10-Q 1 y45479e10-q.txt JACO ELECTRONICS, INC. 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 {X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period ended December 31, 2000 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ________________________ Commission File Number 0-5896 JACO ELECTRONICS, INC. ---------------------- (Exact name of registrant as specified in its charter) NEW YORK 11-1978958 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 145 OSER AVENUE, HAUPPAUGE, NEW YORK 11788 ------------------------------------- -------- (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (631) 273-5500 Indicated by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Number of Shares of Registrant's Common Stock Outstanding as of February 9, 2001 - 5,697,459 (Excluding 618,300 Shares of Treasury Stock). 2 FORM 10-Q December 31, 2000 Page 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, June 30, 2000 2000 ------------ ------------ ASSETS Current Assets Cash $ 259,165 $ 617,603 Marketable securities 820,692 880,954 Accounts receivable - net 59,153,069 42,179,468 Inventories 72,196,403 53,415,793 Prepaid expenses and other 1,208,367 887,804 Deferred income taxes 2,360,000 1,975,000 ------------ ------------ Total current assets 135,997,696 99,956,622 Property, plant and equipment - net 7,368,996 6,926,734 Excess of cost over net assets acquired - net 20,134,743 16,600,432 Other assets 2,981,938 2,845,305 ------------ ------------ $166,483,373 $126,329,093 ============ ============
See accompanying notes to condensed consolidated financial statements. 3 FORM 10-Q December 31, 2000 Page 3 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, June 30, 2000 2000 ------------- ------------- LIABILITIES & SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses $ 47,934,078 $ 39,190,011 Accrued acquisition costs 3,960,000 Current maturities of long term debt and capitalized lease obligations 720,828 807,444 Income taxes payable 1,363,654 1,575,319 ------------- ------------- Total current liabilities 53,978,560 41,572,774 Long term debt and capitalized lease obligations 59,679,736 40,940,877 Deferred income taxes 206,000 225,000 Deferred compensation 825,000 800,000 SHAREHOLDERS' EQUITY Preferred stock - authorized, 100,000 shares, $10 par value; none issued Common stock - authorized, 20,000,000 and 10,000,000 shares, respectively, $.10 par value; issued 6,288,259 and 6,252,259 shares, respectively, and 5,669,959 and 5,633,959 shares outstanding, respectively 628,826 625,226 Additional paid-in capital - net 24,276,201 23,906,301 Retained earnings 28,998,731 20,296,761 Accumulated other comprehensive income 94,834 166,669 Treasury stock (2,204,515) (2,204,515) ------------- ------------- Total shareholders' equity 51,794,077 42,790,442 ------------- ------------- $ 166,483,373 $ 126,329,093 ============= =============
See accompanying notes to condensed consolidated financial statements. 4 FORM 10-Q December 31, 2000 Page 4 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED DECEMBER 31, (UNAUDITED)
2000 1999 ------------ ------------ NET SALES $100,235,652 $ 45,100,259 COST AND EXPENSES Cost of goods sold 80,158,461 35,232,148 ------------ ------------ Gross profit 20,077,191 9,868,111 Selling, general and administrative expenses 12,052,203 7,978,814 ------------ ------------ Operating profit 8,024,988 1,889,297 Interest expense 1,169,326 345,823 ------------ ------------ Earnings before income taxes 6,855,662 1,543,474 Income tax provision 2,811,000 660,000 ------------ ------------ NET EARNINGS $ 4,044,662 $ 883,474 ============ ============ Net earnings per common share: Basic $ 0.72 $ 0.16 ============ ============ Diluted $ 0.65 $ 0.16 ============ ============ Weighted average common shares outstanding: Basic 5,655,089 5,480,282 ============ ============ Diluted 6,230,451 5,558,258 ============ ============
See accompanying notes to condensed consolidated financial statements. 5 FORM 10-Q December 31, 2000 Page 5 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED DECEMBER 31, (UNAUDITED)
2000 1999 ------------ ------------ NET SALES $194,394,480 $ 87,117,622 COST AND EXPENSES Cost of goods sold 153,699,631 69,313,906 ------------ ------------ Gross profit 40,694,849 17,803,716 Selling, general and administrative expenses 23,886,259 15,227,411 ------------ ------------ Operating profit 16,808,590 2,576,305 Interest expense 2,058,061 668,756 ------------ ------------ Earnings before income taxes 14,750,529 1,907,549 Income tax provision 6,048,000 810,000 ------------ ------------ NET EARNINGS $ 8,702,529 $ 1,097,549 ============ ============ Net earnings per common share: Basic $ 1.54 $ 0.20 ============ ============ Diluted $ 1.40 $ 0.20 ============ ============ Weighted average common shares outstanding: Basic 5,644,524 5,480,282 ============ ============ Diluted 6,232,609 5,561,136 ============ ============
See accompanying notes to condensed consolidated financial statements. 6 FORM 10-Q December 31, 2000 Page 6 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 (UNAUDITED)
Additional paid-in Retained Shares Amount capital earnings ----------- ----------- ----------- ----------- Balance at July 1, 2000 6,252,259 $ 625,226 $24,041,301 $20,296,761 Net earnings 8,702,529 Unrealized loss on marketable securities - net Comprehensive income Payment of fractional shares (559) Exercise of stock options 36,000 3,600 302,400 Deferred compensation ----------- ----------- ----------- ----------- Balance at December 31, 2000 6,288,259 $ 628,826 $24,343,701 $28,998,731 =========== =========== =========== ===========
Accumulated other Total comprehensive Treasury Deferred shareholders' income stock compensation equity ------------- ----------- ------------ ------------- Balance at July 1, 2000 $ 166,669 $(2,204,515) $ (135,000) $42,790,442 ----------- Net earnings 8,702,529 Unrealized loss on marketable securities - net (71,835) (71,835) ----------- Comprehensive income 8,630,694 ----------- Payment of fractional shares (559) Exercise of stock options 306,000 Deferred compensation 67,500 67,500 ----------- ----------- ----------- ----------- Balance at December 31, 2000 $ 94,834 $(2,204,515) $ (67,500) $51,794,077 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 7 FORM 10-Q December 31, 2000 Page 7 JACO ELECTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, (UNAUDITED)
2000 1999 ------------- ------------- Cash flows from operating activities Net earnings $ 8,702,529 $ 1,097,549 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities Depreciation and amortization 1,486,162 877,159 Deferred compensation 92,500 92,500 Deferred income tax benefit (363,000) (389,000) Provision for doubtful accounts 746,201 259,075 Changes in operating assets and liabilities, Increase in operating assets - net (36,820,975) (7,084,959) Increase in operating liabilities - net 8,532,402 3,352,129 ------------- ------------- Net cash used in operating activities (17,624,181) (1,795,547) ------------- ------------- Cash flows from investing activities Capital expenditures (1,415,902) (220,923) Increase in marketable securities (52,573) (68,918) (Increase) decrease in other assets (223,466) 75,675 ------------- ------------- Net cash used in investing activities (1,691,941) (214,166) ------------- ------------- Cash flows from financing activities Borrowings under line of credit 176,491,113 29,094,235 Payments under line of credit (157,413,488) (27,119,478) Principal payments under equipment financing and term loans (425,382) (408,164) Payment of fractional shares (559) Proceeds from exercise of stock options 306,000 ------------- ------------- Net cash provided by financing activities 18,957,684 1,566,593 ------------- ------------- NET DECREASE IN CASH (358,438) (443,120) ------------- ------------- Cash at beginning of period 617,603 922,247 ------------- ------------- Cash at end of period $ 259,165 $ 479,127 ============= ============= Supplemental schedule of non-cash financing and investing activities: Accrued acquisition costs $ 3,960,000 Equipment under capital leases $ 126,229
See accompanying notes to condensed consolidated financial statements. 8 FORM 10-Q December 31, 2000 Page 8 JACO ELECTRONICS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION 1) The accompanying condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring accrual adjustments, which are in the opinion of management, necessary for a fair presentation of the consolidated financial position and the results of operations at and for the periods presented. Such financial statements do not include all the information or footnotes necessary for a complete presentation. Therefore, they should be read in conjunction with the Company's audited consolidated statements for the year ended June 30, 2000 and the notes thereto included in the Company's annual report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. 2) The Company has a $70,000,000 term loan and revolving line of credit facility with its banks, which is based principally on eligible accounts receivables and inventories as defined in the loan agreement. The agreement was amended to (i) increase the amount available under the revolving line of credit to $70,000,000 (ii) extend the maturity date to September 14, 2002, (iii) change the interest rate to a rate based on the average 30-day LIBOR plus 1-3/4% through the quarter ended September 30, 2000, at such time the rate converted to the average 30-day LIBOR plus 1% to 2-1/4% depending on the Company's performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, 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. 3) The Board of Directors of the Company had authorized the purchase of up to 975,000 shares of its outstanding common stock under a stock repurchase program. The purchases were made by the Company from time to time on the open market. The Company had made purchases of 618,300 shares of its common stock from July 31, 1996 through September 13, 2000 for aggregate consideration of $2,204,515. On September 14, 2000, the Board of Directors passed a resolution to terminate the stock repurchase program. 4) For interim financial reporting purposes, the Company uses the gross profit method for computing inventories, which consists of goods held for resale. 5) 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 $3,960,000 provided that certain conditions, as defined in the purchase agreement, are met. As of December 31, 2000, these conditions have been 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 the remaining 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. 9 FORM 10-Q December 31, 2000 Page 9 The acquisition has been accounted for as a purchase and the operations of Interface have been included in the Company's Statement of 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 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 $17,008,000 and is being amortized on a straight-line basis over twenty years. 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:
Three months ended Six months ended December 31, December 31, 1999 1999 -------------- ------------ Net sales $ 56,042,529 $106,217,723 Net loss (345,836) (910,584) Net loss per common share Basic $ (0.06) $ (0.17) Diluted $ (0.06) $ (0.17)
The pro forma financial information presented above for the three and six months ended December 31, 1999 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. 6) 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. Pro forma results of operations are not material. 7) 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. 10 FORM 10-Q December 31, 2000 Page 10 8) The number of shares used in the Company's basic and diluted earnings per share computations are as follows:
Three Months Ended Six Months Ended December 31, December 31, ------------------------ ------------------------ 2000 1999 2000 1999 --------- --------- --------- --------- Weighted average common shares outstanding net of treasury shares, for basic earnings per share 5,655,089 5,480,282 5,644,524 5,480,282 Common stock equivalents for stock options 575,362 77,976 588,085 80,854 --------- --------- --------- --------- Weighted average common shares outstanding for diluted earnings per share 6,230,451 5,558,258 6,232,609 5,561,136 ========= ========= ========= =========
Excluded from the calculation of earnings per share are options and warrants to purchase 45,000 shares of the Company's common stock for the three and six months ended December 31, 2000 as compared to 495,444 shares for the three and six months ended December 31, 1999, as their inclusion would have been antidilutive. 9) The Company has two reportable segments: electronics parts distribution and contract manufacturing. The Company's primary business activity is conducted with small and medium size manufacturers, located in North America, that produce electronic equipment used in a variety of industries. Information pertaining to the Company's operations in different geographic areas for the three months and six months ended December 31, 2000 and 1999 is not considered material to the financial statements. The Company's chief operating decision maker utilizes net sales and net earnings information in assessing performance and making overall operating decisions and resource allocations. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies included in the Company's annual report to shareholders. Information about the Company's segments is as follows: 11 FORM 10-Q December 31, 2000 Page 11
Three Months Ended Six Months Ended December 31, December 31, ---------------------- ---------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (in thousands) (in thousands) Net sales from external customers Electronics components distribution $ 93,656 $ 42,215 $181,423 $ 81,439 Contract manufacturing 6,580 2,885 12,971 5,679 -------- -------- -------- -------- $100,236 $ 45,100 $194,394 $ 87,118 ======== ======== ======== ======== Intersegment net sales Electronics components distribution $ 254 $ 63 $ 382 $ 131 Contract manufacturing -------- -------- -------- -------- $ 254 $ 63 $ 382 $ 131 ======== ======== ======== ======== Operating profit Electronics components distribution $ 7,712 $ 1,704 $ 15,971 $ 2,286 Contract manufacturing 313 185 838 290 -------- -------- -------- -------- $ 8,025 $ 1,889 $ 16,809 $ 2,576 ======== ======== ======== ======== Interest expense Electronics components distribution $ 1,015 $ 220 $ 1,767 $ 412 Contract manufacturing 154 126 291 257 -------- -------- -------- -------- $ 1,169 $ 346 $ 2,058 $ 669 ======== ======== ======== ======== Income tax provision Electronics components distribution $ 2,746 $ 635 $ 5,824 $ 796 Contract manufacturing 65 25 224 14 -------- -------- -------- -------- $ 2,811 $ 660 $ 6,048 $ 810 ======== ======== ======== ======== Identifiable assets Electronics components distribution $150,593 $ 69,329 $150,593 $ 69,329 Contract manufacturing 15,890 9,803 15,890 9,803 -------- -------- -------- -------- $166,483 $ 79,132 $166,483 $ 79,132 ======== ======== ======== ======== Capital expenditures Electronics components distribution $ 196 $ 63 $ 529 $ 129 Contract manufacturing 86 46 887 92 -------- -------- -------- -------- $ 282 $ 109 $ 1,416 $ 221 ======== ======== ======== ======== Depreciation and amortization Electronics components distribution $ 540 $ 283 $ 1,076 $ 571 Contract manufacturing 211 155 410 306 -------- -------- -------- -------- $ 751 $ 438 $ 1,486 $ 877 ======== ======== ======== ========
12 FORM 10-Q December 31, 2000 Page 12 JACO ELECTRONICS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Statements in this filing, and elsewhere, which look forward in time involve risks and uncertainties which may effect the actual results of operations. The following important factors, among others, have affected and, in the future, could affect the Company's actual results: dependence on a limited number of suppliers for products which generate a significant portion of the Company's sales, the effect upon the Company of increases in tariffs or duties, changes in trade treaties, strikes or delays in air or sea transportation and possible future United States legislation with respect to pricing and/or import quotas on products imported from foreign countries, and general economic downturns in the electronics distribution industry which may have an adverse economic effect upon manufacturers, end-users of electronic components and electronic component distributors. GENERAL Jaco is a distributor of electronic components, provider of contract manufacturing and value-added services. Products distributed by Jaco include semiconductors, capacitors, resistors, electromechanical devices, flat panel displays and monitors, and power supplies used in the assembly and manufacturing of electronic equipment. The Company's customers are primarily small and medium sized manufacturers. The trend for these customers has been to shift certain manufacturing functions to third parties (outsourcing). The Company intends to seek to capitalize on this trend toward outsourcing by increasing sales of products enhanced by value-added services. Value-added services currently provided by Jaco consist of automated inventory management services, kitting (e.g. supplying sets of specified quantities of products to a customer that are prepackaged for ease of feeding the customer's production lines), and contract manufacturing through Nexus Custom Electronics, Inc., a wholly owned subsidiary of the Company. The Company is also expanding in the flat panel display value-added market which includes full system integration, kitting and the implementation of touch technologies. 13 FORM 10-Q December 31, 2000 Page 13 Results of Operations The following table sets forth certain items in the Company's statements of operations as a percentage of net sales for the periods shown:
Three Months Ended Six Months Ended December 31, December 31, ------------------ ------------------ 2000 1999 2000 1999 ----- ----- ----- ----- Net Sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 80.0 78.1 79.1 79.6 ----- ----- ----- ----- Gross Profit 20.0 21.9 20.9 20.4 Selling, general and administrative expenses 12.0 17.7 12.3 17.4 ----- ----- ----- ----- Operating profit 8.0 4.2 8.6 3.0 Interest expense 1.2 0.8 1.0 0.8 ----- ----- ----- ----- Earnings before income taxes 6.8 3.4 7.6 2.2 Income tax provision 2.8 1.4 3.1 0.9 ----- ----- ----- ----- NET EARNINGS 4.0% 2.0% 4.5% 1.3% ===== ===== ===== =====
COMPARISON OF THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999 Net sales for the three and six months ended December 31, 2000 were $100.2 million and $194.4 million, respectively, compared to $45.1 million and $87.1 million for the three and six months ended December 31, 1999, respectively, representing increases in net sales of 122.3% and 123.1%, respectively. During the first six months of Fiscal 2001, the Company benefited from strong demand for components. Net sales increased in flat panel displays, contract manufacturing, and additional sales from the acquisition of Interface Electronics Corp. ("Interface"), which was completed during June 2000. In addition to providing value-added services to assist customers in procurement and inventory management, the Company has targeted emerging and middle market accounts as well as large global contract manufacturers. Gross profit increased $10.2 million, or 103.5%, for the three months ended December 31, 2000 and $22.9 million, or 128.6%, for the six months ended December 31, 2000 compared to the same periods last fiscal year, primarily due to the increase in net sales. Gross profit margins, as a percentage of net sales, were 20.0% and 20.9% for the three and six months ended December 31, 2000, respectively, compared to 21.9% and 20.4% for the three and six months ended December 31, 1999, respectively. The decrease in gross profit margins for the three months compared to last year was primarily the result of a change in product mix toward active components which historically realize slightly lower margins. 14 FORM 10-Q December 31, 2000 Page 14 Selling, general and administrative ("SG&A") expenses were $12.1 million and $23.9 million for the three and six months ended December 31, 2000, respectively, compared to $8.0 million and $15.2 million for the three and six months ended December 31, 1999, respectively. This represented an increase of $4.1 million, or 51.1%, and $8.7 million, or 56.9% for the three and six months ended December 31, 2000, respectively, compared to the same periods during Fiscal 2000. 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 the Company's infrastructure, variable costs associated with the increase in net sales and the additional costs associated with the acquisition of Interface. As a percentage of net sales SG&A decreased to 12.0% and 12.3% for the three and six months ended December 31, 2000, respectively, compared to 17.7% and 17.5% for the comparable periods during Fiscal 2000. The decreases reflect operating efficiencies associated with the higher revenue levels. Operating profit for the three and six months ended December 31, 2000 were $8.0 million and $16.8 million, respectively compared to $1.9 million and $2.6 million for the three and six months ended December 31, 1999, respectively. This represents an increase of $6.1 million, or 324.8% and $14.2 million, or 552.4%, when comparing Fiscal 2001 to Fiscal 2000. The increase was the result of the increase in net sales and the Company's ability to achieve operating efficiencies reflected in lower SG&A as a percentage of net sales. Interest expense increased to $1.2 million and $2.1 million for the three and six months ended December 31, 2000, respectively, compared to $.3 million and $.7 million respectively, for the same periods during Fiscal 2000. The increases were primarily due to the additional borrowings of approximately $15 million to acquire Interface, and the additional borrowings required, to support the increases in accounts receivable and inventory necessary as a result of the growth in net sales. Net earnings for the three and six months ended December 31, 2000 were $4.0 million, or 4%, and $8.7 million, or 4.5%, respectively, compared to $.9 million, or 2.0%, and $1.1 million, or 1.3%, respectively, for the comparable periods during Fiscal 2000. The increase in net earnings was attributable to the increase in net sales and the increase in gross profit. The Company also benefited from the acquisition of Interface. LIQUIDITY AND CAPITAL RESOURCES Our agreement with our banks, as amended on September 28, 2000 and January 29, 2001, expires on September 14, 2002.The agreement provides us with a $70 million term loan and revolving line of credit facility based principally on eligible accounts receivable and inventories as defined in the agreement. The interest rate of the credit facility was based on the average 30-day LIBOR rate plus 1.75% through the quarter ended September 30, 2000. At such time, the rate converted to the average 30-day LIBOR rate plus 1.0%-2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. The outstanding balance on the revolving line of credit facility was $58.8 million at December 31, 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 December 31, 2000, and prohibits the payment of cash dividends. For the six months ended December 31, 2000, our cash used in operating activities was approximately $17.6 million, as compared to net cash used in operating activities of $1.8 million for the same period last fiscal year. The increase in net cash used is primarily attributable to an increase in accounts receivable and inventory. This was partially offset by an increase in accounts payable and accrued expenses and net earnings for the six months ending December 31, 2000. The increase in accounts receivable was the result of the increase in net sales during the quarter. The Company increased its inventory levels to support its sales growth. Net cash used in investing activities increased to $1.7 million for the six months ending December 31, 2000, as compared to $0.2 million for the six months ending December 31, 1999. The increase is primarily attributable to capital expenditures. Net cash provided by financing activities was $19.0 million for the six months ended December 31, 2000 as compared to net cash provided by financing activities of $1.6 million for the comparable period last fiscal year. The increase is primarily attributable to the increase in net borrowings under the line of credit of approximately $19.1 million required to fund the increases in inventory and accounts receivable. 15 FORM 10-Q December 31, 2000 Page 15 Our cash expenditures may vary significantly from current levels, based on a number of factors, including, but not limited to future acquisitions, if any. For the six months ended December 31, 2000 and December 31, 1999, our inventory turnover was 4.9x and 4.1x, respectively. The average days outstanding of our accounts receivable at December 31, 2000 was 48 days, as compared to 55 days at December 31, 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. INFLATION Inflation has not had a significant impact on the Company's operations during the last three fiscal years. Quantitative and Qualitative Disclosure about Market Risk. We are exposed to interest rate changes with respect to our credit facility which bears interest at the higher of the prime rate or the federal funds rate plus 0.5%, or at our option, at a rate equal to the average 30-day LIBOR rate plus 1.0% to 2.25% depending on our performance for the immediately preceding four fiscal quarters measured by a certain financial ratio, and may be adjusted quarterly. At January 31, 2001, $60.6 million was outstanding under the credit facility. Changes in the LIBOR interest rate during the fiscal year will have a positive or negative effect on our interest expense. Each 1.0% fluctuation in the LIBOR interest rate will increase or decrease interest expense for us by approximately $0.6 million based on outstanding borrowings at January 31, 2001. The impact of interest rate fluctuations on other floating rate debt is not material. 16 FORM 10-Q December 31, 2000 Page 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings Nothing to Report Item 2. Changes in Securities and Use of Proceeds Nothing to Report Item 3. Defaults Upon Senior Securities Nothing to Report Item 4. Submission of Matters to a Vote of Security Holders Our Annual Meeting of Shareholders was held on December 12, 2000. The Shareholders approved the following: (i) The election of each of the nominees to the Board of Directors: Stephen A. Cohen For: 4,724,945 Withheld: 630,575 Edward M. Frankel For: 4,725,342 Withheld: 630,178 Charles B. Girsky For: 4,724,945 Withheld: 630,575 Joel H. Girsky For: 4,724,945 Withheld: 630,575 Joseph F. Hickey, Jr. For: 4,725,342 Withheld: 630,178 Joseph F. Oliveri For: 4,725,342 Withheld: 630,178
(ii) An amendment to our Certificate of Incorporation to increase the aggregate number of shares of common stock, $0.10 par value per share, which we have the authority to issue from 10,000,000 shares to 20,000,000 shares. For: 5,166,801 Against: 181,997 Abstention: 6,722
(iii) The adoption and approval of our 2000 Stock Option Plan. For: 1,816,145 Against: 1,542,987 Abstention: 46,509
Item 5. Other Information Nothing to Report 17 FORM 10-Q December 31, 2000 Page 17 Item 6. Exhibits and Reports on Form 8-K a) Exhibits 27.1 Financial Data Schedule 99.8.9 Amendment to Second Restated and Amended Loan and Security Agreement dated January 29, 2001 b) Reports on Form 8-K 1. On October 20, 2000, a Current Report on Form 8-K, Amendment No. 2, was filed to include revised audited financial statements of Interface Electronics Corp. as of and for the year ended December 31, 1999, unaudited statements of Interface Electronics Corp. for the nine months ended March 31, 2000 and related proforma information. 2. On November 13, 2000, a Current Report on Form 8-K was filed to include under Item 5 the declaration of a 3-for-2 stock split in the form of a 50% stock dividend with respect to the common stock of the Company. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JACO ELECTRONICS, INC. (Registrant) BY: /s/ Jeffrey D. Gash ---------------------------------------- Jeffrey D. Gash, Vice President/Finance (Principal Financial Officer) DATED: February 13, 2001