase or decrease interest expense for us by approximately $0.4 million based on outstanding borrowings at June 30, 2000. The impact of interest rate fluctuations on other floating rate debt 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. 15 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The following are our directors and executive officers:
NAME AGE POSITION Joel H. Girsky .......................... 61 Chairman of the Board, President and Treasurer Joseph F. Oliveri........................ 51 Vice Chairman of the Board and Executive Vice President Charles B. Girsky........................ 66 Executive Vice President and Director Jeffrey D. Gash.......................... 47 Vice President, Finance and Secretary Gary Giordano............................ 43 Executive Vice President Stephen A. Cohen......................... 63 Director Edward M. Frankel........................ 62 Director Joseph F. Hickey, Jr..................... 42 Director
Joel H. Girsky has been a Director and executive officer of Jaco since it was founded in 1961. He also is a director of Nastech Pharmaceutical Company, Inc. of Hauppauge, New York, and Frequency Electronics, Inc. of Uniondale, New York. Messrs. Joel H. Girsky and Charles B. Girsky are brothers. Joseph F. Oliveri became Vice Chairman of the Board of Directors and an Executive Vice President in June 2000. From March 1983 to June 2000 he was President and Chief Executive Officer of Interface. We acquired Interface in June 2000. Mr. Oliveri is also a director of EMC Corporation, a designer and manufacturer of hardware and software products and a provider of services for the storage, management, protection and sharing of electronic information. Charles B. Girsky was a founder, Director, and our President from 1961 through January 1983. He became an executive officer again in August 1985 and has been an Executive Vice President since January 1988. He has been a Director since 1986. Messrs. Charles B. Girsky and Joel H. Girsky are brothers. Jeffrey D. Gash became Vice President of Finance in January 1989, and was our Controller for more than five years prior thereto. In September 1999, he became our Secretary. He has also served in similar capacities with our subsidiaries. 16 17 Gary Giordano became Executive Vice President in June 2000. From February 1992 to June 2000 he was a Vice President of Sales and Marketing. Stephen A. Cohen has been a Director since 1970. Since August 1989, he has practiced law as a member of Morrison Cohen Singer & Weinstein, LLP, Jaco's general counsel. Edward M. Frankel became a Director in May 1984. For more than five years he has been President of Vitaquest International, Inc., a distributor of vitamins and health and beauty products, and its predecessor entities. Joseph F. Hickey, Jr. became a Director in May 1997. Since February 1991, he has been employed by Tucker Anthony Capital Markets, a national investment banking firm. He is a managing director in Tucker Anthony's investment banking department. BOARD COMMITTEES We have standing Audit and Compensation Committees. The Audit Committee reviews the work and reports of Jaco's independent accountants. The Audit Committee is comprised of Stephen A. Cohen, Edward M. Frankel and Joseph F. Hickey, Jr. The Compensation Committee makes recommendations to the Board of Directors concerning compensation arrangements for directors, executive officers, and senior management of Jaco. The Compensation Committee is comprised of Mr. Frankel and Mr. Hickey. The entire Board of Directors administers our 1993 Non-Qualified Stock Option Plan and our Restricted Stock Plan. DIRECTOR COMPENSATION Pursuant to our 1993 Stock Option Plan for Outside Directors, the then outside directors (directors who are not employees) were each granted options on December 31, 1993 to purchase 22,000 shares of common stock. In addition, the Outside Directors' Plan provided that each outside director shall also be granted on each December 31 subsequent to December 31, 1993 stock options to purchase 4,399 shares of common stock. All options granted under the Outside Directors' Plan are immediately exercisable, and the exercise price per share of each option is equal to the fair market value of the shares of common stock on the date of grant. No option may be granted after January 1, 1998 under the Outside Directors' Plan. On September 16, 1998, each of Messrs. Cohen and Frankel was granted options to purchase 11,250 shares of common stock. The options became exercisable one year from the date of grant and expire on September 15, 2003. The per share exercise price of each option is equal to the closing price of the common stock on the date of grant, or $2.75 per share. On September 15, 1999, we granted each of Mr. Stephen A. Cohen, Mr. Edward M. Frankel and Mr. Joseph F. Hickey, Jr., five year options to purchase 11,250 shares of common stock at an exercise price of $2.50 per share. The per share exercise price of each option is equal to the closing price of the common stock on the date of grant. The options vest on the one-year anniversary date of the date of grant and were issued pursuant to our 1993 Non-Qualified Stock Option Plan. 17 18 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Joseph F. Hickey, Jr., a Director and member of the Compensation Committee is a managing director of Tucker Anthony Capital Markets which is an underwriter of our proposed public offering of common stock. COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who beneficially own more than ten percent of our common stock to file with the Securities and Exchange Commission initial reports of beneficial ownership on Form 3 and reports of changes in beneficial ownership on Form 4 or Form 5. Executive officers, directors, and ten percent shareholders are required to furnish us with copies of such forms. Based solely on a review of such forms furnished to us and written representations from certain reporting persons, we believe that during Fiscal 2000, our executive officers, directors, and ten percent shareholders complied with all applicable Section 16(a) filing requirements. ITEM 11. EXECUTIVE COMPENSATION. The following table sets forth the information for Fiscal 2000, 1999 and 1998 as to the compensation paid by us to our Chief Executive Officer for services rendered and our four other most highly compensated executive officers, whose total salary and bonus exceeded $100,000 during such years. 18 19 SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Long-Term Awards Compensation Payouts Other Restricted Name and Annual Stock Options/ LTIP All Other Principal Position Year Salary($) Bonus($) Compensation($)(1) Awards ($)(2) SARs(#)(3) Payouts($) Compensation($)(4) ------------------ ---- --------- -------- ------------------ ------------- ---------- ---------- ------------------ Joel H. Girsky 2000 325,000 648,100 - - 60,000 -- 66,709 Chairman of the Board 1999 325,000 -- - - 300,000 -- 58,556 President, and Treasurer 1998 325,000 81,100 - - -- -- 57,949 Joseph F. Oliveri (5) 2000 20,770 15,700 - - 30,000 -- -- Vice Chairman and Executive Vice President Charles B. Girsky 2000 225,000 324,000 - - 15,000 -- 6,831 Executive Vice President 1999 225,000 -- - - 37,500 -- 3,144 1998 225,000 41,000 - - -- -- 3,145 Jeffrey D. Gash 2000 136,000 60,800 - - 15,000 -- 4,953 Vice President, Finance 1999 125,000 25,800 - - 15,000 -- 2,217 and Secretary 1998 125,000 28,100 - - -- -- 1,895 Gary Giordano(6) 2000 158,000 40,000 - - 15,000 -- 1,971 Executive Vice President
(1) The costs of certain benefits are not included because they did not exceed, in the case of each named executive officer, the lesser of $50,000 or ten percent of the total annual salary and bonus reported in the above table. (2) On June 9, 1997, the Board of Directors awarded an aggregate of 97,500 shares of common stock under our Restricted Stock Plan to our executive officers as follows: 37,500 shares of common stock to Mr. Joel Girsky, 37,500 shares of common stock to Mr. Charles Girsky, 15,000 shares of common stock to Mr. Jeffrey Gash and 7,500 shares of common stock to Mr. Gary Giordano. These grants were subject to the approval of our shareholders, which approval was received on December 9, 1997. The awards vest in one-quarter increments annually. Accordingly, as of June 30, 2000, the following portions of the aforementioned awards were vested: 28,125 shares of common stock awarded to each of Mr. Joel Girsky and Mr. Charles Girsky, 11,250 shares of common stock awarded to Mr. Jeffrey Gash and 5,625 shares of common stock awarded to Mr. Gary Giordano. The value of the aggregate restricted stock holdings of these individuals at June 30, 2000 was as follows: $525,000 for Mr. Joel Girsky, $525,000 for Mr. Charles Girsky, $210,000 for Mr. Jeffrey Gash and $105,000 for Mr. Gary Giordano. These figures are based upon the fair market value per share of our common stock at June 30, 2000, minus the purchase price of such awards. The closing sale price for our common stock as of June 30, 2000 on the Nasdaq National Market was $14.67. (3) Adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000. 19 20 (4) Includes 401(k) matching contributions, premiums paid on group term life insurance and, in the case of Mr. Joel Girsky, the taxable portion of split dollar life insurance policies and deferred compensation accrued in connection with his employment agreement with us. 401(k) matching contributions for Fiscal 2000 for the Named Executives were as follows: Mr. Joel Girsky -- $1,125, Mr. Oliveri -- $0, Mr. Charles Girsky -- $3,786, Mr. Gash -- $4,431 and Mr. Giordano -- $1,665. Premiums paid on group term life insurance for Fiscal 2000 for the Named Executives were as follows: Mr. Joel Girsky -- $8,584, Mr. Oliveri -- $0, Mr. Charles Girsky -- $3,045, Mr. Gash -- $522 and Mr. Giordano -- $306. The taxable portion of split dollar life insurance policies for Mr. Joel Girsky was $7,000 for Fiscal 2000. $50,000 deferred compensation was accrued in Fiscal 2000 in connection with Mr. Joel Girsky's employment agreement with us. (5) Mr. Oliveri became an Executive Vice President of Jaco on June 6, 2000. (6) Mr. Giordano became an Executive Vice President of Jaco on June 22, 2000. EMPLOYMENT AGREEMENTS We entered into a four-year employment agreement with Joel Girsky, effective as of July 1, 1997, to serve as our Chairman and President. The employment agreement, as amended, will automatically renew for additional one-year periods on each anniversary date, unless notice is given 90 days prior to an anniversary date. In the event that a notice of non-renewal is delivered by either party, Mr. Girsky's employment agreement shall continue for a period of three years following the anniversary date which follows immediately after the date that such notice is delivered. Mr. Joel Girsky received a base salary of $325,000 for Fiscal 2000 and shall receive a base salary of $325,000 for each fiscal year ending June 30, thereafter. In addition, he is entitled to receive a cash bonus equal to four percent of our earnings before income taxes for each fiscal year in which such earnings are between $1.0 million and $2.5 million, or six percent of our earnings before income taxes for such fiscal year if such earnings are in excess of $2.5 million up to a maximum annual cash bonus of $720,000. If our earnings before income taxes are in excess of $12.0 million for any such fiscal year, Mr. Girsky may also receive stock options. Mr. Girsky or his estate, as the case may be, is entitled to receive a payment of $1.5 million if he dies or becomes permanently disabled during the term of the employment agreement. Mr. Girsky shall also receive deferred compensation which accrues at the rate of $50,000 per year, and becomes payable in a lump sum at the later of (i) Mr. Girsky's attainment of age 60 (which event occurred in Fiscal 1999), or (ii) his cessation of employment, with or without cause, at any time. In the event of a change in control, Mr. Girsky will receive 299% of the average of his base salary plus cash bonus for the previous five years, to the extent that such payment does not equal or exceed three times Mr. Girsky's base amount, as computed in accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986. We entered into a three-year employment agreement with Joseph F. Oliveri, effective as of June 6, 2000. The employment agreement will automatically renew for additional one-year periods unless notice is given 90 days prior to an anniversary date. Mr. Oliveri receives a base salary at an annual rate of $300,000. In addition, he is entitled to receive a cash bonus equal to two percent of Interface's gross profit from certain customers for each twelve month period beginning June 1, 2000, 20 21 June 2, 2001 and June 1, 2002. In the event of a change in control, Mr. Oliveri will receive 300% of his base salary plus cash bonus earned during the twelve months prior to the change of control, if the change of control occurs before May 30, 2001. If the change of control occurs on or after June 1, 2001 and on or prior to May 30, 2002, Mr. Oliveri will receive 200% of his base salary plus cash bonus earned during the twelve months prior to the change of control. Finally, if the change of control occurs on or after June 1, 2002 and on or prior to May 30, 2003, Mr. Oliveri will receive 100% of his base salary plus cash bonus earned during the twelve months prior to the change of control. We entered into a four-year employment agreement with Charles Girsky, effective as of July 1, 1998, to serve as our Executive Vice President. The employment agreement will automatically renew for additional one-year periods on each anniversary date, unless notice is given 90 days prior to an anniversary date. In the event that a notice of non-renewal is delivered by either party, Mr. Girsky's employment agreement shall continue for a period of three years following the anniversary date which follows immediately after the date that such notice is delivered. Mr. Girsky received a base salary of $225,000 for Fiscal 2000, and shall receive a base salary of $225,000 for each fiscal year ending June 30, thereafter. In addition, he is entitled to receive a cash bonus equal to two percent of our earnings before income taxes for each fiscal year in which such earnings are between $1.0 million and $2.5 million or three percent of our earnings before income taxes for such fiscal year if such earnings are in excess of $2.5 million up to a maximum annual cash bonus of $360,000. If our earnings before income taxes are in excess of $12.0 million for any such fiscal year, Mr. Girsky may receive stock options. Mr. Girsky or his estate, as the case may be, is entitled to receive a payment of $1.0 million if he dies during the term of the employment agreement. In the event of a change in control, Mr. Girsky will receive 250% of the average of his base salary plus cash bonus for the previous five years, to the extent that such payment does not equal or exceed three times Mr. Girsky's base amount, as computed in accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986. Additionally, upon a change of control, Mr. Girsky's employment agreement may be assigned by us or any such successor or surviving corporation upon sixty days prior written notice to Mr. Girsky. We entered into a four-year employment agreement with Jeffrey Gash, effective as of July 1, 1998, to serve as our Vice President of Finance. The employment agreement will automatically renew for additional one-year periods on each anniversary date, unless notice is given 90 days prior to an anniversary date. In the event that a notice of non-renewal is delivered by either party, Mr. Gash's employment agreement shall continue for a period of three years following the anniversary date which follows immediately after the date that such notice is delivered. Pursuant to the agreement, Mr. Gash received a base salary of $125,000 for Fiscal 2000, and shall receive a base salary of $125,000 for each fiscal year ending June 30, thereafter. In addition, he is entitled to receive a cash bonus as determined by our Board of Directors and our President. Mr. Gash or his estate, as the case may be, is entitled to receive a payment of $750,000 if he dies during the term of the employment agreement. The death benefit may be funded by a life insurance policy maintained by us. In the event of Mr. Gash's cessation of employment with us, upon his request, we are obligated to transfer such policy to Mr. Gash. Thereafter, we would have no further liability for the payment of such benefit or the premiums on such policy. In the event of a change in control, Mr. Gash will receive 200% of the average of his base salary plus cash bonus for the previous five years, to the extent that such payment does not equal or exceed three times Mr Gash's base amount, as computed in 21 22 accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986. Additionally, upon a change of control, Mr. Gash's employment agreement may be assigned by us or any such successor or surviving corporation upon sixty days prior written notice to Mr. Gash. We entered into an agreement with Gary Giordano dated as of July 20, 1998, which provides a lump sum payment to him in the event of a change in control. If Mr. Giordano's employment with Jaco or a successor or surviving corporation is terminated other than for cause (commission by Mr. Giordano of an act constituting common law fraud or a felony), for a period of up to two years after the change in control event, he will receive up to 200% of the average of his base salary plus cash bonus for the previous three years based upon a formula. The payment will be made to Mr. Giordano to the extent such payment does not exceed Mr. Giordano's base amount as computed in accordance with Section 280G(d)(4) of the Internal Revenue Code of 1986. The agreement also requires Mr. Giordano to refrain from disclosing proprietary or confidential information obtained by him. The agreement does not obligate Jaco to retain the services of Mr. Giordano. OPTION GRANTS OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES The following tables set forth information concerning the grant of stock options during Fiscal 2000 to each of the persons described in the Summary Compensation Table and the number and value of unexercised options held by them at the fiscal year-end. OPTION/SAR GRANTS IN LAST FISCAL YEAR Individual Grants
Potential Realizable Value Number of Percent of At Assumed Annual Rates Securities Total Options/ of Stock Price Appreciation Underlying SARs Granted Exercise or for Option Term (2) Options/SARs to Employees Base Price Name Granted (#) (1) in Fiscal Year ($/Sh)(1) Expiration Date ---- --------------- -------------- ---------- --------------- 5%($) 10%($) ----- ------ Joel H. Girsky 60,000(3) 30% $ 3.25 December 7, 2004 $ 53,900 $119,000 Joseph F. Oliveri 30,000(4) 15 13.70 June 5, 2005 113,600 250,900 Charles B. Girsky 15,000(5) 7 2.50 September 14, 2004 10,400 22,900 Jeffrey D. Gash 15,000(5) 7 2.50 September 14, 2004 10,400 22,900 Gary Giordano 15,000(5) 7 2.50 September 14, 2004 10,400 22,900
(1) Adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000. (2) The potential realizable value assumes that the stock price increases from the date of grant until the end of the option term (5 years) at the annual rate of five percent and ten percent. The assumed annual rates of appreciation are computed in accordance with the rules and regulations of the Securities and Exchange Commission. No assurance can be given that the 22 23 annual rates of appreciation assumed for the purposes of the table will be achieved, and actual results may be lower or higher. (3) The options in the table were granted on December 8, 1999 under our 1993 Non-Qualified Stock Option Plan and have exercise prices equal to the fair market value of our common stock on the date of grant. The options become exercisable one year from the date of grant. (4) The options in the table were granted on June 6, 2000 under our 1993 Non-Qualified Stock Option Plan and have exercise prices equal to the fair market value of our common stock on the date of grant. The options become exercisable one year from the date of grant. (5) The options in the table were granted on September 15, 1999 under our 1993 Non-Qualified Stock Option Plan and have exercise prices equal to the fair market value of our common stock on the date of grant. The options become exercisable one year from the date of grant. AGGREGATE OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Value of Unexercised Number of Unexercised In-the-Money Option/SARs at Shares Acquired Value Option/SARs at FY-End (#)(1) FY-End ($)(2) Name on Exercise (#)(1) Realized($) Exercisable Unexercisable Exercisable Unexercisable ---- ------------------ ----------- ------------ -------------- ------------ ------------- Joel H. Girsky - - 323,098 60,000 $3,949,800 $685,000 Joseph F. Oliveri - - - 30,000 - 29,500 Charles B. Girsky - - 97,500 15,000 996,600 182,500 Jeffrey D. Gash 15,000 $233,600 15,000 15,000 193,100 182,500 Gary Giordano 20,000 229,000 - 15,000 - 182,500
(1) Adjusted to give effect to a 3-for-2 stock split which was effective on July 24, 2000. (2) Based on the fair market value per share of our common stock at year end, minus the exercise or base price on "in-the-money" options. The closing sale price for our common stock as of June 30, 2000 on the Nasdaq National Market was $14.67. 23 24 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information concerning the beneficial ownership of the shares of our common stock as of September 14, 2000 for: - each person we know to be the beneficial owner of five percent or more of the outstanding shares of common stock; - each executive officer listed in the summary compensation table above; - each of our directors; and - all executive officers and directors as a group. AGGREGATE NUMBER OF SHARES NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE OF SHARES BENEFICIAL OWNER(1) OWNED BENEFICIALLY OWNED(2) --------------------- --------------- --------------------- Joel H. Girsky (3) 1,020,140 17.1% Joseph F. Oliveri - - Charles B. Girsky (4) 505,815 8.8 Stephen A. Cohen (5) 29,683 * Edward M. Frankel (6) 31,299 * Joseph F. Hickey, Jr. (7) 32,149 * Jeffrey D. Gash (8) 47,298 * Gary Giordano (9) 22,500 * Dimensional Fund (10) 410,074 7.3 Advisors 1299 Ocean Avenue 11th Floor Santa Monica, CA 90401 All directors and 1,688,884 27.2 executive officers as a group (eight persons) (11) -------------- * Less than one percent. (1) Unless otherwise indicated, the address of each person listed is 145 Oser Avenue, Hauppauge, New York, 11788. 24 25 (2) Assumes a base of 5,633,959 shares of common stock outstanding, before any consideration is given to outstanding options. (3) Includes 323,098 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan and 37,500 shares of common stock awarded under our Restricted Stock Plan. (4) Includes (i) 343,261 shares of common stock owned by the Girsky Family Trust, (ii) 112,500 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan and (iii) 37,500 shares of common stock awarded under our Restricted Stock Plan. (5) Includes 11,250 shares of common stock acquirable pursuant to non-qualified stock options exercisable within 60 days granted to Mr. Cohen by the Company and 11,250 shares of common stock acquirable pursuant to the exercise of options granted under our 1993 Non-Qualified Stock Option Plan. (6) Includes (i) 8,799 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our Outside Directors' Plan, (ii) 11,250 shares of common stock acquirable pursuant to non-qualified stock options exercisable within 60 days granted to Mr. Frankel by Jaco and (iii) 11,250 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan. (7) Includes (i) 4,399 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our Outside Directors' Plan, (ii) 15,000 shares of common stock acquirable pursuant to non-qualified stock options exercisable within 60 days granted to Mr. Hickey by Jaco and (iii) 11,250 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan. (8) Includes 30,000 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan and 15,000 shares of common stock awarded under our Restricted Stock Plan. (9) Includes 15,000 shares of common stock acquirable pursuant to options exercisable within 60 days granted under our 1993 Non-Qualified Stock Option Plan and 7,500 shares of common stock awarded under our Restricted Stock Plan. (10) These securities are held in investment advisory accounts of Dimensional Fund Advisors, Inc. This information is based upon a Schedule 13G dated February 4, 2000, and information made available to Jaco. (11) Includes 565,046 shares of common stock acquirable pursuant to options exercisable within 60 days and 97,500 shares of common stock awarded under our Restricted Stock Plan. 25 26 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During Fiscal 2000, we incurred approximately $612,000 of rental expenses in connection with our main headquarters and centralized inventory distribution facility, located in Hauppauge, New York, which was paid to Bemar Realty Company, the owner of such premises. Bemar is a partnership consisting of Messrs. Joel Girsky and Charles Girsky, both of whom are officers, directors and principal shareholders. The lease on the property, which is net of all expenses, including taxes, utilities, insurance, maintenance and repairs was renewed on January 1, 1996 and expires on December 31, 2003. We believe the current rental rate is at its fair market value. Joseph F. Oliveri, our Vice Chairman of the Board and an Executive Vice President, has been a director of EMC Corporation, a public company, since March 1993. Mr. Oliveri was also the President and Chief Executive Officer of Interface from March 1983 until June 2000, when we acquired Interface. Interface sells components to contract manufacturers which incorporate such components into products sold to EMC. Mr. Oliveri was a 40% stockholder of Interface, and therefore, upon the acquisition of Interface, Mr. Oliveri received his proportionate share of the $15.4 million purchase price paid by Jaco at the closing and is entitled to receive his proportionate share of up to approximately $6.6 million of deferred payments. Joseph E. Hickey, Jr., a Director, is also a managing director of Tucker Anthony Capital Markets. Tucker Anthony Capital Markets is an underwriter of our proposed public offering of common stock. 26 27 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 (2) Financial Statement Schedule included in Part IV of this Report: Report of Independent Certified Public Accountant on Schedule F-30 Schedule II - Valuation and Qualifying Accounts F-31
27 28 EXHIBIT NO. EXHIBIT 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 10.2.2. 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. 10.6 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. 28 29 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. 10.10 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. 10.13.1 Amendment No. 1 to Employment Agreement between Joel Girsky and the Company. 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. 29 30 10.16 Employment Agreement, dated June 6, 2000, between the Company and Joseph Oliveri, incorporated by reference to the Company's Current Report on Form 8-K, filed June 12, 2000, Exhibit 10.16. 10.17 Stock Purchase Agreement by and among Jaco Electronics, Inc. and all of the Stockholders of Interface Electronics Corporation as of May 4, 2000, incorporated by reference to the Company's Current Report on Form 8-K, filed May 15, 2000, Exhibit 2.1. 10.17.1 Amendment No. 1 to the Stock Purchase Agreement by and among Jaco Electronics, Inc. and all of the Stockholders of Interface Electronics Corp. as of May 4, 2000, dated June 6, 2000, incorporated by reference to the Company's Current Report on Form 8-K, filed June 12, 2000, Exhibit 2.2. 10.18 Agreement between the Company and Gary Giordano. 21.1 Subsidiaries of the Company. 23.1 Consent of Grant Thornton LLP. 27 Financial Data Schedule. 99.1 General Loan and Security Agreement dated January 20, 1989, between the Company as borrower and The Bank of New York Commercial Corporation ("BNYCC") as secured party, incorporated by reference to the Company's Current Report on Form 8-K, filed January 31, 1989, Exhibit 28(1). 99.2 Loan and Security Agreement - Accounts Receivable and Inventory, dated January 20, 1989, between the Company and BNYCC, incorporated by reference to the Company's Current Report on Form 8-K filed January 31, 1989, Exhibit 28(2). 99.3 Letter of Credit and Security Agreement, dated January 20, 1989, between the Company and BNYCC, incorporated by reference to the Company's Current Report on Form 8-K filed January 31, 1989, Exhibit 28(3). 99.4 Amendment to Term Loan Notes (the "Term Notes") executed by the Company in favor of BNYCC dated January 13, 1992, together with Letters from R.C. Components, Inc., Quality Components, Inc., Micatron, Inc. and Distel, Inc., each a subsidiary of the Company and a guarantor of the obligations evidenced by the Term Notes, to BNYCC acknowledging the amendment to the Term Notes for the extension of the maturity date of each such note, incorporated by reference to the Company's 1992 10-K, Exhibit 28.4. 99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between the Company and BNYCC, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1994. Exhibit 99.5. 30 31 99.6 $1,500,000 Additional Term Loan Note, executed by the Company in favor of BNYCC, dated March 11, 1994, incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1994, Exhibit 99.6. 99.7 Restated and Amended Loan and Security Agreement, dated April 25, 1995, among the Company, Nexus and BNYCC, together with an Amendment to Term Loan Note executed by the Company in favor of BNYCC and Letter executed by R.C. Components, Inc., Quality Components, Inc., Micatron, Inc., Distel, Inc. and Jaco Overseas, Inc., incorporated by reference to the Company's Annual Report on Form 10-K for the year ended June 30, 1995, Exhibit 99.7. 99.8 Second Restated and Amended Loan and Security Agreement dated September 13, 1995 among the Company, Nexus Custom Electronics, Inc., BNYCC and NatWest Bank, N.A. ("Second Restated and Amended Loan and Security Agreement"), incorporated by reference to the Company's Registration Statement on Form S-2, Commission File No. 33-62559, filed October 13, 1995, Exhibit 99.8. 99.8.1 Amendment to the Second Restated and Amended Loan and Security Agreement, dated as of April 10, 1996, 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. 99.8.5 Amendment to Second Restated and Amended Loan and Security Agreement dated October 26, 1999, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, Exhibit 99.8.5. 99.8.6 Amendment to Second Restated and Amended Loan and Security Agreement dated December 31, 1999, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, Exhibit 99.8.6. 99.8.7 Amendment to Second Restated and Amended Loan and Security Agreement dated June 6, 2000. 31 32 (b) Reports on Form 8-K During the fourth quarter of Fiscal 2000, we filed a Current Report on Form 8-K, dated May 15, 2000, in which it was reported, pursuant to Item 5 of Form 8-K, that we executed a Stock Purchase Agreement with all of the stockholders of Interface Electronics Corporation, to acquire Interface. During the fourth quarter of Fiscal 2000, we filed a Current Report on Form 8-K, dated June 12, 2000, in which it was reported, pursuant to Item 2 of Form 8-K, that we acquired all of the capital stock of Interface. On August 18, 2000, a Current Report on Form 8-K, Amendment No. 1, was filed to include certain financial statements pursuant to Item 7 of Form 8-K. 32 33 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-29 Report of Independent Certified Public Accountants on Schedule F-30 Schedule II - Valuation and Qualifying Accounts F-31
F-1 34 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, 2000 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, 2000. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended June 30, 2000 in conformity with accounting principles generally accepted in the United States of America. GRANT THORNTON LLP Melville, New York August 15, 2000 F-2 35 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30,
ASSETS 2000 1999 ------------ ------------ CURRENT ASSETS Cash $ 617,603 $ 922,247 Marketable securities 880,954 881,622 Accounts receivable, less allowance for doubtful accounts of $1,111,000 in 2000 and $440,000 in 1999 42,179,468 23,408,900 Inventories 53,415,793 33,224,719 Prepaid expenses and other 887,804 660,782 Prepaid and refundable income taxes 990,855 Deferred income taxes 1,975,000 336,000 ------------ ------------ Total current assets 99,956,622 60,425,125 PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 6,926,734 6,983,761 DEFERRED INCOME TAXES 390,000 GOODWILL, less accumulated amortization of $1,141,000 in 2000 and $895,000 in 1999 16,600,432 3,588,449 OTHER ASSETS 2,845,305 1,543,328 ------------ ------------ $126,329,093 $ 72,930,663 ============ ============
The accompanying notes are an integral part of these statements. F-3 36 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (CONTINUED) June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999 ------------- ------------- CURRENT LIABILITIES Accounts payable $ 35,346,299 $ 15,923,157 Current maturities of long-term debt and capitalized lease obligations 807,444 791,814 Accrued compensation 2,191,693 891,987 Accrued expenses 1,652,019 820,175 Income taxes payable 1,575,319 ------------- ------------- Total current liabilities 41,572,774 18,427,133 LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS 40,940,877 18,885,664 DEFERRED INCOME TAXES 225,000 DEFERRED COMPENSATION 800,000 750,000 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; issued, 6,252,259 and 4,065,721 shares, respectively, and 5,633,959 and 3,653,521 shares outstanding, respectively 625,226 406,572 Additional paid-in capital, net 23,906,301 22,531,295 Retained earnings 20,296,761 13,920,807 Accumulated other comprehensive income 166,669 213,707 Treasury stock - 618,300 and 412,200 shares, respectively, at cost (2,204,515) (2,204,515) ------------- ------------- 42,790,442 34,867,866 ------------- ------------- $ 126,329,093 $ 72,930,663 ============= =============
The accompanying notes are an integral part of these statements. F-4 37 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS Year ended June 30,
2000 1999 1998 ------------- ------------- ------------- Net sales $ 209,325,180 $ 140,710,825 $ 153,674,226 Cost of goods sold 162,443,001 113,334,627 121,796,083 ------------- ------------- ------------- Gross profit 46,882,179 27,376,198 31,878,143 Selling, general and administrative expenses 34,522,667 27,642,724 28,706,520 ------------- ------------- ------------- Operating profit (loss) 12,359,512 (266,526) 3,171,623 Interest expense 1,558,558 1,308,624 1,140,362 ------------- ------------- ------------- Earnings (Loss) before income taxes 10,800,954 (1,575,150) 2,031,261 Income tax provision (benefit) 4,425,000 (418,000) 847,000 ------------- ------------- ------------- NET EARNINGS (LOSS) $ 6,375,954 $ (1,157,150) $ 1,184,261 ============= ============= ============= Net earnings (loss) per common share: Basic $ 1.16 $ (0.21) $ 0.21 ===== ====== ===== Diluted $ 1.11 $ (0.21) $ 0.20 ===== ====== ===== Weighted-average common shares and common equivalent shares outstanding: Basic 5,497,866 5,547,405 5,755,050 ============= ============= ============= Diluted 5,766,086 5,547,405 5,882,277 ============= ============= =============
The accompanying notes are an integral part of these statements. F-5 38 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Years ended June 30, 2000, 1999 and 1998
Additional paid-in Retained Shares Amount capital earnings ------------ ---------- ------------ ----------- Balance at July 1, 1997 3,975,721 $397,572 $22,180,295 $13,893,696 Net earnings 1,184,261 Unrealized gain on marketable securities - net 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 Net loss (1,157,150) Unrealized gain on marketable securities - net 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 Net earnings 6,375,954 Unrealized loss on marketable securities - net Comprehensive income Exercise of stock options 102,482 10,248 860,760 Stock options income tax benefits 431,840 Restricted stock plan income tax benefits 155,812 Effect of 3-for-2 stock split 2,084,056 208,406 (208,406) Deferred compensation expense --------- ------- ---------- ---------- BALANCE AT JUNE 30, 2000 6,252,259 $625,226 $24,041,301 $20,296,761 ========= ======= ========== ==========
Accumulated other Deferred Total comprehensive Treasury compen- shareholders' income stock sation equity ------------- ------------- ---------- ------------- Balance at July 1, 1997 $120,200 $ (700,000) $35,891,763 ---------- Net earnings 1,184,261 Unrealized gain on marketable securities - net 44,185 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 164,385 (1,419,962) (405,000) 36,625,247 ---------- Net loss (1,157,150) Unrealized gain on marketable securities - net 49,322 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 213,707 (2,204,515) (270,000) 34,867,866 ---------- Net earnings 6,375,954 Unrealized loss on marketable securities - net (47,038) (47,038) ---------- Comprehensive income 6,328,916 ---------- Exercise of stock options 871,008 Stock options income tax benefits 431,840 Restricted stock plan income tax benefits 155,812 Effect of 3-for-2 stock split Deferred compensation expense 135,000 135,000 ------- ---------- -------- ---------- BALANCE AT JUNE 30, 2000 $166,669 $(2,204,515) $(135,000) $42,790,442 ======= ========== ======== ==========
The accompanying notes are an integral part of this statement. F-6 39 Jaco Electronics, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended June 30,
2000 1999 1998 ------------- ------------- ------------- Cash flows from operating activities Net earnings (loss) $ 6,375,954 $ (1,157,150) $ 1,184,261 Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities Depreciation and amortization 1,868,420 1,587,766 1,356,457 Deferred compensation 185,000 185,000 185,000 Deferred income tax (benefit) expense (996,963) 351,000 33,000 (Gain) loss on sale of equipment (918) 2,717 Provision for doubtful accounts 597,694 981,622 475,816 Changes in operating assets and liabilities, net of effects of acquisitions Increase in accounts receivable (14,659,938) (2,502,904) (355,660) (Increase) decrease in inventories (15,356,153) 2,512,569 (2,426,087) (Increase) decrease in prepaid expenses and other (57,057) 542,416 156,419 Increase (decrease) in accounts payable 10,630,824 (710,232) 800,191 Increase (decrease) in accrued compensation 1,299,706 (61,188) 65,244 Increase in accrued expenses 540,639 12,488 226,689 Increase (decrease) in income taxes payable 2,566,174 (380,723) (81,889) ------------- ------------- ------------- Net cash (used in) provided by operating activities (7,005,700) 1,359,746 1,622,158 ------------- ------------- ------------- Cash flows from investing activities Purchase of marketable securities (73,407) (39,139) (68,049) Capital expenditures (892,149) (1,603,361) (1,068,775) Proceeds from the sale of equipment 128,892 9,689 120,515 Business acquisitions, net of cash acquired (14,877,230) Decrease (increase) in other assets 2,342,542 (7,834) (258,905) ------------- ------------- ------------- Net cash used in investing activities (13,371,352) (1,640,645) (1,275,214) ------------- ------------- ------------- Cash flows from financing activities Borrowings from line of credit 95,831,956 53,507,313 152,258,926 Borrowings under term loan for equipment 575,000 Payments of line of credit (76,391,130) (51,851,995) (151,076,073) Principal payments under equipment financing (612,792) (590,889) (586,345) Payments under term loan (214,286) (214,286) (214,286) Purchase of treasury stock (784,553) (719,962) Proceeds from issuance of restricted stock 90,000 Proceeds from exercise of stock options 871,008 Stock options income tax benefits 431,840 Restricted stock plan income tax benefits 155,812 ------------- ------------- ------------- Net cash provided by (used in) financing activities 20,072,408 640,590 (247,740) ------------- ------------- ------------- NET (DECREASE) INCREASE IN CASH (304,644) 359,691 99,204 Cash at beginning of year 922,247 562,556 463,352 ------------- ------------- ------------- Cash at end of year $ 617,603 $ 922,247 $ 562,556 ============= ============= ============= Supplemental disclosures of cash flow information: Cash paid during the year for Interest $ 1,559,000 $ 1,310,000 $ 1,301,000 Income taxes 2,267,000 22,000 929,000 Supplemental schedule of noncash financing and investing activities: Equipment under capital leases $ 126,229 $ 552,544 $ 1,165,781
The accompanying notes are an integral part of these statements. F-7 40 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000, 1999 and 1998 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 and monitors and power supplies, which are used in 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, Canada, Mexico, and the Far East. For the years ended June 30, 2000, 1999 and 1998, export sales amounted to approximately $8,170,000, $4,810,000 and $4,537,000, 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 $261,379 and $335,455 in 2000 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-8 41 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 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. Goodwill And Other Intangible Assets Goodwill and other intangible assets represent the excess of the aggregate price paid by the Company over the fair market value of the tangible assets acquired in business acquisitions accounted for as a purchase. Goodwill and other identifiable intangible assets are amortized on a straight-line basis from five to forty years. The Company reviews for the impairment of long-lived assets and certain identifiable intangibles (including goodwill, property and equipment) whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The Company has not identified such impairment losses. 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. F-9 42 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 8. Earnings (Loss) Per Common Share Earnings per share have been restated for all periods presented to give effect to a 3-for-2 stock split announced on June 26, 2000. Basic earnings per share are determined by dividing the Company's net earnings by the weighted average shares outstanding. Diluted earnings per share include the dilutive effects of outstanding stock options. 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, its accounts receivable credit risk exposure is limited. However, during the fourth quarter of fiscal 1999 the Company recorded approximately $630,000 of additional bad debt expense, relating to the bankruptcy of a customer. 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, 2001, 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, 2000, purchases from three suppliers accounted for 18%, 15% and 10%, 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-10 43 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 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 In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." SFAS No. 130 established rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS No. 130 had no impact on the Company's earnings or shareholders' equity. SFAS No. 130 requires unrealized holding gains or losses on debt and equity securities available for sale, which prior to adoption were only reported separately in shareholders' 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 No. 130. 12. Segment Reporting In fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 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 $109,308, $250,198 and $257,281 for the years ended June 30, 2000, 1999 and 1998 respectively. F-11 44 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE B - INVENTORY Inventories consist of the following:
June 30, ----------------------------- 2000 1999 ----------- ----------- Finished goods and goods held for resale $48,609,676 $29,048,654 Work-in-process 885,688 686,180 Raw materials 3,920,429 3,489,885 ----------- ----------- $53,415,793 $33,224,719 =========== ===========
NOTE C - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of:
Useful June 30, life ------------------------------ in years 2000 1999 ------------ ----------- ----------- Land, building and improvements 10 to 30 $ 1,482,419 $ 1,468,708 Machinery and equipment 3 to 7 8,928,252 7,488,477 Internally developed software costs 7 1,831,851 1,769,857 Transportation equipment 3 to 5 88,105 64,109 Leasehold improvements 5 to 10 601,218 601,218 ----------- ----------- 12,931,845 11,392,369 Less accumulated depreciation and amortization (including $950,604 in 2000 and $635,195 in 1999, of capitalized lease amortization) 6,005,111 4,408,608 ----------- ----------- $ 6,926,734 $ 6,983,761 =========== ===========
Included in machinery and equipment are assets recorded under capitalized leases at June 30, 2000 and 1999 for $2,468,686 and $2,342,457, respectively. F-12 45 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE D - INCOME TAXES The components of the Company's provision for income taxes are as follows:
June 30, ------------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Federal Current $ 3,448,000 $ (887,000) $ 663,000 Deferred (67,000) 351,000 33,000 ----------- ----------- ----------- 3,381,000 (536,000) 696,000 State 1,044,000 118,000 151,000 ----------- ----------- ----------- $ 4,425,000 $ (418,000) $ 847,000 =========== =========== ===========
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, ---------------------------------------------- 2000 1999 1998 ----- ------ ------ Statutory Federal tax rate 34.0% (34.0)% 34.0% State income taxes, net of Federal tax benefit 5.5 5.0 5.0 Sales expense for which no tax benefit arises .9 2.4 2.4 Other .6 .1 .3 ----- ------ ------ Effective tax rate 41.0% (26.5)% 41.7% ===== ====== ======
F-13 46 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 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:
2000 1999 ----------- ----------- Deferred tax assets Net operating loss carryforwards $ 430,000 $ 389,000 Allowance for bad debts 384,000 161,000 Inventory valuation 1,421,000 869,000 Deferred compensation 292,000 274,000 Other deferred tax assets 352,000 243,000 ----------- ----------- 2,879,000 1,936,000 Deferred tax liabilities Depreciation (618,000) (683,000) Unrealized gain on marketable securities available for sale (99,000) (122,000) Other (87,000) (80,000) ----------- ----------- 2,075,000 1,051,000 Valuation allowance (325,000) (325,000) ----------- ----------- Net deferred tax asset $ 1,750,000 $ 726,000 =========== ===========
At June 30, 2000, the Company, through an acquisition, has available a Federal net operating loss carryforward of approximately $1,179,000. Such net operating loss is subject to certain limitations and expires in varying amounts during the fiscal years 2007 through 2010. Further, the Company has established a valuation allowance with respect to the net deferred tax assets attributable to this acquired subsidiary. F-14 47 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE E - EARNINGS PER COMMON SHARE
For the year ended June 30, ---------------------------------------------------------------------------------------- 2000 1999 ----------------------------------------- ------------------------------------------- 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 $6,375,954 5,497,866 $1.16 $(1,157,150) 5,547,405 $(0.21) Effect of dilutive securities Stock options 268,220 --------- --------- ---------- --------- Diluted earnings per share; income available to common shareholders plus assumed conversions $6,375,954 5,766,086 $1.11 $(1,157,150) 5,547,405 $(0.21) ========= ========= ========== =========
For the year ended June 30, ------------------------------------ 1998 ------------------------------------ INCOME SHARES PER (NUMER- (DENOMI- SHARE ATOR) NATOR) AMOUNT ------------ ---------- -------- Basic earnings per share; income available to common shareholders $1,184,261 5,755,050 $0.21 Effect of dilutive securities Stock options 127,227 --------- --------- Diluted earnings per share; income available to common shareholders plus assumed conversions $1,184,261 5,882,277 $0.20 ========= =========
Excluded from the calculation of earnings per share are options and warrants to purchase 45,000, 832,943 and 431,447 shares in fiscal 2000, 1999 and 1998, respectively, as their inclusion would have been antidilutive. F-15 48 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS Debt and capitalized lease obligations are as follows:
June 30, ------------------------------------------- 2000 1999 ---------------- --------------- Term loan and revolving line of credit (a) $39,895,981 $17,338,575 Other term loans (b) 469,535 621,797 Equipment note 5,251 Capitalized lease obligations (c) 1,533,389 1,966,520 ---------- ---------- 41,898,905 19,932,143 Less amounts representing interest on capitalized lease obligations 150,584 254,665 ---------- ---------- 41,748,321 19,677,478 Less current maturities 807,444 791,814 ---------- ---------- $40,940,877 $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 $50,000,000 term loan and revolving line of credit facility based principally on eligible accounts receivable and inventories of the Company as defined in the agreement. The agreement was amended to (i) increase the amount available under the revolving line of credit (ii) extend the maturity date to September 13, 2001, (iii) change the interest rate to a rate based on the average 30-day LIBOR plus 1-3/4% through the quarter ending September 30, 2000 and at that point the rate converts to 30-day LIBOR plus 1% to 2-1/4% depending on the Company's performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and (iv) 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 $39,735,267 at June 30, 2000, with an associated interest rate of 8.40%. Pursuant to the same agreement, at June 30, 2000, a term loan with a remaining balance of $160,714 requires monthly principal payments of $17,857, together with interest through March 1, 2001. 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-16 49 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE F - DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED) (b) Other Term Loans Other term loans as of June 30, 2000 are as follows:
Monthly Date of loan Balance Term payment ------------ ------------ ------------- ---------- March 16, 1995 $54,544 84 months $2,730 January 14, 1999 414,991 60 months 9,829 ------- $469,535 =======
The above loans are collateralized by the related equipment acquired, having a carrying value of approximately $586,000 at June 30, 2000 and $770,000 at June 30, 1999. 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 5.5% and 1% per annum, respectively. (c) Capitalized Lease Obligations The Company leases certain equipment under agreements accounted for as capital leases. During fiscal 2000, the Company acquired approximately $126,000 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-17 50 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 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, 2000:
Capitalized Debt leases -------- ------------- Year ending June 30, 2001 $305,560 $589,115 2002 39,874,753 548,753 2003 116,628 357,026 2004 68,575 38,495 ---------- --------- $40,365,516 $1,533,389 ========== =========
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, 2001 $1,724,456 2002 1,664,052 2003 1,518,177 2004 931,634 2005 479,968 2006 14,331 --------- $6,332,618 =========
F-18 51 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 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, 2001 $627,900 2002 659,327 2003 692,293 2004 354,589 --------- $2,334,109 =========
The Company's rent expense was approximately $602,000 for each of the years ended June 30, 2000, 1999 and 1998, respectively, in connection with the above lease. Rent expense on office and warehouse facilities leases for the years ended June 30, 2000, 1999 and 1998 was approximately $1,235,000, $1,131,000 and $1,033,000, respectively, net of sublease income of approximately $127,000, $110,000 and $115,000, respectively. 2. Other Leases The Company also leases various office equipment and automobiles under noncancellable operating leases expiring through June 2005. The minimum rental commitments required under these leases at June 30, 2000 are as follows:
Year ending June 30, 2001 $329,486 2002 310,681 2003 123,905 2004 19,628 2005 2,750 ------- $786,450 =======
F-19 52 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE G - COMMITMENTS AND CONTINGENCIES (CONTINUED) 3. Employment Agreements The Company has entered into employment agreements with three 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 change of control as defined in the agreements. The Company's agreements with its Chairman and Executive Vice President provides 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. On June 6, 2000, the Company entered into an employment agreement with an Executive Vice President which provides for an annual base of $300,000 through May 30, 2003. The employment agreement also provides for an annual cash bonus equal to 2% of certain gross profit dollars, as defined. 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, 2000, 1999 and 1998, the Company contributed to this plan approximately $116,000, $96,000 and $132,000, respectively. F-20 53 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE I - SHAREHOLDERS' EQUITY On June 26, 2000, the Company announced a 3-for-2 stock split which was in the form of a 50% common stock dividend payable on July 24, 2000 to shareholders of record on July 10, 2000. All references to the number of weighted average common shares outstanding and earnings per share have been restated to reflect the 3-for-2 stock split. In connection with the Company's 1995 public offering, the Company also issued stock warrants, to the representative underwriters, to purchase up to 105,000 shares of common stock at an exercise price per share equal to 180% of the, $8.50 per share, public offering price, which expired on October 20, 1999. 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 900,000 from 440,000, of which 739,723 are outstanding at June 30, 2000. 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 22,000 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 4,399 shares of the Company's common stock annually. The Outside Directors Plan expired on January 1, 1998, with a total of 13,197 options outstanding at June 30, 2000. 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 15,000 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 11,250 options to purchase the Company's common stock at the fair market value on the date of grant. These 37,500 options were not granted pursuant to any of the Company's existing stock option plans. F-21 54 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 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 Price range Shares ---------- --------------- ---------- Outstanding at July 1, 1997 $3.18 - $8.50 525,398 $4.96 Granted $4.17 13,197 4.17 Expired $8.50 (3,750) 8.50 ------ Outstanding at June 30, 1998 $3.18 - $8.50 534,845 4.91 ------- Granted $1.79 - $2.75 397,500 2.23 Expired $3.18 - $8.50 (204,402) 3.19 -------- Outstanding at June 30, 1999 $1.79 - $8.50 727,943 3.79 ------- Granted $2.50 - $13.71 258,000 4.70 Exercised $1.79 - $8.50 (153,723) 5.67 Expired $2.50 - $4.67 (41,800) 3.44 -------- OUTSTANDING AT JUNE 30, 2000 $1.79 - $13.71 790,420 3.74 ======= AMOUNTS EXERCISABLE AT JUNE 30, 2000 $1.79 - $8.50 554,170 3.25 =======
The following table summarizes information concerning currently outstanding and exercisable nonqualified stock options:
Options outstanding Options exercisable ---------------------------------------------- -------------------------------------------- Weighted- Weighted- average Weighted- average Weighted- remaining average remaining average Number contractual exercise Number contractual exercise Range of exercise prices outstanding life(months) price exercisable life(months) price ------------------------ ----------- ------------ ----- ----------- ------------ ----- $1.79 - $5.00 682,521 42 $ 2.77 491,271 38 $2.76 $5.01 - $9.00 62,899 9 $ 7.14 62,899 9 $7.14 $9.01 - $13.71 45,000 59 $13.71 - - -
F-22 55 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE I - SHAREHOLDERS' EQUITY (CONTINUED) The weighted-average option fair value on the grant date was $4.97, $.92 and $1.25 for options issued during the years ended June 30, 2000, 1999 and 1998, respectively. The Company has adopted the disclosure provisions of Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation"; 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:
2000 1999 1998 ---------------- --------------- -------------- Net earnings (loss) As reported $6,375,954 $(1,157,150) $1,184,261 Pro forma 6,098,272 (1,523,550) 1,167,761 Net earnings (loss) per common share - basic As reported $1.16 $(0.21) $0.21 Pro forma 1.11 (0.27) 0.20 Net earnings (loss) per common share - diluted As reported $1.11 $(0.21) $0.20 Pro forma 1.06 (0.27) 0.20
These pro forma amounts may not be representative of future disclosures because they do not take into account 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, 2000, 1999 and 1998, respectively; expected volatility of 109%, 55% and 35%; risk-free interest rates of 6.25%, 5.08% and 5.42%; 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-23 56 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE I - SHAREHOLDERS' EQUITY (CONTINUED) The Board of Directors of the Company has authorized the purchase of up to 375,000 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 600,000 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 618,300 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 issued 135,000 shares of common stock to certain employees at a purchase price of $.67 per share. Shares purchased are subject to a four-year vesting period and the Company recognized $135,000 of compensation expense during fiscal 2000, 1999 and 1998 in connection with this plan. NOTE J - ACQUISITIONS On June 6, 2000, the Company acquired all of the issued and outstanding shares of common stock, no par value, of Interface Electronics Corp. ("Interface"), a distributor of electronic parts, components and equipment, located in Massachusetts. The purchase price was $15,400,000 payable in cash at the closing, (June 6, 2000), plus a deferred payment of up to $3,960,000, payable approximately one year from the anniversary of the closing. This payment will be made provided that certain conditions, as defined in the purchase agreement, are met. On the second anniversary of the closing date a deferred payment of up to $2,640,000 shall be paid provided that certain conditions, as defined in the purchase agreement, are met. When this contingency is resolved, the Company shall record the current fair value of the consideration paid as additional goodwill which will be amortized over the remaining life of the asset. The acquisition has been accounted for as a purchase and the operations of Interface have been included in the Company's Statement of Earnings since the date of acquisition, June 6, 2000. Included in other assets are the costs of the identifiable intangible assets acquired, principally an employment F-24 57 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE J - ACQUISITIONS (CONTINUED) agreement and a franchise agreement which are being amortized on a straight-line basis over five and fifteen years, respectively. The excess of the purchase price and related expenses over the net tangible and identifiable intangible assets acquired amounted to approximately $13,048,000 and is being amortized on a straight line basis over twenty years. A summary of the preliminary allocation of the assets and liabilities acquired follows: Operating assets acquired $13,736,139 Employment agreement 685,000 Franchise agreement 550,000 ----------- 14,971,139 Liabilities assumed (12,414,389) Estimated transaction costs (205,000) ----------- (12,619,389) Goodwill 13,048,250 ----------- Total purchase price $15,400,000 ===========
Summarized below are the unaudited pro forma results of operations of the Company as if Interface has been acquired at the beginning of the fiscal periods presented:
Pro forma years ended June 30, 2000 1999 ----------------- ----------------- Net sales $252,756,821 $172,131,191 Net income (loss) 3,993,635 (3,531,947) Net income (loss) per share Basic 0.73 (0.64) Diluted 0.69 (0.64)
The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisition taken place at the beginning of the periods presented or of future operating results of the combined companies. F-25 58 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE J - ACQUISITIONS (CONTINUED) On February 25, 2000, the Company purchased the operating assets of PGI, Industries, Inc., ("PGI") an exporter of electronic components, located in Ronkonkoma, New York. The purchase price was $1,200,000 paid in cash, plus a deferred payment of $100,000 payable over the next two years based on certain conditions, as defined in the purchase agreement. When this contingency is resolved, the Company shall record the current fair value of the consideration issued as additional costs of the acquired enterprise. These additional costs shall be amortized over the remaining life of the asset. The acquisition has been accounted for as a purchase and the operations of PGI have been included in the Company's Statement of Earnings since the date of acquisition, February 25, 2000. The excess of the purchase price over the fair value of the assets acquired, approximately $210,000, is being amortized on a straight-line basis over twenty years. Proforma results of operations are not material. NOTE K - BUSINESS SEGMENTS 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 2000, 1999 and 1998, is not considered material to the financial statements. F-26 59 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE K - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED) 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, ---------------------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ ----------------------(in thousands)-------------------- Net sales from external customers Electronics components distribution $193,111 $127,401 $137,297 Contract manufacturing 16,214 13,310 16,377 ------- ------- ------- $209,325 $140,711 $153,674 ======= ======= ======= Intersegment net sales Electronics components distribution $324 $336 $593 Contract manufacturing 111 382 ------- ------- ------- $324 $447 $975 ======= ======= ======= Operating profit (loss) Electronics components distribution $12,012 $(868) $2,251 Contract manufacturing 348 602 921 ------- ------- ------- $12,360 $(266) $3,172 ======= ======= ======= Interest expense Electronics components distribution $1,053 $768 $662 Contract manufacturing 506 541 478 ------- ------- ------- $1,559 $1,309 $1,140 ======= ======= ======= Income tax provision (benefit) Electronics components distribution $4,489 $(374) $662 Contract manufacturing (64) (44) 185 ------- ------- ------- $4,425 $(418) $847 ======= ======= =======
F-27 60 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE K - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
Year ended June 30, ---------------------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ -----------------------(in thousands)--------------------- Identifiable assets Electronics components distribution $115,109 $62,259 $60,929 Contract manufacturing 10,995 10,672 12,490 ------- ------ ------ $126,104 $72,931 $73,419 ======= ====== ====== Capital expenditures Electronics components distribution $ 612 $ 396 $ 1,002 Contract manufacturing 280 1,207 67 ------- ------ ------ $ 892 $ 1,603 $ 1,069 ======= ====== ====== Depreciation and amortization Electronics components distribution $ 1,209 $ 1,049 $ 913 Contract manufacturing 659 539 443 ------- ------ ------ $ 1,868 $ 1,588 $ 1,356 ======= ====== ======
F-28 61 Jaco Electronics, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) June 30, 2000, 1999 and 1998 NOTE L - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter ended ----------------------------------------------------------------------- June 30, March 31, December 31, September 30, 2000 2000 1999 1999 ------------- ------------- ------------- ------------- Net sales $70,513,859 $51,693,699 $45,100,259 $42,017,363 Gross profit 17,065,608 12,012,855 9,868,111 7,935,605 Net earnings (loss) 3,512,177 1,766,228 883,474 214,075 Net earnings (loss) per common share (a) Basic $0.63 $0.32 $0.16 $0.04 Diluted 0.58 0.30 0.16 0.04 Quarter ended ------------------------------------------------------------------------ June 30, March 31, December 31, September 30, 1999 1999 1998 1998 ------------- ------------- ------------- ------------- Net sales $36,300,595 $36,187,676 $34,966,098 $33,256,456 Gross profit 6,985,022 6,993,692 6,695,096 6,702,388 Net earnings (loss) (918,629) 71,377 (67,792) (242,106) Net earnings (loss) per common share (a) Basic $(0.17) $0.01 $(0.01) $(0.04) Diluted (0.17) 0.01 (0.01) (0.04)
(a) As adjusted to reflect a 3-for-2 stock split effective July 24, 2000. F-29 62 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE Board of Directors and Shareholders JACO ELECTRONICS, INC. In connection with our audits of the consolidated financial statements of Jaco Electronics, Inc. and Subsidiaries for the years ended June 30, 2000 and 1999 referred to in our report dated August 15, 2000, 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, 2000. 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 15, 2000 F-30 63 Jaco Electronics, Inc. and Subsidiaries SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Years ended June 30, 2000, 1999 and 1998
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, 2000 $ 440,000 $598,000 $178,000 (a)(c) $ 105,000 (b) $1,111,000 ========= ======= ======= ========= ========= Year ended June 30, 1999 $1,268,000 $982,000 (d) $ 12,000 (a) $1,822,000 (b) $ 440,000 ========= ======= ======= ========= ========= Year ended June 30, 1998 $ 846,000 $476,000 $226,000 (a) $ 280,000 (b) $1,268,000 ========= ======= ======= ========= =========
(a) Recoveries of accounts. (b) Represents write-offs of uncollectible accounts. (c) Includes balance attributable to acquired subsidiary. (d) Includes expense of $630,000 that was recorded in the 4th quarter of 1999 relating to the bankruptcy of a customer. F-31 64 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. By: /s/ Joel H. Girsky ----------------------------- Joel H. Girsky, Chairman of the Board, President and Treasurer 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.
Name Title Date ---- ----- ---- /s/ Joel H. Girsky Chairman of the Board, September 18, 2000 ------------------------- President and Treasurer Joel H. Girsky (Principal Executive Officer) /s/ Jeffrey D. Gash Vice President - Finance and September 18, 2000 ------------------------- Secretary (Principal Financial Jeffrey D. Gash and Accounting Officer) /s/ Joseph F. Oliveri Vice Chairman of the Board September 18, 2000 ------------------------- and Executive Vice President Joseph F. Oliveri /s/ Charles B. Girsky Executive Vice President and September 18, 2000 ------------------------- Director Charles B. Girsky /s/ Stephen A. Cohen Director September 18, 2000 ------------------------- Stephen A. Cohen /s/ Edward M. Frankel Director September 18, 2000 ------------------------- Edward M. Frankel /s/ Joseph F. Hickey, Jr. Director September 18, 2000 ------------------------- Joseph F. Hickey, Jr.