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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
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FORM 10-K
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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)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 273-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.10 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of Common Stock held by non-affiliates of the
Company, computed by reference to the closing price on September 8, 1995 was
$19,015,808.
Number of shares outstanding of each class of common stock, as of September
8, 1995: 1,848,288
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Definitive Proxy Statement to be filed on or before October 30,
1995, under Regulation 14A, in connection with the Company's
1995 Annual Meeting of Shareholders.
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PART I
ITEM 1. BUSINESS
Jaco Electronics, Inc., a New York corporation organized in 1961
(collectively with all of its subsidiaries, unless otherwise noted, "Jaco" or
the "Company").
GENERAL
Jaco markets and distributes passive and active electronic components to
original equipment manufacturers ("OEMs") throughout the United States and
Canada from two distribution centers located on the East and West Coasts and 12
sales offices located throughout the United States. The Company distributes
products such as semiconductors, capacitors, resistors, electro-mechanical
devices, computers and computer subsystems, which are used in the manufacture
and assembly of electronic products. The Company also provides a variety of
value-added services including configuring complete computer systems to
customers' specifications, kitting the component requirements of certain
customers, assembling fractional-horsepower electric motors to customers'
specifications and furnishing contract manufacturing services. Value-added
services are intended to attract new customers, maintain and increase sales to
existing customers and, where feasible, generate additional revenues and improve
margins from sales of components. In addition, these services are designed to
respond to an industry trend of outsourcing, in which purchasing, manufacturing
and distribution functions are allocated by customers to the most efficient
provider. The Company entered the contract manufacturing business in March 1994,
when it acquired all of the outstanding capital stock of Nexus Custom
Electronics, Inc. ("Nexus"), a Vermont-based turnkey contract manufacturer of
printed circuit boards ("PCBs"). Management believes the acquisition of Nexus
has enabled, and will continue to enable, the Company to expand and broaden its
range of value-added service capabilities. In the year ended June 30, 1995,
Nexus products accounted for approximately 9% of the Company's total sales.
The Company's core customer base consists primarily of small and
medium-sized OEMs that produce electronic equipment used in a wide variety of
industries, including manufacturers of telecommunications, computer,
computer-related, medical and aerospace equipment. In addition, over the past
three years, the Company has added larger, higher volume customers, including
accounts with several Fortune 500 manufacturers. In the fiscal year ended June
30, 1995, the Company distributed electronic components to thousands of
customers, none of which individually represented more than 3% of net sales.
Jaco is a service-oriented company, built on strong customer and supplier
relationships. The Company's inventory management and information systems assist
its customers in controlling materials costs, in reducing cycle times and in
keeping pace with rapidly occurring technological developments. The Company
utilizes a computerized inventory control system to assist in the marketing of
its products and coordinate purchases from suppliers with sales to customers.
The Company's computer system provides detailed on-line information regarding
the availability of the Company's entire stock of inventory located at its
stocking facilities as well as on-line access to the inventories of some of the
Company's major suppliers. Through the Company's integrated real-time
information system, customers' orders can readily be tracked through the entire
process of entering the order, reserving products to fill the order, ordering
components from suppliers, if necessary, and shipping products to customers on
scheduled dates. The Company is thus able to provide the type of distributor
service required by its OEM customers that have adopted the "just-in-time"
method of inventory procurement. The "just-in-time" method is utilized in an
effort to operate more efficiently and profitably by relying on scheduled
deliveries of such components at the time they are needed in the production
process and thereby reducing inventories of components.
The Company provides additional customer support through technically
competent product managers and field engineers, value-added services and
electronic data interchange. Management believes that the Company's logo, "Today
Isn't Soon Enough," is widely recognized in the electronics
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distribution industry and articulates the Company's approach and commitment to
servicing its customers.
INDUSTRY OVERVIEW
Over the past 30 years, the electronics industry has grown significantly as
a result of increased demand for products incorporating sophisticated electronic
components, such as telecommunications, computer and medical equipment. This
industry growth has been matched by an increase in the number of products,
component manufacturers and OEMs.
The electronics distribution industry has become an increasingly important
sales channel for the electronics industry because distributors can market
component manufacturers' products to a broader range of OEMs than such
manufacturers could economically serve with their direct sales forces.
Historically, manufacturers of electronic components have sold directly to large
OEMs and relied upon distributors to serve smaller customers. Today,
distributors have become more of an extension of component manufacturers'
product delivery channels by providing value-added services and technical
support to customers, by stocking sufficient inventory to ensure timely delivery
of components and by managing customer credit. Distributors also work with OEMs
to ensure that manufacturers' components are integrated into the design of new
products.
According to the National Electronics Distributors Association, an industry
trade association, in 1994 the electronics distribution industry recorded
approximately $17 billion in sales. Of these sales, approximately $10.9 billion
consisted of sales of semiconductors and computer products, which accounted for
approximately 48% of the Company's net distribution sales for the year ended
June 30, 1995. Approximately $5.4 billion of industry sales consisted of sales
of interconnect (connectors, sockets), electromechanical (relays, switches) and
passive (resistors, capacitors) components, which products accounted for
approximately 52% of the Company's net distribution sales in the year ended June
30, 1995.
PRODUCTS
The Company currently distributes over 60,000 stock items. Management
believes that it is necessary for the Company to carry a wide variety of items
in order to fully service its customers requirements and, in addition, many
suppliers require the Company to carry their full product line.
The components distributed by the Company are used in the assembly and
manufacture of electronic equipment such as computers, data transmission and
telecommunications equipment and transportation equipment, including electronic
signals and aircraft, and a broad variety of other electronic products. The
Company's products fall into two broad categories: "passive" components and
"active" components.
Passive components consist primarily of capacitors, electromechanical
devices, fractional-horsepower motors and resistors. Passive products accounted
for approximately 57%, 52% and 52% of the Company's net distributor sales in the
fiscal years ended June 30, 1993, June 30, 1994 and June 30, 1995, respectively.
The Company believes that the number of passive components of the types
distributed by the Company that are used in personal computers has been
increasing as the speed and capacity of semiconductors has increased.
Active components include semiconductors and computer subsystems.
Semiconductors consist of such items as integrated circuits and discrete
components, transistors, diodes, dynamic RAMs, static RAMs, video RAMs and
MOSFETs. Computer subsystems are an integral part of personal computers and
computer workstations and incorporate such items as disk drives, tape drives,
floppy disks and controllers. These products represented approximately 43%, 48%
and 48% of the Company's net distributor sales in the fiscal years ended June
30, 1993, June 30, 1994 and June 30, 1995, respectively.
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VALUE-ADDED SERVICES
The Company provides a number of value-added services which are intended to
attract new customers, to maintain and increase sales to existing customers and,
where feasible, to generate additional revenues and improve margins from sales
of components. Value-added services include:
- Configuring Computer Systems. Subsystem integration is a service offered
by the Company where it offers turnkey solutions to customers' computer
requirements by integrating such components as disks, tapes and floppy
disk drives with other components, including power suppliers, enclosures,
interface electronics cables and converters and active components to
configure complete computer systems to customer specifications, both in
tower and desktop configurations.
- Kitting. Kitting of customer component product requirements is provided
to fill a segment or a complete order of products to a select customer
base. Kitting consists of assembling to a customer's specifications two
or more of the Company's 60,000 stock items into pre-packaged kits ready
for use in the customer's assembly line.
- Motor Assembly. The Company assembles fractional-horsepower electric
motors in conformity with customer specifications. The Company's
Hauppauge, New York distribution center is one of only two authorized by
the Globe Motors division of Labinal Components and Systems, Inc. as a
Globe Motors assembly center.
- Contract Manufacturing. The Company also furnishes turnkey contract
manufacturing of PCBs for OEMs using both conventional pin-through-hole
and more advanced surface mount technologies. Contract manufacturing
operations involve assembling PCBs to customer specifications utilizing
components from suppliers with whom the Company has distribution
agreements and other suppliers. As a turnkey contract manufacturer of
PCBs, the Company procures the required raw materials and components,
manages the assembly and test operations, and supplies the PCBs in
accordance with the customer's delivery schedule and quality requirements
for the finished product.
SALES AND MARKETING
Management believes the Company has developed valuable long-term customer
relationships and an in-depth understanding of its customers' needs and
purchasing patterns. Jaco serves a broad range of customers in the computer,
computer-related, telecommunications, data transmission, defense, aerospace,
medical equipment and other industries. None of the Company's customers
individually represented more than 3% of net sales in the fiscal years ended
June 30, 1994 and June 30, 1995.
The Company's sales personnel are trained to identify their customers'
requirements and to actively market the Company's entire product line to satisfy
those needs. For example, the Company's sales staff and field engineers
regularly meet with customers' engineers and designers to discuss prospective
needs and potential design or procurement problems and enable the sales
personnel to recommend use of products which meet the customers' performance
criteria, are cost-effective and target specifically identified problems.
Sales are made throughout the United States and Canada from the sales
departments maintained at the Company's two distribution facilities located on
the East and West Coasts of the United States in California and New York and
from 12 additional sales offices located in Florida, Maryland, Massachusetts,
Minnesota, North Carolina, Oregon, Texas, Washington and Colorado (established
in September 1995). The Company currently has plans to open a total of three
additional sales offices in the Rocky Mountain States, the Midwest and the
Southeast. Sales are made primarily through personal visits by the Company's
employees and by a staff of trained telephone sales personnel who answer
inquiries and receive and process orders from customers. In addition, the
Company utilizes the services of independent sales representatives whose
territories include parts of the United States, Canada, and several foreign
countries. These sales representatives operate under agreements which are
terminable
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by either party upon 30 days' notice. Independent sales representatives are
authorized to solicit sales of all of the Company's product lines and are
prohibited from representing competing product lines.
In the fiscal year ended June 30, 1995, 92% of the Company's sales were
produced by Company sales personnel and 8% by independent sales representatives,
one of whom produced approximately $4.7 million in revenue. No other
representative produced more than $2 million in revenue. The Company believes
that the termination of any independent sales representative would not have a
material adverse effect upon its business.
BACKLOG
The Company's backlog consists of purchase orders received from customers
for products scheduled for delivery within the next twelve months. The Company's
backlog was $31.3 million at June 30, 1994, compared to $44.9 million at June
30, 1995. Orders constituting the Company's backlog are subject to delivery
rescheduling, price negotiations and cancellations by the buyer, sometimes
without penalty or notice. Backlog is not necessarily indicative of future sales
for any particular period and, the Company expects that in the normal course of
business, less than all backlogged orders will be filled.
OPERATIONS
Component Distribution. Inventory management is critical to a
distributor's business. The Company constantly focuses on a high number of
resales or "turns" of existing inventory to reduce exposure to product
obsolescence and changing customer demand.
The Company's central computer system facilitates the control of purchasing
and inventory, accounts payable, shipping and receiving, and invoicing and
collection information of Jaco's distribution business. Each of the Company's
sales departments and offices is electronically linked to the Company's central
computer system which provides fully integrated on-line real-time data with
respect to the Company's inventory levels. The Company's inventory management
system was developed internally by Jaco and is considered proprietary. Inventory
turns are tracked by vendor, and the Company's inventory management system
provides immediate information to assist in making purchasing decisions and
decisions as to which inventory to exchange with suppliers under stock rotation
programs. The Company's inventory management system also uses bar-code
technology along with scanning devices, which are supplied by Jaco to certain
customers, and is networked to the facilities of select customers. In some
cases, customers use computers that interface directly with the Company's
computers to identify available inventory and rapidly process orders. This
system enables the Company to more effectively manage its inventory and to
respond more quickly to customer requirements for timely and reliable delivery
of components. The Company's turnover ratio was approximately 4.6x for the year
ended June 30, 1995.
Approximately 75% of the Company's component distribution inventory is
maintained at its East Coast distribution center in Hauppauge, New York. Most of
the remaining inventory is maintained at the Company's West Coast facility in
Westlake Village, California, approximately 35 miles north of Los Angeles. The
Company also monitors supplier stock rotation programs, inventory price
protection, rejected material and other factors related to inventory quality and
quantity.
Contract Manufacturing. The Company conducts its contract manufacturing
operations through Nexus at an approximately 32,600 square foot facility located
in Brandon, Vermont. Nexus provides turnkey contract manufacturing of PCBs for
OEMs. "Turnkey" is an industry term that describes a contract manufacturer that
buys customer-specified components from suppliers, assembles the components onto
finished PCBs and performs post-assembly testing. OEMs then incorporate the PCBs
into finished products. In assembling PCBs, Nexus is capable of employing both
pin-through-hole ("PTH") and surface mount technologies ("SMT"). PTH is a method
of assembling PCBs in which component leads are inserted and soldered into
plated holes in the board. SMT is a method of assembling PCBs in
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which components are fixed directly to the surface of the board, rather than
being inserted into holes. The SMT process allows for more miniaturization, cost
savings and shorter lead paths between components (which results in greater
signal speed). In the fiscal year ended June 30, 1995, the Company borrowed
$500,000 to purchase machinery and equipment in order to expand Nexus' SMT
assembly capability and plans in the fiscal year ending June 30, 1996 to invest
approximately $500,000 in additional machinery and equipment as part of the
Company's ongoing program to upgrade Nexus' operations.
Nexus maintains strict quality control procedures for its products,
including use of total quality management ("TQM") systems. All incoming raw
materials and components are checked by the Nexus quality control personnel.
During the production stage, quality control personnel check all work in process
at several points in the production process. Finally, after the assembly stage,
Nexus conducts random testing of finished products. When requested by OEM
customers, Nexus provides a limited warranty for products it manufactures.
Nexus' manufacturing facility has earned ISO 9002 certification. The ISO is
a Geneva-based organization dedicated to the development of worldwide standards
for quality management guidelines and quality assurance. ISO 9002 is the ISO
level appropriate for manufacturers like Nexus. Nexus' receipt of ISO 9002
certification demonstrates that Nexus' manufacturing operations meet the
established world standards.
Management believes sophisticated customers increasingly are requiring
their manufacturers to be ISO 9002-certified and that OEMs that are not so
qualified are increasingly looking to manufacturers like Nexus that have done
so, rather than undertaking the expensive and time-consuming process of
qualifying their own operations.
SUPPLIERS
Manufacturers of passive and active electronic components are increasingly
relying on the marketing, customer service and other resources of a limited
number 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. Manufacturers seek distributors who have strong
relationships with desirable customers, are financially strong, have the
infrastructure to handle large volumes of products and can assist customers in
the design and use of the manufacturers' products. Currently, the Company has
non-exclusive distribution agreements with many manufacturers, including Globe
Motors (a division of Labinal Components and Systems, Inc.), International
Resistive Company, Inc., Kemet Electronics Corporation, Micropolis Corporation,
Mitel Inc., Rohm Company, Limited, Samsung Semiconductor, Inc., Vishay
Intertechnology, Inc., and Zetex, Inc. Management continuously seeks to identify
potential new suppliers and obtain additional distributorships for new lines of
products. Management believes that such expansion and diversification will
increase the Company's sales and market share.
In the fiscal year ended June 30, 1995, of the Company's top ten suppliers,
three, AVX, Kemet and Samsung, accounted for 14%, 13%, and 9% respectively, of
net sales and the remaining seven each accounted for between 2% and 5% of net
sales. No other supplier accounted for more than 2% of net sales. As is common
in the electronics distribution industry, from time to time the Company has
experienced terminations of relationships with suppliers which affected its
results of operations in post-termination fiscal periods. For example, in June
1995, the Company's largest supplier, AVX, canceled its distributor agreement
with the Company. While the Company believes that it will be able to replace a
major portion of those sales with sales of other product lines from other
suppliers and in August 1995 the Company entered into distribution agreements
with Sprague, Inc. and Johanson Dielectric, Inc., there can be no assurance that
it will, in fact, be able to replace the AVX sales.
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. Selection as an authorized distributor is a
valuable marketing tool for the Company because customers receive warranty
protection and support from manufacturers when they purchase
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products from the Company. As an authorized distributor, the Company is able to
offer customers marketing and engineering support from the product
manufacturers, which enhances the Company's ability to attract new customers and
close sales.
Most of the Company's distributor agreements are cancelable by either
party, typically upon 30 to 90 days' notice. These agreements typically provide
for price protection, stock rotation privileges and the right to return certain
inventory if the agreement is canceled. Price protection is typically in the
form of a credit to the distributor for any inventory in the distributor's
possession for which the manufacturer reduces its prices. Stock rotation
privileges typically allow the Company to exchange inventory in an amount up to
5% of a prior period's purchases. Upon termination of a distributor agreement,
the right of return typically requires the manufacturer to repurchase the
Company's inventory at the Company's adjusted purchase price. The Company
believes that the above-described provisions of its distributorship agreements
generally have served to reduce the Company's exposure to loss from unsold
inventory. As such price protection and stock rotation privileges are limited in
scope, there can be no assurance that the Company will not experience
significant losses from unsold inventory in the future.
COMPETITION
The electronics distribution industry is highly competitive, primarily with
respect to price and product availability. The Company believes that the breadth
of customer base, services and product lines, its level of technical expertise
and the quality of its services generally are also particularly important. The
Company competes with large national distributors such as Arrow Electronics,
Inc. and Avnet, Inc., as well as regional and specialty distributors, many of
whom distribute the same or competitive products. Many of the Company's
competitors have significantly greater name recognition and greater financial
and other resources than those of the Company.
The Company encounters some competition from products manufactured abroad
and distributed domestically. Such foreign-manufactured products are often sold
at prices below the Company's prices for comparable products. The Company
competes by providing its customers with reliable, rapid delivery of products
that meet strict quality control standards and by providing value-added services
not available from foreign distributors.
The PCB contract manufacturing industry is highly fragmented. Many large
contract manufacturers operate high-volume facilities and primarily focus on
high-volume markets, such as the personal computer and disk drive industries.
This segment of the contract manufacturing industry is characterized by
relatively high levels of volatility, competition and pricing and margin
pressure. In contrast, other contract manufacturers focus on low-to-medium
volume and service-intensive products, where the value-added component
represents a relatively high percentage of the overall value of the finished
product.
The Company believes that contract manufacturers which are affiliated or
integrated with electronics distributors have competitive advantages over
comparably-sized, stand-alone contract manufacturers. Distributors can reduce
the risk of inventory obsolescence through stock rotation privileges and
inventory price protection and can also take advantage of material acquisition
skills, just-in-time delivery expertise and broad supplier relationships.
EMPLOYEES
At August 31, 1995, the Company had a total of 404 employees, of which 128
were employed by Nexus. Of total employees, 11 were engaged in administration,
55 were managerial and supervisory employees, 128 were in sales and 210
performed warehouse, manufacturing and clerical functions. Of these employees,
Nexus employed one in administration, 14 in management and supervisory
positions, six in sales and 108 in warehouse, manufacturing and clerical
functions. There are no collective bargaining contracts covering any of the
Company's employees. The Company believes its relationship with its employees is
satisfactory.
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ITEM 2. PROPERTIES
All of the Company's facilities are leased except for the Brandon, VT
property which is owned by Nexus. Jaco currently leases 14 facilities located in
the States of California, Colorado, Florida, Maryland, Massachusetts, Minnesota,
New York, North Carolina, Oregon, Texas and Washington, two of which are
multipurpose facilities used principally as administrative, sales, and
purchasing offices, as well as warehouses, and the remainder of which are used
exclusively by Jaco as sales offices. Jaco's satellite sales offices range in
size from approximately 1,000 square feet to approximately 7,200 square feet.
Base rents for such properties range from approximately $1,000 per month to
approximately $3,400 per month. Depending on the terms of each particular lease,
in addition to base rent, Jaco may also be responsible for portions of real
estate taxes, utilities and operating costs, or increases in such costs over
certain base levels. The lease terms range from month-to-month to as long as
three years. All facilities are linked by computer terminals to Jaco's
Hauppauge, New York headquarters. The following paragraphs set forth certain
information respecting Jaco's two principal leased facilities:
(i) Jaco leases from Bemar Realty Company, a partnership consisting of
Messrs. Joel H. Girsky and Charles B. Girsky, approximately 72,000 square
feet of office and warehouse space at 145 Oser Avenue, Hauppauge, New York.
The lease provides for a current monthly base rent of approximately
$56,250, net of all expenses, including taxes, utilities, insurance,
maintenance and repairs, and has a term which expires on December 31, 1995.
Jaco is currently negotiating a renewal of that lease. Such renewal is
anticipated to be at a rental rate similar to that currently being charged
for comparable properties in the area and, as a result, the Company expects
that the new rental rate will be slightly lower than the current rate.
Approximately 26,000 square feet of space is sublet by Jaco to an
unaffiliated third party. In addition to its headquarters, Jaco maintains
purchasing and sales offices and warehouse facilities at its Hauppauge
location.
(ii) Jaco leases from an unaffiliated party approximately 10,000
square feet of office and warehouse space in Westlake Village, California,
approximately 35 miles north of Los Angeles, for a base rent of
approximately $7,800 per month. The lease expires on March 31, 1996. Jaco
maintains both a purchasing and sales office at this location, as well as
warehouse facilities.
Nexus currently owns and occupies a 32,000 square foot facility located in
Brandon, Vermont, that is used for manufacturing, storage and office space. The
building was acquired by the Company on March 11, 1994 as part of the
acquisition of all of the outstanding shares of capital stock of Nexus.
The Company believes that its present facilities will be adequate to meet
its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No response to this Item is required.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
(a) The Company's common stock (the "Common Stock") is traded on The Nasdaq
National Market under the symbol "JACO". The stock prices listed below represent
the high and low closing sale prices of the Common Stock, as reported by The
Nasdaq National Market, for each fiscal quarter beginning with the first fiscal
quarter of 1994. Stock prices prior to February 14, 1995 have been adjusted to
give effect to the 10% stock dividend paid on March 10, 1995 and stock prices
for all periods have been adjusted to give effect to the declared 4-for-3 stock
split to be effective on September 22, 1995.
HIGH LOW
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FISCAL YEAR 1994:
First quarter ended September 30, 1993............................ $ 7.84 $4.94
Second quarter ended December 31, 1993............................ $ 8.01 $5.28
Third quarter ended March 31, 1994................................ $ 6.48 $4.43
Fourth quarter ended June 30, 1994................................ $ 5.97 $4.26
FISCAL YEAR 1995:
First quarter ended September 30, 1994............................ $ 5.28 $3.75
Second quarter ended December 31, 1994............................ $ 5.45 $3.92
Third quarter ended March 31, 1995................................ $ 5.54 $4.26
Fourth quarter ended June 30, 1995................................ $ 7.31 $5.06
(b) As of August 31, 1995, there were approximately 172 holders of record
of the Company's Common Stock who management believes held for more than 950
beneficial owners.
(c) The Company has never declared or paid cash dividends on its Common
Stock. The Company intends to retain earnings, if any, for use in its business
and to support growth and does not anticipate paying cash dividends in the
foreseeable future. In addition, the agreement governing the Company's credit
facility (the "Credit Facility") contains provisions that prohibit the Company
from paying cash dividends on its Common Stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATING DATA
Net sales......................... $ 78,856 $ 77,358 $ 96,675 $ 105,213 $ 138,683
Cost of goods sold................ 61,244 59,951 75,630 83,038 109,902
---------- ---------- ---------- ---------- ----------
Gross profit...................... 17,612 17,407 21,045 22,175 28,781
Selling, general and
administrative expenses......... 17,436 15,753 17,786 19,155 23,552
---------- ---------- ---------- ---------- ----------
Operating profit.................. 176 1,654 3,259 3,020 5,229
Interest expense.................. 1,551 1,172 1,078 1,117 2,010
---------- ---------- ---------- ---------- ----------
Earnings (loss) before income
taxes and cumulative effect of a
change in accounting for income
taxes........................... (1,375) 482 2,181 1,903 3,219
Income tax expense (benefit)...... (357) 170 797 714 1,303
---------- ---------- ---------- ---------- ----------
Earnings (loss) before cumulative
effect of a change in accounting
for income taxes................ (1,018) 312 1,384 1,189 1,916
Cumulative effect of a change in
accounting for income taxes..... -- -- -- 241 --
---------- ---------- ---------- ---------- ----------
Net earnings (loss)............... $ (1,018) $ 312 $ 1,384 $ 1,430 $ 1,916
========== ========== ========== ========== ==========
PER SHARE DATA*
Earnings (loss) per common share
before cumulative effect of a
change in accounting............ $ (0.40) $ 0.12 $ 0.55 $ 0.47 $ 0.78
Cumulative effect of accounting
change.......................... -- -- -- 0.09 --
---------- ---------- ---------- ---------- ----------
Net earnings (loss) per common
share........................... $ (0.40) $ 0.12 $ 0.55 $ 0.56 $ 0.78
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding... 2,523,400 2,506,001 2,522,980 2,551,173 2,461,091
========== ========== ========== ========== ==========
JUNE 30,
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1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA
Working capital................... $ 13,187 $ 13,614 $ 14,910 $ 15,160 $ 30,741
Total assets...................... 34,076 35,547 36,056 45,685 56,323
Long-term obligations............. 8,375 8,225 8,058 9,694 23,666
Shareholders' equity.............. 8,208 8,520 9,905 11,202 13,227
---------------
* All per share information has been restated to give effect to a 10% stock
dividend paid on March 10, 1995 and a declared 4-for-3 stock split to be
effective on September 22, 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Jaco is a distributor of electronic components and provider of contract
manufacturing and value-added services. Products distributed by Jaco include
semiconductors, capacitors, resistors and electro-mechanical devices and motors
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
configuring complete computer systems to customer specifications both in tower
and desktop configurations, 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), assembling fractional-horsepower electric motors
and turnkey contract manufacturing through Nexus.
In March 1994, the Company entered the contract manufacturing business
through the acquisition of all the outstanding shares of capital stock of Nexus,
paying approximately $1,800,000 which was financed in part from a $1,500,000
term loan obtained under the Company's Credit Facility. See Notes E and I of
Notes to Consolidated Financial Statements. During the year ended June 30, 1995,
the Company devoted significant efforts to improving the performance of Nexus
including: capital expenditures in excess of $500,000 to improve Nexus'
capabilities for surface mount technology in the assembly of PCBs; consolidation
of Nexus' operational facilities from three buildings into one building;
utilization of Jaco's sales force in the Northeast to generate new customers for
Nexus; and reduction in the cost of components purchased by Nexus by
consolidating such purchases with other components purchased by Jaco.
The Company's sales from value-added services represented $18.1 million, or
13% of net sales in the year ended June 30, 1995, $8.9 million or 8% of net
sales in the year ended June 30, 1994, and $5.4 million or 6% of net sales in
the year ended June 30, 1993. Of these sales, sales from contract manufacturing
through Nexus, which was acquired in March 1994, were $2.7 million or 2.6% of
net sales in the year ended June 30, 1994 and $12.1 million or 8.7% of net sales
in the year ended June 30, 1995.
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's statements of
earnings as a percentage of net sales for the periods shown:
YEAR ENDED JUNE 30,
---------------------------
1993 1994 1995
----- ----- -----
Net sales................................................. 100.0% 100.0% 100.0%
Cost of goods sold........................................ 78.2 78.9 79.2
----- ----- -----
Gross profit.............................................. 21.8 21.1 20.8
Selling, general and administrative expenses.............. 18.4 18.2 17.0
----- ----- -----
Operating profit.......................................... 3.4 2.9 3.8
Interest expense.......................................... 1.2 1.1 1.5
----- ----- -----
Earnings before income taxes and cumulative
effect of a change in accounting........................ 2.2 1.8 2.3
Income tax expense........................................ .8 .7 .9
----- ----- -----
Earnings before cumulative effect of a change
in accounting........................................... 1.4 1.1 1.4
Cumulative effect of a change in accounting
for income taxes........................................ -- .3 --
----- ----- -----
Net earnings.............................................. 1.4% 1.4% 1.4%
===== ===== =====
11
12
COMPARISON OF YEAR ENDED JUNE 30, 1995 ("FISCAL 1995") WITH YEAR ENDED JUNE 30,
1994 ("FISCAL 1994")
Net sales were $138.7 million for fiscal 1995, an increase of $33.5 million
or 32% as compared to $105.2 million for fiscal 1994. The increase in sales is
the result of several factors, including strong overall demand for components in
the electronics industry generally, and the establishment of new offices and
expansion of sales forces in existing offices to grow the distribution business.
In addition, revenue from contract manufacturing by Nexus increased to
approximately $12.1 million in fiscal 1995, from $2.7 million in fiscal 1994.
Nexus was acquired in March 1994. Accordingly, the results of its operations for
only three and a half months of fiscal 1994 were included in fiscal 1994 results
of operations.
Gross profit margins, as a percentage of net sales, decreased slightly from
21.1% in fiscal 1994 to 20.8% in fiscal 1995. This was primarily due to intense
price competition relating to disk drives. The Company realized an improvement
in gross profit margins in its distribution business during the second half of
fiscal 1995 as a result of strong demand for products other than disk drives,
which have lower gross profit margins. The Company believes that the
continuation of such demand, combined with emphasis on components which are more
profitable than disk drives, should enable gross profit margins to improve.
Selling, general and administrative expenses were $23.6 million in fiscal
1995, an increase of $4.4 million, or 22.9%, from $19.2 million in fiscal 1994.
The addition of two new sales offices, coupled with the hiring of additional
sales personnel both for the new offices and existing sales offices and the
inclusion of a full year of Nexus' operating results, produced the increase.
Selling, general and administrative expenses, as a percentage of 1995 net sales,
declined to 17.0% from 18.2% in fiscal 1994. Strict attention to cost
containment resulted in the reduction. The Company believes that if net sales
continue to increase then selling, general and administrative expenses will
decrease as a percentage of net sales.
Interest expense increased to $2.0 million in fiscal 1995 from $1.1 million
in fiscal 1994. This increase was primarily attributable to rising interest
rates, borrowings to support sales growth and additional borrowings used in
connection with the acquisition of Nexus.
Nexus recently moved operations from two formerly leased facilities in
Vermont and Massachusetts and consolidated such operations at its Brandon,
Vermont headquarters.
Net earnings for fiscal 1995 were $1.9 million, an increase of
approximately $500,000 or 34.0%, as compared to $1.4 million for fiscal 1994,
after taking into account the cumulative effect of a change in accounting for
income taxes of $241,000 in the fiscal year ended June 30, 1994. Earnings before
the change in accounting for income taxes increased $727,000 (61%) in fiscal
1995 as compared to fiscal 1994. Growth in the Company's distribution business
was primarily responsible for the growth in earnings. Nexus currently is
realizing modest profits after its first full year as a subsidiary.
COMPARISON OF YEAR ENDED JUNE 30, 1994 WITH YEAR ENDED JUNE 30, 1993 ("FISCAL
1993")
Net sales were $105.2 million for fiscal 1994, an increase of $8.5 million
or 8.8% as compared to $96.7 million for fiscal 1993. Management attributes the
increase to continued penetration in existing markets, the opening of sales
offices in Minnesota and Oregon, and the acquisition of Nexus. Net sales of
Nexus were $2.7 million for the period following its acquisition (March
11 -- June 30, 1994) or 2.6% of consolidated fiscal 1994 net sales. Nexus, as a
contract manufacturer, competes in a rapidly growing segment of the electronics
market.
Fiscal 1994 gross profit margins, as a percentage of net sales, decreased
compared to fiscal 1993. This was primarily attributable to active components
having represented an increasing percentage of the Company's product mix in
fiscal 1994. These products are historically sold at lower margins than passive
components.
12
13
Selling, general and administrative expenses were $19.2 million in fiscal
1994, an increase of $1.4 million, or 8.0% compared to $17.8 million in fiscal
1993. Increases in selling, general and administrative expenses resulted from an
expanded sales and support workforce, the establishment of additional sales
offices and the incremental selling, general and administrative expenses
incurred as a result of the acquisition of Nexus.
Interest expense increased 3.7% to $1.1 million in fiscal 1994 compared to
fiscal 1993 due to rising interest rates and additional borrowings to support
sales growth and used in connection with the acquisition of Nexus.
While net income was approximately $1.4 million both in fiscal 1994 and
fiscal 1993, fiscal 1994 included a $241,000 benefit resulting from the
Company's adoption of Financial Accounting Standard No. 109, "Accounting for
Income Taxes". The benefit derived from sales growth was more than offset by
decreases in gross profit margins and increased selling, general and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a total credit facility of $30,000,000, $8,000,000 of
which is structured as a term loan, $1,500,000 (the outstanding balance of which
at August 31, 1995 was approximately $1,196,000) of which is structured as a
term loan, payable in equal monthly installments of $17,857 and the balance of
which is structured as a revolving line of credit. During fiscal 1995, the
borrowing rate was reduced from prime +1% to a rate equal to the higher of prime
rate or the federal funds rate + 1/2% or, at the Company's option, LIBOR plus
2.5% for fixed periods of time. The Company must comply with various financial
covenants, with all of which the Company believes itself to be in compliance. As
of August 31, 1995, the Company had outstanding borrowings of $25.3 million,
with additional borrowing capacity of $4.7 million available under the revolving
line of credit.
Working capital increased to $30.7 million as of June 30, 1995, as compared
to $15.2 million as of June 30, 1994, an increase of $15.5 million or 102%. The
increase was primarily attributable to the Company's restructuring of its Credit
Facility which, among other things, extended its maturity date to April 1998;
the Company's profitable results during fiscal 1995; and higher inventory
necessary to support the Company's increased level of sales and resulting
increased accounts receivable.
During fiscal 1995, the Company's net cash used in operating activities was
$4.0 million, compared to $127,000 in fiscal 1994. Increases in accounts payable
and additional bank borrowings offset increases in accounts receivable and
inventory, all of which are a reflection of higher sales. In March 1995, Nexus
borrowed $500,000 to purchase machinery and equipment in order to expand Nexus'
surface mount assembly capacity. Management anticipates investing approximately
$500,000 in fiscal 1996 for additional machinery and equipment as part of an
ongoing program to upgrade Nexus' operations. The Company's cash expenditures
may vary significantly from its current expectations, based on a number of
factors, including but not limited to, future acquisitions, if any.
For both fiscal 1994 and 1995, inventory turnover was 4.6x. The average age
of the Company's accounts receivable at June 30, 1995 was 50 days, as compared
to 52 days at June 30, 1994. The Company did not experience any significant
trade collection difficulties during fiscal 1995.
The Company expects that cash flow from operations and funds available
under its Credit Facility will be sufficient to fund the Company's capital needs
for at least the next 12 months.
INFLATION
Inflation has not had a significant impact on the Company's operations
during the last three fiscal years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For an index to the financial statements and supplementary data, see Item
14(a).
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
No response to this Item is required.
13
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
Incorporated herein by reference is the information to appear under the
caption "Election of Directors" in the Company's definitive proxy statement for
its Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission not later than October 30, 1995.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference is the information to appear under the
caption "Executive Compensation" in the Company's definitive proxy statement for
its Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission not later than October 30, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information to appear under the
caption "Principal Shareholders; Shares Held by Management" in the Company's
definitive proxy statement for its Annual Meeting of Shareholders which will be
filed with the Securities and Exchange Commission not later than October 30,
1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference is the information to appear under the
caption "Certain Transactions" in the Company's definitive proxy statement for
its Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission not later than October 30, 1995.
14
15
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 Earnings......................................... F-4
Consolidated Statement of Changes in Shareholders' Equity................... F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
(a)(2) Financial Statement Schedule included in Part IV of this Report:
Report of Independent Certified Public Accountants on Schedule.............. F-18
Schedule II -- Valuation and Qualifying Accounts............................ F-19
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
EXHIBIT
NO.
----------
3.1 Restated Certificate of Incorporation adopted November, 1987, incorporated by
reference to the Company's definitive proxy statement distributed in connection
with the Company's annual meeting of shareholders held in November, 1987, filed
with the SEC on November 3, 1986, as set forth in Appendix A to the aforesaid
proxy statement.
3.2 Restated By-Laws adopted June 18, 1987, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1987, ("the
Company's 1987 10-K"), Exhibit 3.2.
4.1 Form of Common Stock Certificate, incorporated by reference to the Company's
Registration Statement on Form S-1, Commission File No. 2-91547, filed June 9,
1984, Exhibit 4.1.
10.1 Sale and leaseback with Bemar Realty Company (as assignee of Hi-Tech Realty
Company), incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1983, Exhibit 10(1), pages 48-312.
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty Company (as
assignee of Hi-Tech Realty Company), incorporated by reference to the Company's
Registration Statement on Form S-1, Commission File No. 2-91547, filed June 9,
1984, Exhibit 10.2.
10.3 Employment Agreement between Joel Girsky and the Company, dated December 29,
1989, incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1990, Exhibit 10.3, pages 47-52.
10.4 1980 Stock Incentive Plan, incorporated by reference to the Company's
Registration Statement on Form S-1, Commission File No. 2-91547, filed June 9,
1984, Exhibit 10.4, pages 168-172.
10.5 Restated 1981 Incentive Stock Option Plan, incorporated by reference to the
Company's 1987 10-K, Exhibit 10.1.
10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993, Exhibit 10.6.
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.
15
16
EXHIBIT
NO.
----------
10.8 1993 Stock Option Plan for Outside Directors, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994, Exhibit
10.8.
10.9 Employment Agreement between Joel Girsky and the Company, dated October 5, 1994,
incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994, Exhibit 10.9.
10.10 Authorized Electronic Industrial Distributor Agreement, dated as of August 24,
1970 by and between AVX and the Company.
10.11 Electronics Corporation Distributor Agreement, dated November 15, 1974, by and
between Kemet and the Company.
21.1 Subsidiaries of the Company, incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1994, Exhibit 21.
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 Annual Report on Form 10-K for the year ended June 30, 1992,
Exhibit 28.4.
99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between the Company and
BNYCC, incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, Exhibit 99.5.
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in favor of BNYCC,
dated March 11, 1994, incorporated by reference to the Company's Annual Report on
Form 10-K for the 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.
(b) Reports on Form 8-K filed during last quarter of the period covered by
this Report:
None.
16
17
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
Consolidated Financial Statements
Report of Independent Certified Public Accountants.................................. F-2
Consolidated Balance Sheets......................................................... F-3
Consolidated Statements of Earnings................................................. F-4
Consolidated Statement of Changes in Shareholders' Equity........................... F-5
Consolidated Statements of Cash Flows............................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Schedule
Report of Independent Certified Public Accountants on Schedule...................... F-18
Schedule II -- Valuation and Qualifying Accounts.................................... F-19
F-1
18
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, 1994 and 1995,
and the related consolidated statements of earnings, changes in shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Jaco
Electronics, Inc. and Subsidiaries as of June 30, 1994 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal 1994.
GRANT THORNTON LLP
Melville, New York
August 15, 1995, except for Note H, as to which
the date is August 30, 1995
F-2
19
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
1994 1995
---------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................... $ 434,798 $ 393,671
Accounts receivable, less allowance for doubtful accounts of
$610,000 in 1994 and 1995................................... 17,135,923 20,437,664
Inventories.................................................... 20,081,596 26,653,881
Prepaid expenses and other..................................... 1,072,219 1,256,319
Due from officers.............................................. 291,119 309,808
Deferred income taxes.......................................... 433,000 571,000
----------- -----------
Total current assets........................................ 39,448,655 49,622,343
PROPERTY, PLANT AND EQUIPMENT -- AT COST, NET.................... 3,560,786 4,106,221
DEFERRED INCOME TAXES............................................ 199,000 174,000
EXCESS OF COST OVER NET ASSETS ACQUIRED,
less accumulated amortization of $216,800 in 1994 and
$297,700 in 1995............................................... 1,515,900 1,353,031
OTHER ASSETS..................................................... 960,687 1,067,643
----------- -----------
$45,685,028 $56,323,238
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................... $13,593,794 $16,651,774
Notes payable -- bank.......................................... 8,938,087
Current maturities of long-term debt and
capitalized lease obligations............................... 346,172 452,995
Accrued expenses............................................... 1,262,916 1,300,611
Income taxes payable........................................... 147,499 475,702
----------- -----------
Total current liabilities................................... 24,288,468 18,881,082
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS................. 9,694,108 23,665,624
DEFERRED COMPENSATION............................................ 500,000 550,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock -- authorized, 100,000 shares, $10 par value;
none issued
Common stock -- authorized, 5,000,000 shares, $.10 par value;
issued and outstanding, 1,652,309 and 2,464,384 shares,
respectively................................................ 165,231 246,438
Additional paid-in capital..................................... 3,810,516 5,013,663
Retained earnings.............................................. 7,226,705 7,966,431
----------- -----------
11,202,452 13,226,532
----------- -----------
$45,685,028 $56,323,238
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
20
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEAR ENDED JUNE 30,
1993 1994 1995
---------- ----------- -----------
Net sales.......................................... $96,675,405 $105,213,077 $138,683,331
Cost of goods sold................................. 75,630,576 83,038,254 109,902,639
----------- ------------ ------------
Gross profit..................................... 21,044,829 22,174,823 28,780,692
Selling, general and administrative expenses....... 17,785,532 19,154,802 23,551,196
----------- ------------ ------------
Operating profit................................. 3,259,297 3,020,021 5,229,496
Interest expense................................... 1,077,902 1,117,354 2,010,554
----------- ------------ ------------
Earnings before income taxes and cumulative
effect of a change in accounting for income
taxes......................................... 2,181,395 1,902,667 3,218,942
Income tax provision............................... 797,000 714,000 1,303,000
----------- ------------ ------------
Earnings before cumulative effect of a change in
accounting for income taxes................... 1,384,395 1,188,667 1,915,942
Cumulative effect of a change in accounting for
income taxes..................................... 241,000
----------- ------------ ------------
NET EARNINGS..................................... $ 1,384,395 $ 1,429,667 $ 1,915,942
=========== ============ ============
Earnings per common share:
Earnings before cumulative effect of a change in
accounting for income taxes...................... $ .55 $ .47 $ .78
Cumulative effect of a change in accounting for
income taxes.................................. .09
----------- ------------ ------------
Net earnings per common share.................... $ .55 $ .56 $ .78
=========== ============ ============
Weighted average common and common equivalent
shares outstanding............................... 2,522,980 2,551,173 2,461,091
=========== ============ ============
The accompanying notes are an integral part of these statements.
F-4
21
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
ADDITIONAL TOTAL
PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- -------- ---------- --------- -------------
Balance at July 1, 1992............... 1,708,637 $170,864 $3,936,613 $4,412,643 $ 8,520,120
Net earnings.......................... 1,384,395 1,384,395
--------- -------- ---------- --------- -------------
Balance at June 30, 1993.............. 1,708,637 170,864 3,936,613 5,797,038 9,904,515
Cancellation of shares in satisfaction
of amounts due in connection with a
previous acquisition................ (56,953) (5,695) (126,972) (132,667)
Exercise of stock options............. 625 62 875 937
Net earnings.......................... 1,429,667 1,429,667
--------- -------- ---------- --------- -------------
Balance at June 30, 1994.............. 1,652,309 165,231 3,810,516 7,226,705 11,202,452
Exercise of stock options............. 28,000 2,800 105,700 108,500
10% stock dividend.................... 167,979 16,798 1,159,056 (1,175,854)
Payment for fractional shares
resulting from 10% stock dividend... (362) (362)
4-for-3 stock split................... 616,096 61,609 (61,609)
Net earnings.......................... 1,915,942 1,915,942
--------- -------- ---------- --------- -------------
Balance at June 30, 1995.............. 2,464,384 $246,438 $5,013,663 $7,966,431 $ 13,226,532
======== ======== ========= ========= ==========
The accompanying notes are an integral part of this statement.
F-5
22
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
1993 1994 1995
------------ ------------ ------------
Cash flows from operating activities
Net earnings.................................... $ 1,384,395 $ 1,429,667 $ 1,915,942
Adjustments to reconcile net earnings to net
cash provided by (used in) operating
activities
Depreciation and amortization................ 300,780 412,704 693,290
Deferred compensation........................ 50,000 50,000 50,000
Deferred income tax expense (benefit)........ 50,000 (111,000) (31,000)
Loss on sale of equipment.................... 12,447 35,006 18,403
Provision for doubtful accounts.............. 549,000 160,000 458,000
Changes in operating assets and liabilities,
net of effects of acquisition
Increase in accounts receivable............ (2,287,602) (1,807,919) (3,759,741)
(Increase) decrease in inventories......... 1,281,159 (1,936,676) (6,572,285)
Increase in prepaid expenses and other..... (16,490) (224,965) (184,100)
Increase (decrease) in accounts payable.... (265,606) 2,493,897 3,057,980
Increase (decrease) in accrued expenses.... 176,204 (234,864) 37,695
Increase (decrease) in income taxes
payable................................. 341,066 (392,514) 328,203
------------ ------------ ------------
Net cash provided by (used in) operating
activities.............................. 1,575,353 (126,664) (3,987,613)
------------ ------------ ------------
Cash flows from investing activities
Capital expenditures............................ (155,628) (875,797) (908,153)
Proceeds from the sale of equipment............. 36,058 49,302 20,000
Purchase of subsidiary, net..................... (1,796,355)
(Increase) decrease in due from officers, net... 123,263 (101,878) (18,689)
(Increase) decrease in other assets............. (215,533) 16,452 (106,956)
------------ ------------ ------------
Net cash used in investing activities...... (211,840) (2,708,276) (1,013,798)
------------ ------------ ------------
Cash flows from financing activities
Borrowings from line of credit.................. 95,927,072 110,434,283 141,391,776
Payments of line of credit...................... (96,954,529) (109,501,754) (136,774,193)
Principal payments under equipment financing.... (148,959) (269,613) (434,854)
Borrowings from term loans...................... 1,982,071 669,417
Proceeds from exercise of stock option.......... 937 108,500
Payments for fractional shares.................. (362)
------------ ------------ ------------
Net cash (used in) provided by financing
activities.............................. (1,176,416) 2,645,924 4,960,284
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH............ 187,097 (189,016) (41,127)
Cash and cash equivalents at beginning of year.... 436,717 623,814 434,798
------------ ------------ ------------
Cash and cash equivalents at end of year.......... $ 623,814 $ 434,798 $ 393,671
============ ============ ============
Supplemental cash flow disclosures:
Interest paid................................... $ 1,096,000 $ 1,126,000 $ 1,970,000
Income taxes paid............................... 484,000 660,000 993,000
Supplemental schedule of noncash financing and
investing activities:
Equipment under capital leases.................. $ 86,000 $ 288,000
The accompanying notes are an integral part of these statements.
F-6
23
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1993, 1994 AND 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jaco Electronics, Inc. and Subsidiaries (the "Company") is primarily
engaged in the distribution of electronic components, electromechanical devices
and computer subsystems, produced by others, to numerous manufacturing
companies. Further, through a fiscal 1994 acquisition, the Company provides
contract manufacturing services.
Electronics parts distribution sales include exports made principally to
customers located in Western Europe. For the years ended June 30, 1993, 1994 and
1995, export sales amounted to approximately $5,356,000, $5,289,000 and
$5,032,000, 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. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out and average cost methods.
4. Property, Plant and Equipment
Depreciation is provided for using accelerated methods, principally the
double-declining balance method over the estimated useful life of the assets
related to the Company's distribution business. Plant and equipment related to
the Company's manufacturing business is depreciated using the straight-line
method.
5. Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired is amortized over periods of
ten to forty years using the straight-line method. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 121 ("SFAS No. 121") that establishes accounting standards for the
impairment of long-lived assets, certain intangibles, and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. In accordance with SFAS No. 121, it
is the Company's policy to periodically review and evaluate whether there has
been a permanent impairment in the value of intangibles. Factors considered in
the valuation include current operating results, trends and anticipated
undiscounted future cash flows.
6. Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), "Accounting for Income Taxes," as of July 1, 1993 and recorded
income of $241,000 as the cumulative effect of a change in accounting for income
taxes. Pursuant to SFAS No. 109, 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
F-7
24
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reduce deferred tax assets attributable to the Company's acquired subsidiary, 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.
7. Earnings Per Common Share
Earnings per common share is based upon the weighted average number of
shares of common stock outstanding during the year and reflects the dilutive
effect of outstanding stock options. All per share information has been restated
to reflect stock dividends and stock splits.
8. Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents.
9. Concentration of Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of receivables. Concentration
of credit risk with respect to these receivables is generally diversified due to
the large number of entities comprising the Company's customer base, their
dispersion across geographic areas and the Company's policy of maintaining
credit insurance. The Company routinely addresses the financial strength of its
customers and, as a consequence, believes that its receivable credit risk
exposure is limited.
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. During the year ended June 30, 1995, the
Company's top three suppliers accounted for 14%, 13% and 9%, respectively, of
net sales. In June 1995 the Company's largest supplier canceled its distributor
agreement with the Company. While the Company believes that it will be able to
replace a major portion of those sales with sales of other product lines from
other suppliers, there can be no assurance that it will, in fact, be able to
replace these sales.
NOTE B -- INVENTORY
Inventories consist of the following:
JUNE 30,
-------------------------
1994 1995
---------- ----------
Finished goods and goods held for resale.................... $18,092,596 $23,374,881
Work-in-process............................................. 742,000 718,000
Raw materials............................................... 1,247,000 2,561,000
----------- -----------
$20,081,596 $26,653,881
=========== ===========
F-8
25
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
JUNE 30,
USEFUL LIFE -----------------------
IN YEARS 1994 1995
----------- --------- ---------
Land, building and improvements................... 10 to 30 $1,259,781 $1,389,603
Machinery and equipment........................... 3 to 8 3,721,215 4,699,761
Transportation equipment.......................... 3 to 5 186,060 134,997
Leasehold improvements............................ 5 to 10 600,780 687,566
---------- ----------
5,767,836 6,911,927
Less accumulated depreciation and amortization
(including $496,884 in 1994 and $607,851 in 1995
of capitalized lease amortization).............. 2,207,050 2,805,706
---------- ----------
$3,560,786 $4,106,221
========== ==========
Included in machinery and equipment is computer equipment recorded under
capitalized leases at June 30, 1994 and 1995 for $654,933 and $943,038,
respectively.
NOTE D -- INCOME TAXES
The provision for income taxes for the fiscal years ended June 30, 1993,
1994 and 1995, respectively, is as follows:
JUNE 30,
-------------------------------------
1993 1994 1995
--------- --------- ---------
Federal
Current........................................ $ 645,000 $ 505,000 $1,063,000
Deferred....................................... 50,000 111,000 (31,000)
--------- --------- ----------
695,000 616,000 1,032,000
State............................................ 102,000 98,000 271,000
--------- --------- ----------
$ 797,000 $ 714,000 $1,303,000
========= ========= ==========
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,
-------------------------
1993 1994 1995
----- ----- -----
Statutory Federal tax rate................................... 34.0% 34.0% 34.0%
State income taxes, net of Federal tax benefit............... 3.5 5.0 5.6
Prior period tax adjustments................................. (3.7)
Earnings of foreign sales corporation........................ (.9) (1.0) (.6)
Sales expense for which no tax benefit arises................ 1.0 2.4 1.7
Other........................................................ (1.1) .8 (.2)
----- ----- -----
Effective tax rate........................................... 36.5% 37.5% 40.5%
===== ===== =====
F-9
26
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE D -- INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities resulting from differences
between accounting for financial statement purposes and tax purposes, pursuant
to SFAS No. 109, at June 30, 1994 and 1995, are summarized as follows:
1994 1995
--------- ---------
Deferred tax assets
Net operating loss carryforwards............................ $ 528,000 $ 521,000
Allowance for bad debts..................................... 223,000 222,000
Inventory valuation......................................... 465,000 532,000
Deferred compensation....................................... 195,000 201,000
Other deferred assets....................................... 60,000 30,000
--------- ---------
1,471,000 1,506,000
Deferred tax liabilities
Depreciation................................................ (46,000) (56,000)
Other....................................................... (53,000) (47,000)
--------- ---------
1,372,000 1,403,000
Valuation allowance........................................... (740,000) (658,000)
--------- ---------
Net deferred tax asset........................................ $ 632,000 $ 745,000
========= =========
At June 30, 1995, the Company, through an acquisition (see Note I), has
available a Federal net operating loss carryforward of approximately $1,426,000.
Such net operating loss is subject to certain limitations and expires in varying
amounts during the fiscal years 2007 through 2009. Further, the Company has
established a valuation allowance with respect to the net deferred tax assets
attributable to this acquired subsidiary. During fiscal 1995, $82,000 of such
net deferred tax asset was recognized as a reduction of the excess of cost over
net assets acquired attributable to the acquired subsidiary. The subsequent
realization of the majority of such deferred tax asset will result in the
reduction of the excess of cost over net assets acquired.
The components of the deferred income tax expense (benefit) for the year
ended June 30, 1993 are comprised of the following:
Deferred compensation............................ $(17,000)
Inventory capitalization......................... 19,000
Bad debts........................................ 49,000
Other............................................ (1,000)
--------
$ 50,000
========
F-10
27
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE E -- DEBT AND CAPITALIZED LEASE OBLIGATIONS
Debt and capitalized lease obligations are as follows:
JUNE 30,
-------------------------
1994 1995
---------- ----------
Term loans and revolving line of credit(a).................. $9,446,429 $22,787,811
Other term loans(b)......................................... 485,646
Equipment notes(c).......................................... 469,191 487,189
Capitalized lease obligations(d)............................ 143,900 413,722
---------- ----------
10,059,520 24,174,368
Less amounts representing interest on capitalized leases.... 19,240 55,749
---------- ----------
10,040,280 24,118,619
Less current maturities..................................... 346,172 452,995
---------- ----------
$9,694,108 $23,665,624
========== ===========
(a) Term Loans and Revolving Line of Credit Facility
On April 25, 1995, the Company amended its agreement with a bank which, as
amended, provides the Company with a $30,000,000 term loan and revolving line of
credit facility based principally on eligible accounts receivable and
inventories of the Company as defined in the agreement. The amendment increased
the credit facility to $30,000,000 from $24,500,000 and bears interest at the
higher of the (1) bank's prime rate or the Federal funds rate plus 1/2% or (2)
at the Company's option LIBOR plus 2.5% for fixed time periods, and extended the
maturity date of the term loan to January 31, 1998 and the revolving line of
credit to April 30, 1998. The agreement contains provisions for maintenance of
certain financial ratios and prohibits the payment of cash dividends. The
outstanding balance on the revolving line of credit facility, $13,555,670 at
June 30, 1995, bears interest at the bank's prime rate. Pursuant to the same
agreement, at June 30, 1995, there are two outstanding term loans in the amounts
of: (1) $8,000,000 due January 31, 1998, and (2) $1,232,141 payable in
eighty-four consecutive monthly installments of $17,857, which commenced on
April 1, 1994, both bearing interest at the bank's prime rate (9% at June 30,
1995). These borrowings are collateralized by substantially all of the assets of
the Company.
(b) Other Term Loans
Other term loans as of June 30, 1995 are as follows:
MONTHLY
DATE OF LOAN BALANCE TERM PAYMENT
------------- -------- --------- -------
March 16, 1995................................... $ 57,407 60 months $1,160
March 16, 1995................................... 184,396 84 months 2,730
March 16, 1995................................... 243,843 84 months 4,216
--------
$485,646
========
The above loans are collateralized by the related equipment acquired,
having a carrying value of approximately $495,000 at June 30, 1995. The
agreements contain, among other things, restrictive covenants on one of the
Company's subsidiaries, which place limitations on: (i) consolidations,
F-11
28
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE E -- DEBT AND CAPITALIZED LEASE OBLIGATIONS (CONTINUED)
mergers and acquisitions, (ii) additional indebtedness, encumbrances and
guarantees, (iii) loans to shareholders, officers or directors, (iv) dividends
and stock redemptions, and (v) transactions with affiliates, all as defined in
the agreements. The loans bear interest payable monthly, at 6%, 5.5% and 1.5%
over a bank's prime rate, respectively.
(c) Equipment Notes
The equipment notes are payable through September 1999, bearing implicit
interest rates from 7.55% to 13.25%.
(d) Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for as
capital leases. The obligations for the equipment require the Company to make
monthly payments through June 1999, with implicit interest rates from 7.55% to
13.20%.
The following is a summary of the aggregate annual maturities of long-term
debt and capitalized lease obligations as of June 30, 1995:
LONG-TERM CAPITALIZED
DEBT LEASES
---------- -----------
Year ending June 30,
1996...................................................... $ 377,278 $ 97,035
1997...................................................... 401,863 99,014
1998...................................................... 21,973,472 99,014
1999...................................................... 410,097 97,300
2000...................................................... 302,138 21,359
Thereafter................................................ 295,798
----------- --------
$23,760,646 $413,722
=========== ========
NOTE F -- COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases 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
at June 30, 1995 are as follows:
Year ending June 30,
1996........................................... $592,000
1997........................................... 124,000
1998........................................... 50,000
1999........................................... 4,000
--------
$770,000
========
F-12
29
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE F -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases office and warehouse facilities from a partnership owned
by two officers and directors of the Company. The lease expires in December 1995
and requires minimum annual lease payments of $337,500 for the year ending June
30, 1996.
In addition, the Company is contingently liable as a guarantor of a
mortgage on such property in the amount of approximately $396,000 as of June 30,
1995. The Company's rent expense was approximately $583,000, $571,000 and
$571,000 for the years ended June 30, 1993, 1994 and 1995, respectively, in
connection with the above lease.
Rent expense on office and warehouse facilities leases for the years ended
June 30, 1993, 1994 and 1995 was approximately $834,000, $872,000 and $909,000,
respectively, net of sublease income of approximately $194,000, $147,000 and
$135,000, respectively.
2. Other Leases
The Company also leases various office equipment and automobiles under
noncancellable operating leases expiring through December 1999. The minimum
rental commitments required under these leases at June 30, 1995 are as follows:
Year ending June 30,
1996........................................... $305,000
1997........................................... 242,000
1998........................................... 157,000
1999........................................... 64,000
2000........................................... 12,000
--------
$780,000
========
3. Employment Agreement
Effective July 1, 1993, the Company entered into a new employment agreement
with the Chairman which expires July 1, 1997. Pursuant to this agreement, he
received a base salary of $250,000 and $300,000 in 1994 and 1995, respectively,
and will receive a base salary of $325,000 for each of the years ending June 30,
1996 and 1997. In addition, the Chairman will be entitled to an annual bonus
equal to 4% of earnings before income taxes, if earnings for a particular fiscal
year exceed $1,000,000 or 6% if earnings before income taxes are in excess of
$2,500,000. The agreement also provides for the continuation of the deferred
compensation arrangement first established in fiscal 1985, whereby $50,000 per
year has been accrued and becomes payable in its entirety no later than January
15 of the year next following the last to occur of the following events: (1) the
Chairman's attainment of age 60 (fiscal 1999) or (2) cessation of the Chairman's
employment with or without cause after July 1, 1993. In the event of a change in
control resulting in termination of the Chairman's employment, the Chairman will
receive between $450,000 and $600,000 depending on the date of termination. For
the years ended June 30, 1994 and 1995, bonuses of approximately $76,000 and
$193,000, respectively, were earned pursuant to the Chairman's employment
agreement. Further, the Chairman has outstanding demand loans at June 30, 1995
aggregating $309,808 which bear interest at 9 3/4% per annum.
F-13
30
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE G -- 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, 1993, 1994 and 1995, the Company contributed to
this plan approximately $60,000, $61,000 and $90,000, respectively.
NOTE H -- SHAREHOLDERS' EQUITY
On February 3, 1995, the Company declared a 10% stock dividend which was
paid on March 10, 1995. Further, on August 30, 1995, the Company authorized a
4-for-3 stock split. The 4-for-3 split will be effective on September 22, 1995.
All references to the number of common shares and earnings per common shares
have been restated to reflect the 10% stock dividend and the 4-for-3 stock
split.
The Company has stock option plans which provide for the granting of stock
options to employees, directors and officers under the following stock option
plans:
In November 1981, the Company approved the adoption of a qualified
incentive stock option plan, hereinafter referred to as the "1981 Plan." The
stock options granted under the 1981 Plan are generally exercisable for a period
of five years at a price not less than the market value on the date of grant. A
total of 2,750 shares are reserved for issuance upon exercise of stock options
under this plan.
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 of and price 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. The Company
has reserved 293,333 shares of common stock for the 1993 Plan, of which 100,100
options are outstanding.
In October 1993, the Board of Directors approved the adoption of a stock
option plan for outside directors, known as the "1993 Stock Option Plan for
Outside Directors," hereinafter referred to as the "Outside Directors Plan."
Each outside director who was serving as of December 31, 1993 was granted a
nonqualified stock option to purchase 14,667 shares of the Company's common
stock at the fair market value on the date of grant. Of the 111,467 options
currently available for grant under the Outside Directors Plan, each person who
is an outside director on December 31 of each calendar year subsequent to 1993
shall be granted options to purchase 2,933 shares of the Company's common stock
annually. 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. The Company has reserved 146,667 shares of
common stock for the Outside Directors Plan of which 35,200 options are
outstanding.
F-14
31
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE H -- SHAREHOLDERS' EQUITY (CONTINUED)
Outstanding options granted to employees, directors and officers for the
last three fiscal years are summarized as follows:
NONQUALIFIED STOCK
INCENTIVE STOCK OPTIONS OPTIONS
------------------------ ------------------------
PRICE RANGE SHARES PRICE RANGE SHARES
------------ ------- ------------ -------
Outstanding at July 1, 1992........... $1.02 - 2.65 44,734
Granted...............................
Exercised.............................
-------
Outstanding at June 30, 1993.......... $1.02 - 2.65 44,734
Granted............................... $4.77 - 5.80 129,433
Exercised............................. $1.02 (917)
------- -------
Outstanding at June 30, 1994.......... $1.02 - 2.65 43,817 $4.77 - 5.80 129,433
Granted............................... $4.94 5,867
Exercised............................. $2.65 (41,067)
------- -------
Outstanding at June 30, 1995.......... $1.02 2,750 $4.77 - 5.80 135,300
======= =======
Amounts exercisable at June 30,
1995................................ $1.02 2,750 $4.77 - 5.80 135,300
======= =======
NOTE I -- ACQUISITION
On March 11, 1994, the Company purchased all of the outstanding common
stock of a contract manufacturer for $1,796,355 in cash, financed in part by the
Company obtaining a term loan (see Note E). The acquisition was accounted for by
the purchase method and, accordingly, the purchase price was allocated to assets
acquired and liabilities assumed based upon their fair market value as of the
date of acquisition. The amount paid in excess of the fair market value,
$418,478, as adjusted to reflect the realization of deferred tax assets not
previously recognized, is being amortized over a ten-year period and is included
in the accompanying consolidated financial statements as of June 30, 1995, net
of accumulated amortization of $62,580. The operations of the contract
manufacturer are included in the accompanying financial statements from the date
of acquisition. The fair market values of the assets and the liabilities assumed
at the date of acquisition were as follows:
Fair value of assets acquired............................................. $5,455,526
Liabilities assumed....................................................... (3,659,171)
----------
Purchase price............................................................ $1,796,355
==========
The pro forma unaudited results of operations for the year ended June 30,
1994, assuming consummation of the purchase and term loan borrowing as of July
1, 1993, are as follows:
Net sales................................................................ $108,793,684
===========
Net earnings............................................................. $ 799,967
===========
Net earnings per share................................................... $.31
=====
F-15
32
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE I -- ACQUISITION (CONTINUED)
As a result of this acquisition, the Company now has two business segments:
electronics parts distribution and contract manufacturing. The following is a
summary of selected consolidated information for the electronics components
distribution and contract manufacturing segments for fiscal 1995 and 1994.
Fiscal year ended 1994 information for the contract manufacturing segment is
from March 11, 1994 (the date of acquisition) to June 30, 1994.
YEAR ENDED JUNE 30,
---------------------------
1994 1995
----------- -----------
Sales
Electronics components distribution..................... $102,493,000 $126,545,000
Contract manufacturing.................................. 2,720,000 12,138,000
------------ ------------
$105,213,000 $138,683,000
============ ============
Operating profit
Electronics components distribution..................... $ 2,991,000 $ 4,666,000
Contract manufacturing.................................. 29,000 563,000
------------ ------------
$ 3,020,000 $ 5,229,000
============ ============
Identifiable assets
Electronics components distribution..................... $ 39,545,000 $ 47,909,000
Contract manufacturing.................................. 6,140,000 8,414,000
------------ ------------
$ 45,685,000 $ 56,323,000
============ ============
Capital expenditures
Electronics components distribution..................... $ 828,000 $ 342,000
Contract manufacturing.................................. 48,000 566,000
------------ ------------
$ 876,000 $ 908,000
============ ============
Depreciation and amortization
Electronics components distribution..................... $ 329,000 $ 397,000
Contract manufacturing.................................. 84,000 296,000
------------ ------------
$ 413,000 $ 693,000
============ ============
NOTE J -- SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1994 1994 1995 1995
------------- ------------ ---------- ----------
Net sales.......................... $31,087,594 $33,747,154 $35,825,167 $38,023,416
Gross profit....................... 6,394,122 6,919,043 7,496,699 7,970,828
Net earnings....................... 262,494 447,765 554,284 651,399
Earnings per common share
Net earnings per common share
share (a)...................... $.11 $.18 $.23 $.26
====== ====== ===== =====
F-16
33
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1993, 1994 AND 1995
NOTE J -- SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
QUARTER ENDED
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1993 1993 1994 1994
------------- ------------ ---------- ----------
Net sales.......................... $25,027,679 $24,035,522 $27,528,315 $28,621,561
Gross profit....................... 5,424,908 5,178,809 5,634,382 5,936,724
Earnings before cumulative effect
of a change in accounting for
income taxes..................... 413,033 242,982 382,528 150,124
Net earnings....................... 654,033 242,982 382,528 150,124
Earnings per common share
Earnings per share before
cumulative effect of a change
in accounting for income
taxes......................... $.16 $.10 $.15 $.06
Cumulative effect of a change in
accounting for income taxes
per share..................... .09 -- -- --
------ ------ ----- -----
Net earnings per common
share (a)..................... $.25 $.10 $.15 $.06
====== ====== ===== =====
-------------------------------
(a) As adjusted to reflect the 10% stock dividend paid on March 10, 1995
and a 4-for-3 stock split authorized on August 30, 1995.
F-17
34
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors and Shareholders
JACO ELECTRONICS, INC.
In connection with our audit of the consolidated financial statements of
Jaco Electronics, Inc. and Subsidiaries referred to in our report dated August
15, 1995 (except for Note H as to which the date is August 30, 1995), 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, 1995. 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, 1995
F-18
35
JACO ELECTRONICS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------ ---------- ----------------------- ------------ --------
ADDITIONS
-----------------------
(1) (2)
CHARGED TO BALANCE
BALANCE AT CHARGED TO OTHER AT
BEGINNING COSTS AND ACCOUNTS - DEDUCTIONS - END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
--------------------------------- ---------- ---------- ---------- ------------ --------
Allowance for doubtful accounts
Year ended June 30, 1993....... $1,007,000 $549,000 $110,000(b) $803,000(a) $863,000
========= ======== ======== ========== ========
Year ended June 30, 1994....... $ 863,000 $160,000 $187,000(b)(c) $600,000(a) $610,000
========= ======== ======== ========== ========
Year ended June 30, 1995....... $ 610,000 $458,000 $104,000(b) $562,000(a) $610,000
========= ======== ======== ========== ========
-------------------------------
(a) Represents write-offs of uncollectible accounts.
(b) Recoveries of accounts.
(c) Includes balance attributable to acquired subsidiary.
F-19
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JACO ELECTRONICS, INC.
Date: Sept. 11, 1995 By: /s/ JOEL H. GIRSKY
------------------------------------
Joel H. Girsky, Chairman of the
Board, President and Treasurer
(Principal Executive Officer)
Date: Sept. 11, 1995 By: /s/ JEFFREY D. GASH
------------------------------------
Jeffrey D. Gash, Vice President-
Finance (Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Date: Sept. 11, 1995 /s/ STEPHEN A. COHEN
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Stephen A. Cohen, Director
Date: Sept. 11, 1995 /s/ EDWARD M. FRANKEL
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Edward M. Frankel, Director
Date: Sept. 11, 1995 /s/ CHARLES B. GIRSKY
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Charles B. Girsky, Executive Vice President
and Director
37
EXHIBIT INDEX
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EXHIBIT
NO. DESCRIPTION
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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.
3.2 Restated By-Laws adopted June 18, 1987, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1987, ("the
Company's 1987 10-K"), Exhibit 3.2.
4.1 Form of Common Stock Certificate, incorporated by reference to the Company's
Registration Statement on Form S-1, Commission File No. 2-91547, filed June 9,
1984, Exhibit 4.1.
10.1 Sale and leaseback with Bemar Realty Company (as assignee of Hi-Tech Realty
Company), incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended June 30, 1983, Exhibit 10(1), pages 48-312.
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty Company (as
assignee of Hi-Tech Realty Company), incorporated by reference to the Company's
Registration Statement on Form S-1, Commission File No. 2-91547, filed June 9,
1984, Exhibit 10.2.
10.3 Employment Agreement between Joel Girsky and the Company, dated December 29,
1989, incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1990, Exhibit 10.3, pages 47-52.
10.4 1980 Stock Incentive Plan, incorporated by reference to the Company's
Registration Statement on Form S-1, Commission File No. 2-91547, filed June 9,
1984, Exhibit 10.4, pages 168-172.
10.5 Restated 1981 Incentive Stock Option Plan, incorporated by reference to the
Company's 1987 10-K, Exhibit 10.1.
10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993, Exhibit 10.6.
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.
38
EXHIBIT
NO.
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10.8 1993 Stock Option Plan for Outside Directors, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1994, Exhibit
10.8.
10.9 Employment Agreement between Joel Girsky and the Company, dated October 5, 1994,
incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended June 30, 1994, Exhibit 10.9.
10.10 Authorized Electronic Industrial Distributor Agreement, dated as of August 24,
1970 by and between AVX and the Company.
10.11 Electronics Corporation Distributor Agreement, dated November 15, 1974, by and
between Kemet and the Company.
21.1 Subsidiaries of the Company, incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1994, Exhibit 21.
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 Annual Report on Form 10-K for the year ended June 30, 1992,
Exhibit 28.4.
99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between the Company and
BNYCC, incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, Exhibit 99.5.
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in favor of BNYCC,
dated March 11, 1994, incorporated by reference to the Company's Annual Report on
Form 10-K for the 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.