UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 offices) (Zip Code)
Registrant's telephone number, including area code: (631) 273-5500
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 whether the registrant is accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
Yes __ No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at May 9, 2003
----- ---------------------------------
Common Stock, $0.10 Par Value 5,765,832 (excluding 659,900 shares held as
treasury stock)
FORM 10-Q March 31, 2003
Page 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
2003 2002
--------------- -----------
ASSETS
Current Assets
Cash $ 63,717 $ 324,447
Restricted cash 800,000 0
Marketable securities 573,608 650,267
Accounts receivable - net 27,751,259 29,095,269
Inventories 35,739,106 42,611,225
Prepaid expenses and other 1,062,295 1,183,043
Prepaid and refundable income taxes 1,106,525 2,440,055
Deferred income taxes 2,078,000 2,017,000
--------- ---------
Total current assets 69,174,510 78,321,306
Property, plant and equipment - net 5,404,776 6,708,828
Deferred income taxes 436,000 434,000
Excess of cost over net assets acquired - net 22,363,296 22,363,296
Other assets 2,670,993 2,807,451
----------- -----------
Total assets $100,049,575 $110,634,881
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2003
Page 3
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
2003 2002
-------------- --------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 27,802,024 $ 25,289,554
Current maturities of long-term debt and
capitalized lease obligations 720,803 897,419
------------- ------------
Total current liabilities 28,522,827 26,186,973
Long-term debt and capitalized lease obligations 23,872,060 34,879,766
Deferred compensation 937,500 900,000
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 100,000 shares,
$10 par value; none issued
Common stock - authorized, 20,000,000,
$.10 par value; 6,425,732 shares issued
and 5,765,832 and 5,807,432 shares
outstanding, respectively 642,573 642,573
Additional paid-in capital 25,152,010 25,152,010
Retained earnings 23,314,735 25,102,628
Accumulated other comprehensive loss (77,564) (24,554)
Treasury stock - 659,900 and 618,300 shares,
respectively, at cost (2,314,566) (2,204,515)
---------- -----------
Total shareholders' equity 46,717,188 48,668,142
---------- ----------
Total liabilities and shareholders' equity $100,049,575 $110,634,881
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2003
Page 4
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
2003 2002
-------------- -------------
NET SALES $59,405,669 $49,297,412
COST AND EXPENSES
Cost of goods sold 52,251,165 42,100,445
---------- ----------
Gross profit 7,154,504 7,196,967
Selling, general and administrative expenses 7,230,611 7,726,038
------------ ------------
Operating loss (76,107) (529,071)
Interest expense 322,557 493,479
------------ ------------
Loss before income taxes (398,664) (1,022,550)
Income tax benefit (139,000) (348,000)
------------ ------------
NET LOSS $ (259,664) $ (674,550)
============ ============
Net loss per common share:
Basic and Diluted $ (0.05) $ (0.12)
============ ============
Weighted average common shares outstanding:
Basic and Diluted 5,767,588 5,707,459
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2003
Page 5
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
2003 2002
-------------- -------------
NET SALES $162,629,438 $141,133,247
COST AND EXPENSES
Cost of goods sold 142,212,612 119,319,217
----------- -----------
Gross profit 20,416,826 21,814,030
Selling, general and administrative expenses 22,044,055 25,311,713
------------ ------------
Operating loss (1,627,229) (3,497,683)
Interest expense 1,122,664 1,802,410
------------ ------------
Loss before income taxes (2,749,893) (5,300,093)
Income tax benefit (962,000) (1,802,000)
------------ ------------
NET LOSS $(1,787,893) $(3,498,093)
============ ============
Net loss per common share:
Basic and Diluted $ (0.31) $ (0.61)
============ ============
Weighted average common shares outstanding:
Basic and Diluted 5,789,068 5,705,269
============ ============
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2003
Page 7
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
2003 2002
------------------ -----------------
Cash flows from operating activities
Net loss $ (1,787,893) $ (3,498,093)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 1,626,308 1,765,267
Deferred compensation 37,500 37,500
Deferred income tax (benefit) expense (31,000) 14,032
Gain on sale of equipment (5,000) (7,048)
Provision for doubtful accounts 617,300 216,400
Changes in operating assets and liabilities
Decrease in operating assets - net 9,053,107 14,766,854
Increase in operating liabilities - net 4,612,033 3,107,465
------------------ -----------------
Net cash provided by operating activities 14,122,355 16,402,377
------------------ -----------------
Cash flows from investing activities
Capital expenditures (219,506) (169,646)
Proceeds from sale of equipment 5,000 37,673
Purchase of marketable securities (8,351) (13,028)
Business acquisitions - deferred payments (2,099,563) (243,297)
Decrease (increase) in other assets 33,708 (398,645)
------------------ -----------------
Net cash used in investing activities (2,288,712) (786,943)
------------------ -----------------
Cash flows from financing activities
Borrowings under line of credit 142,878,773 116,403,926
Payments under line of credit (153,342,932) (130,919,186)
Funding of compensating balance (800,000)
Principal payments under equipment financing
and term loans (720,163) (814,318)
Purchase of treasury stock (110,051)
Proceeds from exercise of stock options 25,000
------------------ -----------------
Net cash used in financing activities (12,094,373) (15,304,578)
------------------ -----------------
NET (DECREASE) INCREASE IN CASH (260,730) 310,856
------------------ -----------------
Cash at beginning of period 324,447 89,523
------------------ -----------------
Cash at end of period $ 63,717 $ 400,379
================== =================
Supplemental schedule of non-cash financing and
investing activities:
Equipment acquired under capital lease obligations $ 396,685
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2003
Page 6
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2003
(UNAUDITED)
Additional
paid-in Retained
Shares Amount capital earnings
--------------- -------------- ---------------- -------------------
Balance at July 1, 2002 6,425,732 $ 642,573 $ 25,152,010 $ 25,102,628
Net loss (1,787,893)
Unrealized loss on marketable
securities, net of deferred taxes
Purchase of treasury stock
--------------- -------------- ---------------- -------------------
Balance at March 31, 2003 6,425,732 $ 642,573 $ 25,152,010 $ 23,314,735
=============== ============== ================ ===================
Accumulated
other Total
comprehensive Treasury shareholders'
loss stock equity
-------------- ---------------- -----------------
Balance at July 1, 2002 $ (24,554) $ (2,204,515) $ 48,668,142
Net loss (1,787,893)
Unrealized loss on marketable
securities, net of deferred taxes (53,010) (53,010)
Purchase of treasury stock (110,051) (110,051)
-------------- ---------------- -----------------
Balance at March 31, 2003 $ (77,564) $ (2,314,566) $ 46,717,188
============== ================ =================
See accompanying notes to condensed consolidated financial statements.
FORM 10-Q March 31, 2003
Page 8
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 of Jaco
Electronics, Inc. and its subsidiaries (the "Company") 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 fiscal
year ended June 30, 2002 and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2002. The results of
operations for the interim periods are not necessarily indicative of the results
for the entire year.
2) The Company's credit agreement with its banks, as amended, provides the
Company with a $45,000,000 revolving line of credit facility. The credit
facility is based principally on eligible accounts receivable and inventories of
the Company as defined in the agreement. The agreement was amended on September
23, 2002 to (i) extend the maturity date to March 14, 2004, (ii) reduce the
credit facility line from $70 million to $45 million, and (iii) change the
requirements of certain financial covenants. The agreement was subsequently
amended on May 12, 2003 to extend the maturity date to June 30, 2004. The
agreement also requires the Company to establish a $800,000 compensating balance
arrangement with its banks in an interest bearing account, which was funded
during the quarter ended December 31, 2002. The interest rate was based on the
average 30-day LIBOR plus 1% to 2.25% depending on the Company's performance for
the immediately preceding four fiscal quarters measured by a specified financial
ratio. Effective October 1, 2002, the rate converted to the average 30-day LIBOR
plus 2.25% to 2.75%. Borrowings under this facility are collateralized by
substantially all of the assets of the Company.
3) For interim financial reporting purposes, the Company uses the gross profit
method for computing inventories, which consists principally of goods held for
resale.
4) On September 18, 2001, the Company announced that its Board of Directors
authorized the repurchase of up to 250,000 shares of its outstanding common
stock. Purchases may be made from time to time in market or private transactions
at prevailing market prices. The Company made purchases of 41,600 shares of its
common stock from November 5, 2002 through March 31, 2003 for aggregate
consideration of $110,051.
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, plus the assumption of certain liabilities and a deferred payment
of $5,002,860, which has been fully satisfied as of March 31, 2003. The
acquisition has been accounted for as a purchase and the operations of Interface
have been included in the Company's condensed consolidated statement of
operations since the date of acquisition. Included in other assets on the
Company's condensed consolidated balance sheets are the costs of the
identifiable intangible assets acquired, principally an employment agreement
which is being amortized on a straight-line basis over five years, and a
franchise agreement which was being amortized on a straight-line basis over
fifteen years until the Company's adoption of Statement of Financial Accounting
Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets," on
July 1, 2001. The excess of the purchase price and related expenses over the net
tangible and identifiable intangible assets acquired amounted to approximately
$19,703,000 at March 31, 2003, and was being amortized on a straight-line basis
over twenty years until the Company's adoption of SFAS No. 142.
FORM 10-Q March 31, 2003
Page 9
6) Total comprehensive loss and its components for the three and nine months ended March 31, 2003 and 2002 are as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- ----------------------------------
2003 2002 2003 2002
-------------- -------------- ------------- ---------------
Net loss $(259,664) $(674,550) $(1,787,893) $(3,498,093)
Unrealized (loss) gain
on marketable securities (18,334) 5,469 (85,010) (53,548)
Deferred tax benefit (expense) 7,000 (2,000) 32,000 19,032
-------------- -------------- ------------- ---------------
Comprehensive loss $(270,998) $(671,081) $(1,840,903) $(3,532,609)
============== ============== ============= ===============
Accumulated other comprehensive income (loss) is comprised of
unrealized gains and losses on marketable securities, net of the related tax
effect.
7) In June 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 146 ("SFAS No. 146"),
"Accounting for Costs Associated with Exit or Disposal Activities," which
addresses accounting for restructuring and similar costs. SFAS No. 146
supersedes previous accounting guidance, principally Emerging Issues Task Force
Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated
with an exit or disposal activity be recognized when the liability is incurred.
SFAS No. 146 also establishes that the liability should initially be measured
and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of
recognizing future restructuring costs as well as the amount recognized. SFAS
No. 146 is effective for exit or disposal activities that are initiated after
December 31, 2002. Management believes that the adoption of SFAS No. 146 will
not have a material impact on the Company's results of operations or financial
position.
8) The company accounts for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employess," and related Interpretations ("APB
No. 25") and has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123" ("SFAS No.
148"). Under APB No. 25, compensation expense is only recognized when the market
value of the underlying stock at the date of grant exceeds the amount an
employee must pay to acquire the stock. Accordingly, no compensation expense has
been recognized in the Company's condensed consolidated financial statements in
connection with employee stock option grants.
The following table illustrates the effect on net income and earnings
per share for the three and nine months ended March 31, 2003 and 2002 had the
Company applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" to
stock-based employee compensation.
FORM 10-Q March 31, 2003
Page 10
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- ----------------------------------
2003 2002 2003 2002
-------------- -------------- ------------- ---------------
Net loss, as reported $(259,664) $(674,550) $(1,787,893) $(3,498,093)
Deduct: Total stocked-based employee
compensation expense determined under the
fair value based method for all awards, net
of related tax effects (73,044) (6,447) (133,914) (335,852)
-------------- -------------- ------------- ---------------
Pro forma net loss $(332,708) $(680,997) $(1,921,807) $(3,833,945)
============== ============== ============= ===============
Net loss per common share:
Basic - as reported $(0.05) $(0.12) $(0.31) $(0.61)
============== ============== ============= ===============
Basic - pro forma $(0.06) $(0.12) $(0.33) $(0.67)
============== ============== ============= ===============
Diluted - as reported $(0.05) $(0.12) $(0.31) $(0.61)
============== ============== ============= ===============
Diluted - pro forma $(0.06) $(0.12) $(0.33) $(0.67)
============== ============== ============= ===============
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 three and nine months ended March
31, 2003: expected volatility of 81%; risk-free interest rate of 2.85%; and
expected term of 5 years. There were no options issued during the three and nine
months ended March 31, 2002.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictons
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.
FORM 10-Q March 31, 2003
Page 11
9) The weighted average common shares outstanding, net of treasury shares, used
in the Company's basic and diluted earnings per share computations on its
condensed consolidated statements of operations were 5,767,588 and 5,789,068 for
the three and nine months ended March 31, 2003, respectively, compared to
5,707,459 and 5,705,269 for the three and nine months ended March 31, 2002,
respectively. Excluded from the calculation of earnings per share are options to
purchase 1,125,750 and 944,521 shares of the Company's common stock for the
three and nine months ended March 31, 2003 and 2002, respectively, as their
inclusion would have been antidilutive. Common stock equivalents for stock
options are calculated using the treasury stock method.
10) The Company has two reportable segments: electronics parts distribution and
contract manufacturing. The Company's primary business activity is conducted
with small and medium size manufacturers, located in North America, that produce
electronic equipment used in a variety of industries. Information pertaining to
the Company's operations in different geographic areas for the three and nine
months ended March 31, 2003 and 2002 is not considered material to the Company's
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 for
the fiscal year ended June 30, 2002. Information about the Company's segments is
as follows:
FORM 10-Q March 31, 2003
Page 12
Three Months Ended Nine Months Ended
March 31, March 31,
--------- ---------
2003 2002 2003 2002
--------- --------- --------- -------
(in thousands) (in thousands)
Net sales from external customers
Electronics components distribution $55,441 $46,411 $151,275 $127,012
Contract manufacturing 3,965 2,886 11,354 14,121
------- ------- -------- --------
$59,406 $49,297 $162,629 $141,133
====== ====== ======= =======
Intersegment net sales
Electronics components distribution $ 107 $ 27 $ 221 $ 196
Contract manufacturing 19 9 19 9
------- ------ ------- -------
$ 126 $ 36 $ 240 $ 205
========= ======== ======= =======
Operating profit (loss)
Electronics components distribution $ 81 $ (184) $ (1,177) $ (3,209)
Contract manufacturing (157) (345) (450) (289)
--------- --------- --------- ---------
$ (76) $ (529) $ (1,627) $ (3,498)
==== ===== ======== ========
Interest expense
Electronics components distribution $ 224 $ 374 $ 799 $ 1,381
Contract manufacturing 99 119 324 421
------- -------- ------- -------
$ 323 $ 493 $ 1,123 $ 1,802
====== ====== ======= =========
Loss before income taxes
Electronics components distribution $ (143) $ (559) $ (1,976) $ (4,590)
Contract manufacturing (256) (464) (774) (710)
----------- ----------- ----------- -----------
$ (399) $ (1,023) $ (2,750) $ (5,300)
========= =========== =========== ===========
Identifiable assets
Electronics components distribution $88,850 $107,534 $88,850 $107,534
Contract manufacturing 11,200 13,260 11,200 13,260
-------- -------- -------- --------
$100,050 $120,794 $100,050 $120,794
======= ======= ======= =======
Capital expenditures
Electronics components distribution $ 56 $ 11 $ 107 $ 139
Contract manufacturing 113 113 31
------------ ------- ------------ -------
$ 169 $ 11 $ 220 $ 170
======= ====== ======= =======
Depreciation and amortization
Electronics components distribution $ 291 $ 347 $ 998 $ 1,089
Contract manufacturing 213 228 628 676
-------- -------- ------- -------
$ 504 $ 575 $ 1,626 $ 1,765
======= ======= ========= =========
FORM 10-Q March 31, 2003
Page 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cautionary Statement under the Private Securities Litigation Reform Act of 1995:
Certain statements contained in this report or in other written or oral
statements made from time to time by the Company may contain forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
Such statements may use words such as "anticipate," "estimate," "expect,"
"believe," "may," "intend" and similar words or terms. Although we believe that
the expectations in such forward-looking statements are reasonable, we can give
no assurance that such expectations will prove to have been correct. The
forward-looking statements are based upon a number of assumptions and estimates
that, while presented with specificity and considered reasonable by us, are
inherently subject to significant business, economic and competitive risks,
uncertainties and contingencies which are beyond our control, and upon
assumptions with respect to future business decisions which are subject to
change. Accordingly, the forward-looking statements are only an estimate and
actual results will vary from the forward-looking statements, and these
variations may be material. We are not obligated to update any forward-looking
statement, but investors are urged to consult any further disclosures we make in
our subsequent filings with the Securities and Exchange Commission.
Consequently, the inclusion of the forward-looking statements should not be
regarded as a representation by us of results or performance that actually will
be achieved. Forward-looking statements are necessarily speculative in nature,
and it is usually the case that one or more of the assumptions in the
forward-looking statements do not materialize. Investors are cautioned not to
place undue reliance on the forward-looking statements. We caution investors
that the factors set forth below and in our other filings with the Securities
and Exchange Commission could cause our results to differ materially from those
stated in the forward-looking statements. These factors include, among others,
the impact of competitive products, demand for our products and related market
acceptance risks, fluctuations in our operating results, delays in development
of highly complex electronic products, our ability to continue to expand our
operations, the level of costs incurred in connection with our expansion
efforts, the financial strength of our customers and suppliers, and risks
associated with general industry and economic conditions.
GENERAL
Jaco is a distributor of electronic components, and provider of
contract manufacturing and value-added services. Products distributed by us
include semiconductors, capacitors, resistors, electromechanical devices, flat
panel displays and monitors, and power supplies used in the assembly and
manufacturing of electronic equipment.
Our customers are primarily small and medium sized manufacturers. The
trend for these customers has been to shift certain manufacturing functions to
third parties (i.e., outsourcing). We intend 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 us consist of automated
inventory management services, kitting (e.g., supplying sets of specified
quantities of products to a customer that are prepackaged in kits for ease of
feeding the customer's production lines), and contract manufacturing through
Nexus Custom Electronics, Inc., a wholly owned subsidiary of ours. We are also
expanding in the flat panel display value-added market, which includes full
system integration, kitting and the implementation of touch technologies.
FORM 10-Q March 31, 2003
Page 14
Results of Operations
The following table sets forth certain items in our statements of operations as
a percentage of net sales for the periods shown:
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ---------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 88.0 85.4 87.4 84.6
---------- ---------- ---------- ----------
Gross profit 12.0 14.6 12.6 15.4
Selling, general and
administrative expenses 12.2 15.7 13.6 17.9
---------- ---------- ---------- ----------
Operating loss (0.2) (1.1) (1.0) (2.5)
Interest expense 0.5 1.0 0.7 1.3
---------- ---------- ---------- ----------
Loss before income taxes (0.7) (2.1) (1.7) (3.8)
Income tax benefit (0.3) (0.7) (0.6) (1.3)
---------- ---------- ---------- ----------
NET LOSS (0.4)% (1.4)% (1.1)% (2.5)%
============ ============ ============ ============
COMPARISON OF THE THREE AND NINE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002
Net sales for the three and nine months ended March 31, 2003 were $59.4
million and $162.6 million, respectively, compared to $49.3 million and $141.1
million for the three and nine months ended March 31, 2002 representing
increases of 20.5% and 15.2%, respectively. We have seen an increase in net
sales to certain customers where inventory management programs have been
implemented. It has been a focus of ours to offer value-added services to
enhance value. We still do not see a general recovery in our industry, although
certain customers in different industry segments have seen their business
improve. Flat panel display "FPD" sales represented approximately 9% of our
distribution net sales for both the three and nine months ended March 31, 2003.
We are cautiously optimistic that we will see an increase in FPD sales in the
foreseeable future. Active components represented approximately 69% and passive
components approximately 31% of our distribution net sales for the three months
ended March 31, 2003 compared to 62% and 38% for the three months ended March
31, 2002. FPD sales are included in active components.
Gross profit was $7.2 million, or 12.0%, and $20.4 million, or 12.6%,
for the three and nine months ended March 31, 2003, respectively, compared to
$7.2 million, or 14.6%, and $21.8 million, or 15.5%, for the three and nine
months ended March 31, 2002, respectively. Pricing of components continues to be
highly competitive due to availability of product. Our sales growth has been
through the automated inventory management programs which have a high
concentration of semiconductors that sell at lower margins. We do not anticipate
our margins to improve until demand for product improves.
Selling, general and administrative ("SG&A") expenses were $7.2 million
and $22.0 million for the three and nine months ended March 31, 2003,
respectively, compared to $7.7 million and $25.3 million for the three and nine
months ended March 31, 2002, representing decreases of 6.4% and 12.9%,
respectively. As a percentage of net sales, SG&A was 12.2% and 13.6% for the
three and nine months of
FORM 10-Q March 31, 2003
Page 15
the current year, respectively, compared to 15.7% and 17.9% for the comparable
three and nine months last fiscal year, respectively. We continue to strive to
operate more efficiently. We continue to eliminate discretionary spending, while
being careful not to impact our ability to service customers.
Interest expense decreased 34.6% to $0.3 million and 37.7% to $1.1
million for the three and nine months ended March 31, 2003, respectively,
compared to the same periods last fiscal year. We have reduced long-term debt
$11.0 million, or 31.6%, since the beginning of the current fiscal year. The
reduction in interest expense is primarily attributable to the reduction in
long-term debt.
Net loss for the three and nine months ended March 31, 2003 was $0.3
million, or $0.05 per share diluted, and $1.8 million, or $0.31 per share
diluted, respectively, compared to $0.7 million, or $0.12 per share diluted, and
$3.5 million, or $0.61 per share diluted, for the three and nine months ended
March 31, 2002, respectively. As a result of our increase in net sales and
decrease in SG&A expenses and interest expense, we were able to reduce our net
loss 61.5% and 48.9% for the three and nine months ended March 31, 2003,
respectively, compared to the same periods last fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Our credit agreement with our banks, as amended, expires on June
30, 2004. The agreement provides us with a $45 million revolving line of credit
facility based principally on our eligible accounts receivable and inventories,
as defined in the agreement. The agreement also requires us to establish a
$800,000 compensating balance arrangement with our banks in an interest bearing
account, which was funded during the quarter ended December 31, 2002. The
interest rate applicable to borrowings under our credit facility was based on
the average 30-day LIBOR rate plus 1% to 2.25%, depending on our performance for
the immediately preceding four fiscal quarters measured by a specified financial
ratio. Effective October 1, 2002, the rate converted to the average 30-day LIBOR
plus 2.25% to 2.75%. The outstanding balance on the revolving line of credit
facility was $23.3 million at March 31, 2003. 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 March 31, 2003, and prohibits the payment of cash dividends.
Failure to remain in compliance with these covenants could trigger an
acceleration of our obligation to repay all outstanding borrowings under our
credit facility.
For the nine months ended March 31, 2003, our cash provided by
operating activities was approximately $14.1 million, as compared to $16.4
million for the same period last fiscal year. The decrease in net cash provided
is primarily attributable to a smaller decrease in our accounts receivable and
inventory for the nine months ended March 31, 2003, as compared to the same
period in our last fiscal year. This was partially offset by a larger increase
in our accounts payable and accrued expenses for the nine months ended March 31,
2003, as compared to the same period in our last fiscal year. Net cash used in
investing activities increased to $2.3 million for the nine months ended March
31, 2003, as compared to $0.8 million for the nine months ended March 31, 2002.
The increase is primarily attributable to deferred payments of $2.1 million for
the nine months ended March 31, 2003 related to our acquisition in June 2000 of
Interface Electronics Corp., as compared to deferred payments of $0.2 million
for the nine months ended March 31, 2002. Net cash used in financing activities
was $12.1 million for the nine months ended March 31, 2003 as compared to $15.3
million for the same period in our last fiscal year. The decrease in net cash
used is primarily attributable to the increase in net borrowings under our
credit facility of approximately $4.1 million.
For the nine months ended March 31, 2003 and March 31, 2002, our
inventory turnover was 4.8x and 2.9x, respectively. The average days outstanding
of our accounts receivable at March 31, 2003 was 46 days, as compared to 61 days
at March 31, 2002.
Based upon our present plans, we believe that cash flow from operations
and funds available under our credit facility will be sufficient to fund our
capital needs for the foreseeable future. However, our cash expenditures may
vary significantly from current levels based on a number of factors, including,
but not limited to, future acquisitions and capital expenditures, if any.
Historically, we have been able to obtain
FORM 10-Q March 31, 2003
Page 16
amendments to our existing credit facility to satisfy financial covenants, when
necessary. While we can give no assurance that any such future amendment, if
needed, will be available, management believes we will be able to continue to
obtain financing on acceptable terms under our existing credit facility or
through other external sources.
Inflation
Inflation has not had a significant impact on our operations during the
last three fiscal years.
Critical Accounting Policies and Estimates
We have disclosed in Note A to our consolidated financial statements
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations included in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2002 those accounting policies that we consider to be significant
in determining our results of operations and financial position. There have been
no material changes to the critical accounting policies previously identified
and described in our Form 10-K. The accounting principles we utilized in
preparing our consolidated financial statements conform in all material respects
to generally accepted accounting principles in the United States of America.
The preparation of these consolidated financial statements requires our
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, as well as the disclosure of
contingent assets and liabilities at the date of our financial statements. We
base our estimates on historical experience, actuarial valuations and various
other factors that we believe to be reasonable under the circumstances, the
results of which form the basis our making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Some of
those judgments can be subjective and complex and, consequently, actual results
may differ from these estimates under different assumptions or conditions. While
for any given estimate or assumption made by our management there may be other
estimates or assumptions that are reasonable, we believe that, given the current
facts and circumstances, it is unlikely that applying any such other reasonable
estimate or assumption would materially impact the financial statements.
New Accounting Standards
In June 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 146 ("SFAS No. 146"),
"Accounting for Costs Associated with Exit or Disposal Activities," which
addresses accounting for restructuring and similar costs. SFAS No. 146
supersedes previous accounting guidance, principally Emerging Issues Task Force
Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated
with an exit or disposal activity be recognized when the liability is incurred.
SFAS No. 146 also establishes that the liability should initially be measured
and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of
recognizing future restructuring costs as well as the amount recognized. SFAS
No. 146 is effective for exit or disposal activities that are initiated after
December 31, 2002. Management believes that the adoption of SFAS No. 146 will
not have a material impact on its results of operations or financial position.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 ("SFAS No. 148"), "Accounting for Stock-Based
Compensation--Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
provisions of SFAS 148 are effective for fiscal years ending after December 15,
2002 and the interim disclosure provisions are effective for interim periods
beginning after December 15, 2002. We currently plan to continue to apply the
intrinsic-value based method to account for stock options and have complied with
the new disclosure requirements beginning with our quarter ended March 31, 2003.
FORM 10-Q March 31, 2003
Page 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate changes with respect to borrowings
under 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 2.25% to 2.75% depending on our performance for
the immediately preceding four fiscal quarters measured by a specified financial
ratio, and may be adjusted quarterly. At April 30, 2003, $26.9 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 our
interest expense under the credit facility by approximately $0.3 million based
on the amount of outstanding borrowings at April 30, 2003.
The impact of interest rate fluctuations on our other floating rate
debt is not material.
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Principal Executive Officer
and Principal Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934). Based
upon that evaluation, the Principal Executive Officer and Principal Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. There have been no
significant changes in the Company's internal controls or other factors that
could significantly affect those controls since the date of the Company's
evaluation and there were no significant deficiencies or material weaknesses in
such controls and, therefore, there were no corrective actions taken.
FORM 10-Q March 31, 2003
Page 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to Report
Item 2. Changes in Securities and Use of Proceeds
Nothing to Report
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to Report
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 99.8.15 - Amendment to Second Restated and Amended
Loan and Security Agreement dated May 12, 2003.
Exhibit 99.9 - Certification of Principal Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.10 - Certification of Principal Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K: No reports on Form 8-K were filed
during the period ended March 31, 2003.
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 13, 2003
JACO ELECTRONICS, INC.
(Registrant)
BY: /s/ Jeffrey D. Gash
-------------------------------------------
Jeffrey D. Gash, Executive Vice President,
Finance and Secretary
(Principal Financial Officer)
CERTIFICATIONS
I, Joel H. Girsky, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jaco Electronics, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 13, 2003
/s/ Joel H. Girsky
------------------
Joel H. Girsky
Chairman, President and Treasurer
(Principal Executive Officer)
CERTIFICATIONS
I, Jeffrey D. Gash, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Jaco Electronics, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
May 13, 2003
/s/ Jeffrey D. Gash
---------------------------------------------
Jeffrey D. Gash
Executive Vice President, Finance and Secretary
(Principal Financial Officer)