SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended..........................................June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________to_________________
Commission File Number 0-5896
JACO ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
New York 11-1978958
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
145 Oser Avenue, Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (631) 273-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No: ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates of the
Company, computed by reference to the closing price on September 23, 2002 was
$15,496,307.
Number of shares outstanding of each class of Common Stock, as of September
23, 2002: 5,807,432 shares (excluding 618,300 treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Definitive Proxy Statement to be filed on or before October
28, 2002, under Regulation 14A, in connection with the Company's 2002
Annual Meeting of Shareholders.
Forward-Looking Statements
This report contains forward-looking statements with respect to the
financial condition, results of operations and business of Jaco Electronics,
Inc. You can find many of these statements by looking for words like "believes,"
"expects," "anticipates," "estimates" or similar expressions in this document or
in documents incorporated by reference.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors that may cause actual results to differ materially
from those contemplated by the forward-looking statements include, among others,
the following:
o Dependence on a limited number of suppliers for products which generate a
significant portion of our sales.
o Absence of long-term contracts.
o Strikes or delays in air or sea transportation and possible future United
States legislation with respect to pricing and/or import quotas on products
imported from foreign countries.
o Terrorist attacks may create instability and uncertainty in the electronic
components industry.
o General economic downturns in the electronic components industry which may
have an adverse economic effect upon manufacturers, end-users of electronic
components and electronic components distributors.
o Volatile pricing of electronic components.
o Competitive pressures in the industry may increase significantly through
industry consolidation and entry of new competitors.
o Costs or difficulties related to the integration of newly-acquired
businesses may be greater than expected.
o Limited allocation of products by suppliers may reduce availability of
certain products.
o Adverse changes may occur in the securities markets.
Because forward-looking statements are subject to risks and uncertainties,
actual results may differ materially from those expressed or implied by them.
You are cautioned not to place undue reliance on these statements, which speak
only as of the date of this Report.
We do not undertake any obligation to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date of
this Report or to reflect the occurrence of unanticipated events.
2
PART I
Item 1. Business.
Jaco Electronics, Inc. was organized in the State of New York in 1961. Our
principal executive offices are located at 145 Oser Avenue, Hauppauge, New York
11788, and our telephone number is (631) 273-5500.
Our Company
We are a leading distributor of electronic components to industrial
OEMs and contract manufacturers throughout North America. We also provide
contract manufacturing services to our industrial OEM customers. We distribute
products such as semiconductors, capacitors, resistors, electromechanical
devices, flat panel displays and monitors and power supplies, which are used in
the manufacture and assembly of electronic products, including:
o telecommunications equipment o computers and office equipment
o medical devices and instrumentation o industrial equipment and controls
o military/aerospace systems o automotive and consumer electronics
We have two distribution centers and 16 strategically located sales
offices throughout the United States. We distribute more than 35,000 products
from over 75 vendors, including such market leaders as Kemet Electronics
Corporation, Samsung Semiconductor, Inc. and Vishay Intertechnology, Inc., to a
base of over 6,000 customers through a dedicated and highly motivated sales
force. To enhance our ability to distribute electronic components, we provide a
variety of value-added services including automated inventory management
services, integrating and assembling various custom components with flat panel
displays to customer specifications, assembling stock items for our customers
into pre-packaged kits and providing contract manufacturing services. Our core
customer base consists primarily of small and medium-sized manufacturers that
produce electronic equipment used in a wide variety of industries.
Our Industry
The electronic components distribution industry has become an
increasingly important sales channel for component manufacturers. Electronic
components distributors relieve component manufacturers of a portion of the
costs and personnel needed to warehouse and sell their products. Distributors
market manufacturers' products to a broader range of OEMs than such
manufacturers could economically serve with their direct sales forces. Today,
distributors have become an integral part of their customers' purchasing and
inventory process. Distributors offer their customers the ability to outsource
their purchasing and warehousing responsibilities. Electronic Data Interchange
("EDI") permits distributors to receive timely scheduling of component
requirements from customers enabling them to provide these value-added services.
Distributors also work with their suppliers to ensure that manufacturers'
components are integrated into the design of new products.
3
Products
We currently distribute over 35,000 stock items. Our management
believes that it is necessary for us to carry a wide variety of items in order
to fully service our customers' requirements. Our products fall into two broad
categories: "active" and "passive" components. Historically active components
and passive components each represented approximately 50% of our net
distribution sales. With the additional suppliers added as a result of the
acquisition of Interface Electronics Corp., active components represented
approximately 59% of our net distribution sales, and passive components
represented approximately 41% during the fiscal years ended June 30, 2002 and
2001.
Active components principally include semiconductors. Semiconductors
consist of such items as integrated circuits, microprocessors, transistors,
diodes, dynamic random access memory ("RAM"), static RAMs, video RAMs and metal
oxide field effect transistors. Computer subsystems are an integral part of
personal computers and computer workstations and incorporate such items as flat
panels and flat panel monitors, touchscreens and controllers. Passive components
consist primarily of capacitors, electromechanical devices, and resistors.
Value-Added Services
We also provide a number of value-added services which are intended to
attract new customers, to maintain and increase sales to existing customers and,
in the case of flat panel system integration and contract manufacturing, to
generate revenues from new customers. Value-added services include:
o Automated Inventory Management Services. We offer
comprehensive, state-of-the-art solutions that effectively
manage our customers' inventory reordering, stocking and
administration functions. These services reduce paperwork,
inventory, cycle time, and the overall cost of doing business
for our customers.
o Flat Panel Systems Integration. Our display sales specialists
and corporate product engineers configure highly customized
solutions to meet specific flat panel display requirements. We
provide technical services and integrate, test and deliver
complete flat panel display products for both business and
consumer applications.
o Kitting. Kitting consists of assembling to a customer's
specifications two or more of our 35,000 stock items into
pre-packaged kits ready for use in the customer's assembly
line. Kitting services allow us to provide a partial or
complete fill of a customer's order and enable the customer to
more efficiently manage its inventory.
o Contract Manufacturing. We also provide contract manufacturing
services to our OEM customers which include procurement of
customer specified components and raw materials from our
network of suppliers and other suppliers, assembly of
components on printed circuit boards ("PCBs"), and post
assembly testing. Our manufacturing process consists of both
advanced surface mount technology ("SMT") as well as
conventional pin-through-hole ("PTH") interconnection
technologies. The SMT process allows for more miniaturization,
cost savings and shorter lead paths between components (which
results in greater signal speed).
4
Sales and Marketing
We believe we have developed valuable long-term customer relationships
and an in-depth understanding of our customers' needs and purchasing patterns.
Our sales personnel are trained to identify our customers' requirements and to
actively market our entire product line to satisfy those needs. We serve a broad
range of customers in the computer, computer-related, telecommunications, data
transmission, defense, aerospace, medical equipment and other industries. We
have established specific sales and marketing programs to address the unique
needs of the contract manufacturing sector. None of our customers individually
represented more than eight percent of net sales in any of the fiscal years
ended June 30, 2002, 2001 and 2000.
As an authorized distributor for key manufacturers, we are able to
offer our customers engineering support as well as a variety of supply chain
management programs. Engineering, support and supply chain management services
enhance our ability to attract new customer contracts. Many of today's services
revolve around the use of software automation and computer to computer
transactions through EDI and internet based solutions and through technically
competent product managers and a team of display sales specialists. We provide
design support and technical assistance to our customers with detailed data
solutions employing the latest technologies.
Sales are made throughout North America from the sales departments
maintained at our two distribution facilities located on the East and West
Coasts of the United States in New York and California and from 16 strategically
located sales offices. Sales are made primarily through personal visits by our
employees and by a staff of trained telephone sales personnel who answer
inquiries and receive and process orders from customers. In addition, we utilize
the services of independent sales representatives whose territories include
parts of North America and several foreign countries. These independent sales
representatives operate under agreements which are terminable by either party
upon 30 days' notice and prohibit them from representing competing product
lines. Independent sales representatives are authorized to solicit sales of all
of our product lines.
Suppliers
Manufacturers of electronic components are increasingly relying on the
marketing, customer service and other resources of distributors who market their
product lines to customers not normally served by the manufacturer, and to
supplement the manufacturer's direct sales efforts in other accounts often by
providing value-added services not offered by the manufacturer. Manufacturers
seek distributors who have strong relationships with desirable customers, are
financially strong, have the infrastructure to handle large volumes of products
and can assist customers in the design and use of the manufacturers' products.
Currently, we have non-exclusive distribution or master inventory agreements
with many manufacturers, including Dallas Semiconductor Corporation, Johanson
Dielectrics, Inc., Kemet Electronics Corporation, LG Philips LCD, North American
Capacitor Company, Samsung Semiconductor, Inc., TDK Corporation of America, 3 M
Touch Systems, Inc., Vishay Intertechnology, Inc. and Vitesse Semiconductor
Corporation. We continuously seek to identify potential new suppliers and obtain
additional distributorships for new lines of products. We believe that such
expansion and diversification will increase our sales and market share.
5
We generally purchase products from manufacturers pursuant to
non-exclusive distributor agreements. As an authorized distributor, we are able
to offer our suppliers marketing support.
Most of our distributor agreements are cancelable by either party,
typically upon 30 to 90 days' notice. These agreements typically provide for
price protection, stock rotation privileges and the right to return inventory.
Price protection is typically in the form of a credit to us for any inventory in
our possession for which the manufacturer reduces its prices. Stock rotation
privileges typically allow us to exchange inventory in an amount up to five
percent of a prior period's purchases. Upon termination of a distributor
agreement, the right of return typically requires the manufacturer to repurchase
our inventory at our adjusted purchase price. We believe that the
above-described provisions of our distributorship agreements generally have
served to reduce our exposure to loss from unsold inventory. Because price
protection, stock rotation privileges and the right to return inventory are
limited in scope, there can be no assurances that we will not experience
significant losses from unsold inventory in the future.
Acquisitions
In June 2000, we acquired Interface Electronics Corp. ("Interface"). We
paid $15.4 million in cash and assumed $3.3 million in bank debt and were
obligated to make deferred payments during the two year period following June
2000, which totaled $5.0 million. Interface is a distributor of electronic
components, primarily in the Northeast and Southeast United States. As a result
of the Interface acquisition, we have acquired distribution rights for certain
significant vendor lines in the United States.
Operations
Component Distribution. Inventory management is critical to a
distributor's business. We constantly focus on a high number of resales or
"turns" of existing inventory to reduce exposure to product obsolescence and
changing customer demand.
Our central computer system facilitates the control of purchasing and
inventory, accounts payable, shipping and receiving, and invoicing and
collection information of our distribution business. Our distribution software
system includes financial systems, EDI, customer order entry, purchase order
entry to manufacturers, warehousing and inventory control. Each of our sales
departments and offices is electronically linked to our central computer systems
which provides fully integrated on-line real-time data with respect to our
inventory levels. Our inventory management system was developed internally and
is considered proprietary. We track inventory turns by vendor and by product,
and our inventory management system provides immediate information to assist in
making purchasing decisions and decisions as to which inventory to exchange with
suppliers under stock rotation programs. Our inventory management system also
uses bar-code technology along with scanning devices, which we supply to certain
customers, and is networked to the facilities of such customers. In some cases,
customers use computers that interface directly with our computers to identify
available inventory and rapidly process orders. Our computer system also tracks
inventory turns by customer. We also monitor supplier stock rotation programs,
inventory price protection, rejected material and other factors related to
inventory quality and quantity. This system enables us to more effectively
manage our inventory and to respond more quickly to customer requirements for
timely and reliable delivery of components. Our inventory turnover was
approximately three times for the fiscal year ended June 30, 2002.
6
Contract Manufacturing. We conduct our contract manufacturing
operations through our wholly owned subsidiary Nexus Custom Electronics, Inc.,
at two locations. The first location is an approximately 32,000 square foot
facility located in Brandon, Vermont. The second location is an approximately
30,000 square foot facility located in Woburn, Massachusetts. Nexus provides
contract manufacturing services to our OEM customers, which includes procurement
of customer specified components and raw materials from our network of suppliers
and other suppliers, assembly of components on PCBs and post-assembly testing.
OEMs then incorporate the PCBs into finished products. In assembling PCBs, Nexus
is capable of employing both PTH and SMT. PTH is a method of assembling PCBs in
which component leads are inserted and soldered into plated holes in the board.
SMT is a method of assembling PCBs in which components are fixed directly to the
surface of the board, rather than being inserted into holes.
Both Nexus' Brandon, Vermont and Wooburn, Massachusetts manufacturing
facilities are ISO 9002 certified by the Geneva-based organization dedicated to
the development of worldwide standards for quality management guidelines and
quality assurance. Management believes sophisticated customers increasingly are
requiring their manufacturers to be ISO 9002-certified for purposes of quality
assurance.
Competition
The electronic components distribution industry is highly competitive,
primarily with respect to price and product availability. We believe that the
breadth of our customer base, services and product lines, our level of technical
expertise and the quality of our services generally are also particularly
important. We compete with large national distributors such as Arrow
Electronics, Inc. and Avnet, Inc., as well as regional and specialty
distributors, such as All American Semiconductor, Inc. and Reptron Electronics,
Inc., many of whom distribute the same or competitive products. Many of our
competitors have significantly greater name recognition and greater financial
and other resources than we do.
The electronics contract manufacturing industry is highly fragmented
and is characterized by relatively high levels of volatility, competition and
pricing and margin pressure. Many large contract manufacturers operate
high-volume facilities and primarily focus on high-volume product runs. In
contrast, certain contract manufacturers, such as Nexus, focus on low-to-medium
volume and service-intensive products.
Backlog
As the trend toward outsourcing increases, customers have been entering
into just-in-time contracts with distributors, instead of placing orders with
long lead times. Orders constituting our backlog are subject to delivery
rescheduling, price negotiations and cancellations by the customer, sometimes
without penalty or notice. Therefore, our backlog is not necessarily indicative
of future sales for any particular period.
Employees
At June 30, 2002, we had a total of 363 employees, of which 114 were
employed by Nexus. Of our total employees, nine were engaged in administration,
48 were managerial and supervisory employees, 150 were in sales and 156
performed warehouse, manufacturing and clerical functions. Of these employees,
Nexus employed two in administration, 15 in management and supervisory
positions, two in sales and 95 in warehouse, manufacturing and clerical
functions. There are no collective bargaining contracts covering any of our
employees. We believe our relationship with our employees is satisfactory.
7
Item 2. Properties.
All of our facilities are leased except for the Brandon, Vermont
property which is owned by Nexus. We currently lease 19 facilities strategically
located throughout the United States, two of which are multipurpose facilities
used principally as administrative, sales, and purchasing offices, as well as
warehouses, one of which is used for contract manufacturing and the remainder of
which are used principally by us as sales offices. Our satellite sales offices
range in size from approximately 500 square feet to approximately 4,000 square
feet. Base rents for such properties range from approximately $1,300 per month
to approximately $10,000 per month. Depending on the terms of each particular
lease, in addition to base rent, we may also be responsible for portions of real
estate taxes, utilities and operating costs, or increases in such costs over
certain base levels. The lease terms range from two years to as long as five
years. All facilities are linked by computer terminals to our Hauppauge, New
York headquarters. The following table sets forth certain information regarding
our four principal leased facilities:
Lease
Base Rent Expiration
Location Per Month Square Feet Use Date
-------- --------- ----------- --- ----
Hauppauge, NY (1) $56,300 72,000 Administrative, 12/31/03
Sales and
Warehouse
Franklin, MA $18,600 11,700 Sales 3/31/05
Woburn, MA $14,300 30,000 Manufacturing 7/31/05
Westlake Village, CA $11,500 11,000 Administrative, 4/30/03
Sales and
Warehouse
(1) Leased from a partnership owned by Joel H. Girsky and Charles B. Girsky at
a current monthly rent which the Company believes represents the fair
market value for such space.
Nexus owns and occupies an approximately 32,000 square foot facility
located in Brandon, Vermont, that is used for manufacturing, storage and office
space.
We believe that our present facilities will be adequate to meet our
needs for the foreseeable future.
8
Item 3. Legal Proceedings.
We are a party to legal matters arising in the general conduct of
business. The ultimate outcome of such matters is not expected to have a
material adverse effect on our results of operations or financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
No response to this Item is required.
9
PART II
Item 5. Market For the Company's Common Stock and Related Security Holder
Matters.
(a) Our common stock is traded on the Nasdaq National Market under
the symbol "JACO." The stock prices listed below represent the
high and low sale prices of the common stock, as reported by the
Nasdaq National Market, for each fiscal quarter beginning with
the first fiscal quarter of the fiscal year ended June 30, 2001.
Stock prices prior to July 25, 2000 have been adjusted to give
effect to a 3-for-2 stock split which was effective on July 24,
2000.
High Low
Fiscal Year 2001:
First quarter ended September 30, 2000..................... $19.67 $10.75
Second quarter ended December 31, 2000..................... 16.88 6.13
Third quarter ended March 31, 2001......................... 10.75 5.69
Fourth quarter ended June 30, 2001......................... 8.09 4.66
Fiscal Year 2002:
Fiscal quarter ended September 30, 2001.................... $ 6.39 $ 3.25
Second quarter ended December 31, 2001..................... 5.98 3.51
Third quarter ended March 31, 2002......................... 6.74 4.66
Fourth quarter ended June 30, 2002......................... 6.56 4.70
Fiscal Year 2003:
(through September 23, 2002)............................... $5.39 $3.30
(b) On September 23, 2002, the last reported sale price of our common
stock on the Nasdaq National Market was $3.36 per share (which
gives effect to the 3-for-2 stock split which was effective on
July 24, 2000). As of September 9, 2002, there were approximately
142 holders of record of our common stock. We believe our stock
is held by more than 3,500 beneficial owners.
(c) We have never declared or paid any cash dividends on our common
stock. We intend for the foreseeable future to retain future
earnings for use in our business. The amount of dividends we pay
in the future, if any, will be at the discretion of our Board of
Directors and will depend upon our financial condition, operating
results and other factors as the Board of Directors, in its
discretion, deems relevant. In addition, our credit facility
prohibits us from paying cash dividends on our common stock.
10
Equity Compensation Plan Disclosure
The following table summarizes equity compensation plans approved by
security holders and equity compensation plans that were not approved by
security holders as of June 30, 2002:
(c)
(a) Number of Securities
Number of Securities (b) Remaining Available for
To be Issued Upon Weighted-Average Future Issuance Under Equity
Exercise of Outstanding Exercise Price of Compensation Plans (Excluding
Options, Warrants and Outstanding Options, Securities
Plan category Rights Warrants and Rights Reflected in Column (a))
- ----------------------------------- ------------------------- ------------------------ ----------------------------------
Equity compensation plans (stock
options) approved by stockholders 822,048 $4.57 364,250
Equity compensation plans not
approved by stockholders 22,500 $2.75 -0-
------------------------- ------------------------ ----------------------------------
Total 844,548 $4.52 364,250
======= ===== =======
Item 6. Selected Consolidated Financial Data.
The selected consolidated financial data set forth below contains only a portion
of our financial statements and should be read in conjunction with the
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Report. The historical results are not necessarily indicative
of results to be expected for any future period. The share and per share data
have been adjusted to give effect to a 3-for-2 stock split which was effective
on July 24, 2000.
Year Ended June 30,
----------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales......................................... $194,106 $350,222 $209,325 $140,711 $153,674
Cost of goods sold................................ 166,133 283,382 162,443 113,335 121,796
------- ------- ------- ------- -------
Gross profit...................................... 27,973 66,840 46,882 27,376 31,878
Selling, general and administrative expenses...... 33,562 46,098 34,523 27,642 28,707
------ ------ ------ ------ ------
Operating (loss) profit......................... (5,589) 20,742 12,359 (266) 3,171
Interest expense.................................. 2,223 4,120 1,559 1,309 1,140
----- ----- ----- ----- -----
(Loss) earnings before income taxes............. (7,812) 16,622 10,801 (1,575) 2,031
Income tax (benefit) provision (2,768) 6,772 4,425 (418) 847
------ ----- ----- ---- ---
Net (loss) earnings............................... $(5,044) $ 9,850 $ 6,376 $ (1,157) $ 1,184
====== ======= ======= ======== =======
Net (loss) earnings per common share
Basic........................................... $ (0.88) $ 1.74 $ 1.16 $ (0.21) $ 0.21
======= ====== ====== ======= ======
Diluted......................................... $ (0.88) $ 1.59 $ 1.11 $ (0.21) $ 0.20
======= ====== ====== ======= ======
Weighted average number of common and
common equivalent shares outstanding
Basic............................................. 5,713 5,670 5,498 5,547 5,755
Diluted........................................... 5,713 6,179 5,766 5,547 5,882
11
At June 30,
--------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(in thousands)
Consolidated Balance Sheet:
Working capital ......... $ 52,134 $ 78,308 $ 58,384 $ 41,998 $ 42,481
Total assets ............ 110,635 136,315 126,329 72,931 73,419
Short-term debt ......... 897 1,082 807 792 663
Long-term debt .......... 34,880 56,128 40,941 18,886 17,037
Shareholders' equity .... 48,668 53,251 42,790 34,868 36,625
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
---------------------------------------------------------------------------
Critical Accounting Policies
Financial Reporting Release No. 60 recommends that all companies
include a discussion of critical accounting policies used in the preparation of
their financial statements. The Securities and Exchange Commission defines
critical accounting policies as those that are, in management's view, most
important to the portrayal of the Company's financial condition and results of
operations and those that require significant judgments and estimates. The
Company continuously evaluates a combination of historical results and
anticipated future events to make assumptions and estimates related to its
consolidated financial statements. The Company believes that given the current
facts and circumstances, it is unlikely that applying any other reasonable
judgments or estimates methodologies would cause a material effect on the
Company's financial statements. Actual results may differ from those estimates.
The accounting policies identified as critical are as follows:
Valuation of Receivables - The Company performs ongoing credit evaluations of
its customers and adjusts credit limits based upon payment history and the
customer's current credit worthiness. The Company continuously monitors payments
from customers and a provision for estimated uncollectable amounts is maintained
based upon historical experience and any specific customer collection issues,
which have been identified. While such uncollectable amounts have historically
been within the Company's expectations and provisions established, if a
customer's financial condition were to deteriorate, additional reserves may be
required. Concentration of credit risk with respect to accounts receivable is
generally mitigated due to the large number of entities comprising the Company's
customer base, their dispersion across geographic areas and industries, along
with the Company's policy of maintaining credit insurance.
Valuation of Inventories - Inventories are valued at the lower of cost or
market. Cost is determined by using the first-in, first-out and average cost
methods. The Company's inventories are comprised of high technology components
sold to rapidly changing and competitive markets whereby such inventories may be
subject to early technological obsolescence.
The Company evaluates inventories for excess, obsolescence, or other factors
rendering inventories as unsellable at normal gross profit margins. Write-downs
are recorded so that inventories reflect the approximate market value and take
into account the Company's contractual provisions with its suppliers governing
price protections and stock rotations. Due to the large number of transactions
and complexity of managing the process around price protections and stock
rotations, estimates are made regarding the valuation of inventory at market
value.
12
In addition, assumptions about future demand, market conditions, and decisions
to discontinue certain product lines can impact the decision to write-down
inventories. If assumptions about future demand change and/or actual market
conditions are different than those projected by management, additional
write-downs of inventories may be required. In any case, actual results may be
different than those estimated.
Goodwill and Other Intangible Assets - The purchase method of accounting for
acquisitions requires extensive use of accounting estimates and judgments to
allocate the excess of the purchase price over the fair value of identifiable
net assets of acquired companies allocated to goodwill. Other intangible assets
primarily represent a franchise agreement and non-compete covenants.
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS 142"). Under SFAS 142, goodwill and intangible assets deemed to have
indefinite lives are no longer amortized but are subject to additional
impairment tests whenever indicators of impairment are present, and at least
annually. Other intangible assets with finite lives are amortized over those
useful lives. We implemented SFAS 142 on July 1, 2001. SFAS 142 requires that
the first of two impairment tests be completed within six months of adoption. We
performed a transitional fair value-based impairment test during the second
quarter of fiscal 2002 and determined that no impairment existed as of July 1,
2001.
We evaluate long-lived assets used in operations, including goodwill and
purchased intangible assets. The allocation of the acquisition cost to
intangible assets and goodwill has a significant impact on our future operating
results as the allocation process requires the extensive use of estimates and
assumptions, including estimates of future cash flows expected to be generated
by the acquired assets. An impairment review is performed whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger an impairment
review include, but are not limited to, significant under-performance relative
to historical or projected future operating results, significant changes in the
manner of use of the acquired assets or the strategy for our overall business,
and significant industry or economic trends. When impairment indicators are
identified with respect to previously recorded intangible assets, the values of
the assets are determined using discounted future cash flow techniques.
Significant management judgment is required in the forecasting of future
operating results which are used in the preparation of the projected discounted
cash flows and should different conditions prevail, material write downs of net
intangible assets and goodwill could occur.
13
Results of Operations
The following table sets forth certain items in our statement of
operations as a percentage of net sales for the periods shown:
2002 2001 2000
---- ---- ----
Net Sales ....................................... 100.0% 100.0% 100.0%
Cost of goods sold .............................. 85.6 80.9 77.6
---- ---- ----
Gross profit .................................... 14.4 19.1 22.4
Selling, general and administrative expenses .... 17.3 13.2 16.5
---- ---- ----
Operating (loss) profit ......................... (2.9) 5.9 5.9
Interest expense ................................ 1.1 1.2 0.8
--- --- ---
(Loss) earnings before income taxes ............. (4.0) 4.7 5.1
Income tax (benefit) provision .................. (1.4) 1.9 2.1
---- --- ---
Net (loss) earnings ............................. (2.6)% 2.8% 3.0%
==== === ===
Comparison of Fiscal Year Ended June 30, 2002 ("Fiscal 2002") with Fiscal
Year Ended June 30, 2001("Fiscal 2001")
Net sales for Fiscal 2002 were $194.1 million, a decrease of 44.6%, as
compared to $350.2 million for Fiscal 2001. The electronics industry continues
to be impacted by weak demand for components worldwide. Our customers have not
increased their production to levels that will utilize the excess inventory
maintained by such customers. For Fiscal 2002 flat panel display ("FPD") sales
represented approximately 14% of our total distribution sales. Passive
components represented approximately 41% of our distribution sales and active
components, including FPD's, represented approximately 59% of our distribution
sales during Fiscal 2002.
Gross profit was $28.0 million, or 14.4% for Fiscal 2002, as compared
to $66.8 million, or 19.1% for Fiscal 2001. The Fiscal 2002 gross profit
includes inventory write-downs of approximately $2.1 million, of which
approximately $1.1 million was provided for in the fourth quarter of Fiscal
2002. The gross profit margin decrease reflects both the continued pressure on
component pricing due to weak demand throughout the industry allowing customers
to negotiate lower prices and a higher percentage of sales of product that
historically sells at lower margins. We do not anticipate any material increase
in our gross profit margin for the foreseeable future.
Selling, general and administrative ("SG&A") expenses were $33.6
million in Fiscal 2002, a decrease of $12.5 million, or 27.2% compared to $46.1
million in Fiscal 2001. The decrease is attributable to a reduction in the
number of employees, discretionary spending and a decrease in variable
costs. We have implemented a plan to reduce costs while business conditions do
not improve. Variable costs have been reduced as a result of the reduction in
sales and gross profit since most of our sales personnel receive a portion of
their compensation based upon a percentage of gross profit.
Interest expense decreased to $2.2 million in Fiscal 2002, as compared
to $4.1 million in Fiscal 2001, representing a decrease of $1.9 million, or 46%.
The reduction reflects lower borrowing levels as a result of decreases in
accounts receivable and inventory. Additionally, interest rates declined during
the fiscal year. We do not expect any substantial increase in borrowings for the
foreseeable future to support operations.
Net loss for Fiscal 2002 was $5.0 million, or $.88 per diluted share,
compared to net earnings during Fiscal 2001 of $9.9 million, or $1.59 per
diluted share. The net loss was primarily attributable to the weak condition of
the electronics industry resulting in a decrease in net sales. The reduction in
net sales was partially offset by a decrease in SG&A expenses and interest
expense.
14
Comparison of Fiscal Year Ended June 30, 2001 with Fiscal Year Ended June 30,
2000 ("Fiscal 2000")
Net sales for Fiscal 2001 were $350.2 million, an increase of 67.3%, as
compared to $209.3 million for Fiscal 2000. Our net sales benefited from both a
strong demand for components throughout the electronics industry for the first
six months and additional sales generated from the acquisition of Interface
Electronics Corp. (Interface). Interface brought a new customer base as well as
additional suppliers to sell to our existing customers. During the last two
quarters of Fiscal 2001, the demand for components was greatly reduced. As a
result, we experienced a decrease in sales sequentially.
Gross Profit was $66.8 million in Fiscal 2001, an increase of $19.9
million, or 42.6%, compared to Fiscal 2000. Gross profit margins as a percentage
of net sales were 19.1% during Fiscal 2001 compared to 22.4% during Fiscal 2000.
The decrease in gross profit margins was as a result of the weakening in demand
for electronic components toward the end of Fiscal 2001 and an increase in
semiconductor sales due to the new suppliers that were added by the acquisition
of Interface.
Selling, general and administrative ("SG&A") expenses were $46.1
million in Fiscal 2001, an increase of $11.6 million, or 33.5%, compared to
$34.5 million in Fiscal 2000. As a percentage of net sales, SG&A, expenses
decreased in Fiscal 2001 to 13.2% compared to 16.5% in Fiscal 2000. The increase
in spending is attributable to higher staffing levels that was required to
support the increase in net sales, an increase in variable costs such as
commissions paid to sales personnel, and the additional costs associated with
the acquisition of Interface. The decrease in SG&A expenses as a percentage of
net sales reflects operating efficiencies realized by higher sales.
Interest expense increased to $4.1 million in Fiscal 2001, as compared
to $1.6 million in Fiscal 2000. The increase was primarily attributable to the
additional borrowings needed for the acquisition of Interface, and capital
required due to the increase in accounts receivable and inventory that were
necessary to support the growth in sales.
Net earnings for Fiscal 2001 were $9.9 million, or $1.59 per share
diluted compared to net earnings for Fiscal 2000 of $6.4 million, or $1.11 per
share diluted. The increase in net earnings was attributable to the increase in
net sales, the operating efficiencies realized by the increase in net sales, and
the successful integration of Interface during the fiscal year.
Liquidity and Capital Resources
Our agreement with our banks, as amended, expires on March 14, 2004. As
part of the amendment, the line of credit facility was reduced from $70 million
to $45 million. This reflects our lower borrowing requirements. The credit
facility is based principally on eligible accounts receivable and inventories as
defined in the agreement. The interest rate on the credit facility was based on
the average 30-day LIBOR rate plus 1.00% to 2.25% for the fiscal year ended June
30, 2002. As amended, effective October 1, 2002, the rate will convert to the
average 30-day LIBOR rate plus 2.25% to 2.75%. The agreement, as amended as of
September 23, 2002, contains provisions for the maintenance of certain financial
covenants and prohibits the payment of cash dividends. The agreement also
provided a waiver for non-compliance on one of the financial covenants. The
outstanding balance on the credit facility was $33.8 million at June 30, 2002.
For Fiscal 2002, our net cash provided by operating activities was
approximately $21.9 million, as compared to net cash used in operating
activities of $8.7 million for the same period last fiscal year. The increase in
15
net cash provided is primarily attributable to a decrease in accounts receivable
and inventory. The decrease in accounts receivable and inventory was the result
of the decrease in net sales for the fiscal year ended June 30, 2002, as
compared to the same period last year. Net cash used in investing activities
decreased to $0.3 million for the fiscal year ended June 30, 2002, as compared
to $6.2 million for the fiscal year ended June 30, 2001. The decrease is
primarily attributable to deferred payments related to the acquisition of
Interface Electronics Corp. of $0.2 million for the fiscal year ended June 30,
2002, as compared to $3.8 million for the fiscal year ended June 30, 2001. Net
cash used in financing activities was $21.3 million for the fiscal year ended
June 30, 2002 as compared to net cash provided by financing activities of $14.4
million for the comparable period last fiscal year. The increase in net cash
used is primarily attributable to the decrease in the outstanding balance on the
revolving line of credit facility from $54.6 million as of June 30, 2001 to
$33.8 million as of June 30, 2002, which was a result of the decreases in
accounts receivable and inventory.
For Fiscal 2002 and Fiscal 2001, our inventory turnover was 3.2x and
4.9x, respectively. The average days outstanding of our accounts receivable at
June 30, 2002 was 58 days, as compared to 42 days at June 30, 2001.
We believe that cash flow from operations and funds available under our
credit facility will be sufficient to fund our capital needs for the foreseeable
future. However, our cash expenditures may vary significantly from current
levels, based on a number of factors, including, but not limited to future
acquisitions, if any. Historically, we have been able to obtain amendments to
our existing credit facility to satisfy financial covenants. While there can be
no assurances that such financing or future amendment if needed, will be
available, management believes we will be able to continue to obtain financing
on acceptable terms.
Inflation
Inflation has not had a significant impact on our operations during the
last three fiscal years.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to interest rate changes with respect to our credit
facility which bears interest at the higher of the prime rate or the federal
funds rate plus 0.5%, or at our option, at a rate equal to the average 30-day
LIBOR rate plus 2.25% to 2.75% depending on our performance for the immediately
preceding four fiscal quarters measured by a certain financial ratio, and may be
adjusted quarterly. At August 31, 2002, $32.2 million was outstanding under the
credit facility. Changes in the LIBOR interest rate during Fiscal 2003 will have
a positive or negative effect on our interest expense. Each 1.0% fluctuation in
the LIBOR interest rate will increase or decrease interest expense for us by
approximately $0.3 million based on outstanding borrowings at August 31, 2002.
The impact of interest rate fluctuations on other floating rate debt is
not material.
Item 8. Financial Statements and Supplementary Data.
For an index to the financial statements and supplementary data, see
Item 14(a).
16
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
No response to this Item is required.
17
PART III
Item 10. Directors and Executive Officers of the Registrant.
Incorporated herein by reference is the information to appear under the
caption "Election of Directors" in the Company's definitive proxy statement for
its Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission not later than October 28, 2002.
Item 11. Executive Compensation.
Incorporated herein by reference is the information to appear under the
caption "Executive Compensation" in the Company's definitive proxy statement for
its Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission not later than October 28, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference is the information to appear under the
caption "Principal Shareholders; Share Held by Management" in the Company's
definitive proxy statement for its Annual Meeting of Shareholders which will be
filed with the Securities and Exchange Commission not later than October 28,
2002.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference is the information to appear under the
caption "Certain Transactions" in the Company's definitive proxy statement for
its Annual Meeting of Shareholders which will be filed with the Securities and
Exchange Commission not later than October 28, 2002.
Item 14. Controls and Procedures.
There have been no significant changes in the Company's internal controls or
other factors that could significantly affect those controls since the date of
the Company's last evaluation of its internal controls, and there have been no
corrective actions with regard to significant deficiencies and material
weaknesses in such controls.
18
PART IV
Item 15. 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 - F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-32
(2) Financial Statement Schedule included in Part IV of this Report:
Report of Independent Certified Public Accountant on Schedule II F-33
Schedule II - Valuation and Qualifying Accounts F-34
19
Exhibit No. Exhibit
3.1 Restated Certificate of Incorporation adopted November, 1987, incorporated
by reference to the Company's definitive proxy statement distributed in
connection with the Company's annual meeting of shareholders held in
November, 1987, filed with the SEC on November 3, 1986, as set forth in
Appendix A to the aforesaid proxy statement.
3.1.1Certificate of Amendment of the Certificate of Incorporation, adopted
December, 1995, incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 1996 ("the Company's 1996 10-K"),
Exhibit 3.1.1.
3.2 Restated By-Laws adopted June 18, 1987, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1987 ("the
Company's 1987 10-K"), Exhibit 3.2.
4.1 Form of Common Stock Certificate, incorporated by reference to the
Company's Registration Statement on Form S-1, Commission File No. 2-91547,
filed June 9, 1984, Exhibit 4.1.
10.1 Sale and leaseback with Bemar Realty Company (as assignee of Hi-Tech Realty
Company), incorporated by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 1983, Exhibit 10(1), pages 48-312.
10.2 Amendment No. 1 to Lease between the Company and Bemar Realty Company (as
assignee of Hi-Tech Realty Company), incorporated by reference to the
Company's Registration Statement on Form S-1, Commission File No. 2-91547,
filed June 9, 1984, Exhibit 10.2. 10.2.2 Lease between the Company and
Bemar Realty Company, dated January 1, 1996, incorporated by reference to
the Company's 1996 10-K, Exhibit 10.2.2.
10.6 1993 Non-Qualified Stock Option Plan, incorporated by reference to the
Company's 1993 10-K, Exhibit 10.6.
10.6.1 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit A to
the Company's Definitive Proxy Statement, dated November 3, 1997 for the
Annual Meeting of Shareholders held on December 9, 1997.
10.6.2 1993 Non-Qualified Stock Option Plan, as amended (filed as Exhibit A to
the Company's Definitive Proxy Statement, dated November 2, 1998 for the
Annual Meeting of Shareholders held on December 7, 1998.
10.7 Stock Purchase Agreement, dated as of February 8, 1994 by and among the
Company and Reilrop, B.V. and Guaranteed by Cray Electronics Holdings PLC,
incorporated by reference to the Company's Current Report on Form 8-K,
dated March 11, 1994.
10.8 1993 Stock Option Plan for Outside Directors, incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended June 30, 1994,
Exhibit 10.8.
10.10Authorized Electronic Industrial Distributor Agreement, dated as of August
24, 1970 by and between AVX and the Company, incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended June 30, 1995,
Exhibit 10.10.
10.11Electronics Corporation Distributor Agreement, dated November 15, 1974, by
and between KEMET and the Company, incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended June 30, 1995,
Exhibit 10.11.
10.12Restricted Stock Plan (filed as Exhibit B to the Company's Definitive
Proxy Statement, dated November 3, 1997 for the Annual Meeting of
Shareholders held on December 9, 1997).
10.12.1 Form of Escrow Agreement under the Restricted Stock Plan, incorporated
by reference to the Company's Registration Statement on Form S-8/S-3,
Commission File No. 333 -49877, filed April 10, 1998 Exhibit 4.2.
10.12.2 Form of Stock Purchase Agreement under the Restricted Stock Plan,
incorporated by reference to the Company's Registration Statement on Form
S-8/S-3, Commission File No. 333 - 49877, filed April 10, 1998 Exhibit 4.3.
10.12.3 Form of Stock Option Agreement, incorporated by reference to the
Company's Registration Statement on Form S-8/S-3, Commission File No. 333
-49877, filed April 10, 1998 Exhibit 4.4.
10.12.4 Restricted Stock Plan (filed as Exhibit B to the Company's Definitive
Proxy Statement, dated November 2, 1998 for the Annual Meeting of
Shareholders held on December 7, 1998).
10.13Employment agreement between Joel Girsky and the Company, incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, Exhibit 10.13.
10.13.1 Amendment No. 1 to Employment Agreement between Joel Girsky and the
Company, incorporated by reference to the Company's Annual Report on Form
10-K for the year ended June 30, 2001, Exhibit 10.13.1.
10.14Employment agreement between Charles Girsky and the Company, incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, Exhibit 10.14.
10.15Employment agreement between Jeffrey D. Gash and the Company, incorporated
by reference to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, Exhibit 10.15.
10.15.1 Amendment No. 1 to the Employment Agreement between Jeffrey D. Gash and
the Company, incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 2001, Exhibit 10.15.1
10.16Employment Agreement, dated June 6, 2000, between the Company and Joseph
Oliveri, incorporated by reference to the Company's Current Report on Form
8-K, filed June 12, 2000, Exhibit 10.16.
10.16.1 Amendment No. 1 to the Employment Agreement between Joseph Oliveri and
the Company, incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended June 30, 2001, Exhibit 10.16.1
10.17Stock Purchase Agreement by and among Jaco Electronics, Inc. and all of
the Stockholders of Interface Electronics Corporation as of May 4, 2000,
incorporated by reference to the Company's Current Report on Form 8-K,
filed May 15, 2000, Exhibit 2.1.
10.17.1 Amendment No. 1 to the Stock Purchase Agreement by and among Jaco
Electronics, Inc. and all of the Stockholders of Interface Electronics
Corp. as of May 4, 2000, dated June 6, 2000, incorporated by reference to
the Company's Current Report on Form 8-K, filed June 12, 2000, Exhibit 2.2.
10.18Agreement between the Company and Gary Giordano, incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended June 30,
2001, Exhibit 10.18.
10.19Employment Agreement between Joel H. Girsky and the Company, incorporated
by reference to the Company's Annual Report on Form 10-K for the year ended
June 30, 2001, Exhibit 10.19.
10.20Employment Agreement between Charles Girsky and the Company, incorporated
by reference to the Company's Annual Report on Form 10-K for the year ended
June 30, 2001, Exhibit 10.20.
21.1 Subsidiaries of the Company.
23.1 Consent of Grant Thornton LLP.
99.1 General Loan and Security Agreement dated January 20, 1989, between the
Company as borrower and The Bank of New York Commercial Corporation
("BNYCC") as secured party, incorporated by reference to the Company's
Current Report on Form 8-K, filed January 31, 1989, Exhibit 28(1).
99.2 Loan and Security Agreement - Accounts Receivable and Inventory, dated
January 20, 1989, between the Company and BNYCC, incorporated by reference
to the Company's Current Report on Form 8-K filed January 31, 1989, Exhibit
28(2).
99.3 Letter of Credit and Security Agreement, dated January 20, 1989, between
the Company and BNYCC, incorporated by reference to the Company's Current
Report on Form 8-K filed January 31, 1989, Exhibit 28(3).
99.4 Amendment to Term Loan Notes (the "Term Notes") executed by the Company in
favor of BNYCC dated January 13, 1992, together with Letters from R.C.
Components, Inc., Quality Components, Inc., Micatron, Inc. and Distel,
Inc., each a subsidiary of the Company and a guarantor of the obligations
evidenced by the Term Notes, to BNYCC acknowledging the amendment to the
Term Notes for the extension of the maturity date of each such note,
incorporated by reference to the Company's 1992 10-K, Exhibit 28.4.
99.5 Amendment Nos. 1 through 4 to Loan and Security Agreement between the
Company and BNYCC, incorporated by reference to the Company's Annual Report
on Form 10-K for the year ended June 30, 1994. Exhibit 99.5.
99.6 $1,500,000 Additional Term Loan Note, executed by the Company in favor of
BNYCC, dated March 11, 1994, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994, Exhibit 99.5.
99.7 Restated and Amended Loan and Security Agreement, dated April 25, 1995,
among the Company, Nexus and BNYCC, together with an Amendment to Term Loan
Note executed by the Company in favor of BNYCC and Letter executed by R.C.
Components, Inc., Quality Components, Inc., Micatron, Inc., Distel, Inc.
and Jaco Overseas, Inc., incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 1995, Exhibit 99.7.
99.8 Second Restated and Amended Loan and Security Agreement dated September 13,
1995 among the Company, Nexus Custom Electronics, Inc., BNYCC and NatWest
Bank, N.A. ("Second Restated and Amended Loan and Security Agreement"),
incorporated by reference to the Company's Registration Statement on Form
S-2, Commission File No. 33-62559, filed October 13, 1995, Exhibit 99.8.
99.8.1 Amendment to the Second Restated and Amended Loan and Security Agreement,
dated as of April 10, 1996, incorporated by reference to the Company's 1996
10-K, Exhibit 99.8.1.
99.8.2 Amendment to the Second Restated and Amended Loan and Security Agreement,
dated as of August 1, 1997, incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended June 30, 1998, Exhibit 99.8.2
99.8.3 Amendment to Second Restated and Amended Loan and Security Agreement
dated July 1, 1998, incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998, Exhibit
99.8.3.
99.8.4 Amendment to Second Restated and Amended Loan and Security Agreement
dated September 21, 1998 incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998,
Exhibit 99.8.4.
99.8.5 Amendment to Second Restated and Amended Loan and Security Agreement
dated October 26, 1999, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999,
Exhibit 99.8.5.
99.8.6 Amendment to Second Restated and Amended Loan and Security Agreement
dated December 31, 1999, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1999,
Exhibit 99.8.6. 99.8.7 Amendment to Second Restated and Amended Loan and
Security Agreement dated June 6, 2000, incorporated by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2000, Exhibit 99.8.7.
99.8.8 Amendment to Second Restated and Amended Loan and Security Agreement
dated September 28, 2000, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2000,
Exhibit 99.8.8
99.8.9 Amendment to Second Restated and Amended Loan and Security Agreement
dated January 29, 2001, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 2000,
Exhibit 99.8.9
99.8.10 Amendment to Second Restated and Amended Loan and Security Agreement
dated June 12, 2001, incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 2001, Exhibit 99.8.10
99.8.11 Amendment to Second Restated and Amended Loan and Security Agreement
dated July 1, 2001, incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended June 30, 2001, Exhibit 99.8.11
99.8.12 Amendment to Second Restated and Amended Loan and Security Agreement
dated November 14, 2001, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001,
Exhibit 99.8.12
99.8.13 Amendment to Second Restated and Amended Loan and Security Agreement
dated February 6, 2002, incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 2001,
Exhibit 99.8.13
99.8.14 Amendment to Second Restated and Amended Loan and Security Agreement
dated September 23, 2002.
99.9 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.10Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-32
Report of Independent Certified Public Accountants
on Schedule F-33
Schedule II - Valuation and Qualifying Accounts F-34
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Jaco Electronics, Inc.
We have audited the accompanying consolidated balance sheets of Jaco
Electronics, Inc. and Subsidiaries (the "Company") as of June 30, 2002 and 2001
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jaco Electronics,
Inc. and Subsidiaries as of June 30, 2002 and 2001, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended June 30, 2002 in conformity with accounting principles
generally accepted in the United States of America.
GRANT THORNTON LLP
Melville, New York
September 19, 2002
F-2
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS 2002 2001
------------- -------
CURRENT ASSETS
Cash and cash equivalents $ 324,447 $ 89,523
Marketable securities 650,267 771,406
Accounts receivable, less allowance for doubtful
accounts of $1,609,000 in 2002 and $1,695,000
in 2001 29,095,269 37,820,946
Inventories 42,611,225 62,212,121
Prepaid expenses and other 1,183,043 824,121
Prepaid and refundable income taxes 2,440,055 486,325
Deferred income taxes 2,017,000 2,190,000
------------- -------------
Total current assets 78,321,306 104,394,442
PROPERTY, PLANT AND EQUIPMENT - AT COST, NET 6,708,828 8,389,651
DEFERRED INCOME TAXES 434,000 436,000
GOODWILL, less accumulated amortization of $2,121,000
in 2002 and 2001 22,363,296 20,095,844
OTHER ASSETS 2,807,451 2,998,902
------------- -------------
$110,634,881 $136,314,839
=========== ===========
The accompanying notes are an integral part of these statements.
F-3
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (continued)
June 30,
LIABILITIES AND
SHAREHOLDERS' EQUITY 2002 2001
------------ -------
CURRENT LIABILITIES
Accounts payable $ 20,818,256 $ 21,035,641
Current maturities of long-term debt and
capitalized lease obligations 897,419 1,081,905
Accrued compensation 998,927 2,335,614
Accrued expenses 1,372,808 1,407,803
Deferred acquisition costs 2,099,563 225,000
------------- -------------
Total current liabilities 26,186,973 26,085,963
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS 34,879,766 56,128,243
DEFERRED COMPENSATION 900,000 850,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock - authorized, 100,000 shares, $10
par value; none issued
Common stock - authorized, 20,000,000 shares, $.10 par value; issued,
6,425,732 and 6,315,759 shares, respectively, and 5,807,432 and 5,697,459
shares
outstanding, respectively 642,573 631,576
Additional paid-in capital 25,152,010 24,615,866
Retained earnings 25,102,628 30,146,599
Accumulated other comprehensive (loss) income (24,554) 61,107
Treasury stock - 618,300 shares at cost (2,204,515) (2,204,515)
------------- -------------
48,668,142 53,250,633
------------ ------------
$110,634,881 $136,314,839
=========== ===========
The accompanying notes are an integral part of these statements.
F-4
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended June 30,
2002 2001 2000
----------- ----------- -------
Net sales $194,106,208 $350,222,202 $209,325,180
Cost of goods sold 166,132,892 283,382,288 162,443,001
------------ ----------- -----------
Gross profit 27,973,316 66,839,914 46,882,179
Selling, general and administrative expenses 33,562,394 46,098,155 34,522,667
------------ ------------ ------------
Operating (loss) profit (5,589,078) 20,741,759 12,359,512
Interest expense 2,222,893 4,119,362 1,558,558
------------- ------------- -------------
(Loss) earnings before income taxes (7,811,971) 16,622,397 10,800,954
Income tax (benefit) provision (2,768,000) 6,772,000 4,425,000
------------- ------------- -------------
NET (LOSS) EARNINGS $ (5,043,971) $ 9,850,397 $ 6,375,954
============= ============ ============
Net (loss) earnings per common share:
Basic $(0.88) $1.74 $1.16
===== ==== ====
Diluted $(0.88) $1.59 $1.11
===== ==== ====
Weighted-average common shares and common equivalent shares outstanding:
Basic 5,713,365 5,669,560 5,497,866
========= ========= =========
Diluted 5,713,365 6,178,653 5,766,086
========= ========= =========
The accompanying notes are an integral part of these statements.
F-5
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
Years ended June 30, 2002, 2001 and 2000
Additional
Common stock paid-in Retained
Shares Amount capital earnings
-------- -------- -------------- -------------
Balance at July 1, 1999 4,065,721 $406,572 $22,801,295 $13,920,807
Net earnings 6,375,954
Unrealized loss on marketable
securities - net of deferred taxes
Exercise of stock options 102,482 10,248 860,760
Stock options income tax benefits 431,840
Restricted stock plan income tax benefits 155,812
Effect of 3-for-2 stock split 2,084,056 208,406 (208,406)
Deferred compensation expense
-------------- ------------ ---------------- ---------------
Balance at June 30, 2000 6,252,259 625,226 24,041,301 20,296,761
Net earnings 9,850,397
Unrealized loss on marketable
securities - net of deferred taxes
Exercise of stock options 63,500 6,350 430,275
Stock options income tax benefits 111,890
Restricted stock plan income tax benefits 32,400
Payment of fractional shares (559)
Deferred compensation expense
-------------- ------------ ---------------- ---------------
Balance at June 30, 2001 6,315,759 631,576 24,615,866 30,146,599
Net loss (5,043,971)
Unrealized loss on marketable
securities - net of deferred taxes
Exercise of stock options 109,973 10,997 480,564
Stock options income tax benefits 55,580
-------------- ------------ ----------- ---------------
Balance at June 30, 2002 6,425,732 $642,573 $25,152,010 $25,102,628
========= ======= ========== ==========
Accumulated
other Deferred Total
comprehensive Treasury compen- shareholders'
income (loss) stock sation equity
---------------- --------- --------- ---------
Balance at July 1, 1999 $213,707 $(2,204,515) $(270,000) $34,867,866
Net earnings 6,375,954
Unrealized loss on marketable
securities - net of deferred taxes (47,038) (47,038)
Exercise of stock options 871,008
Stock options income tax benefits 431,840
Restricted stock plan income tax benefits 155,812
Effect of 3-for-2 stock split
Deferred compensation expense 135,000 135,000
---------- --------------- -------- ------------
Balance at June 30, 2000 166,669 (2,204,515) (135,000) 42,790,442
Net earnings 9,850,397
Unrealized loss on marketable
securities - net of deferred taxes (105,562) (105,562)
Exercise of stock options 436,625
Stock options income tax benefits 111,890
Restricted stock plan income tax benefits 32,400
Payment of fractional shares (559)
Deferred compensation expense 135,000 135,000
---------- --------------- -------- ------------
Balance at June 30, 2001 61,107 (2,204,515) - 53,250,633
Net loss (5,043,971)
Unrealized loss on marketable
securities - net of deferred taxes (85,661) (85,661)
Exercise of stock options 491,561
Stock options income tax benefits 55,580
---------- ------------ ---------- -------------
Balance at June 30, 2002 $(24,554) $(2,204,515) $ - $48,668,142
======== ========== =========== ==========
The accompanying notes are an integral part of this statement
F-6
Jaco Electronics, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended June 30,
2002 2001 2000
------------ ----------- --------
Cash flows from operating activities
Net (loss) earnings $ (5,043,971) $ 9,850,397 $ 6,375,954
Adjustments to reconcile net (loss) earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 2,331,684 3,223,205 1,868,420
Deferred compensation 50,000 185,000 185,000
Deferred income tax expense (benefit) 225,402 (803,402) (996,963)
Stock options income tax benefits 55,580 111,890 431,840
Restricted stock plan income tax benefits 32,400 155,812
Gain on sale of equipment (3,100)
Provision for doubtful accounts 418,300 1,397,601 597,694
Changes in operating assets and liabilities, net of
effects of acquisitions
Decrease (increase) in accounts receivable 8,307,377 2,736,517 (14,659,938)
Decrease (increase) in inventories 19,451,304 (8,951,107) (15,356,153)
Increase in prepaid expenses and other (329,215) (9,558) (57,057)
Increase in prepaid and refundable income taxes (1,953,730) (486,325)
(Decrease) increase in accounts payable (217,385) (14,310,658) 10,630,824
(Decrease) increase in accrued compensation (1,336,687) 143,921 1,299,706
(Decrease) increase in accrued expenses (34,995) (244,216) 540,639
(Decrease) increase in income taxes payable (1,575,319) 2,566,174
------------------- -------------- ------------
Net cash provided by (used in) operating activities 21,920,564 (8,699,654) (6,418,048)
------------- -------------- ------------
Cash flows from investing activities
Purchase of marketable securities (14,924) (56,692) (73,407)
Capital expenditures (205,256) (1,997,194) (892,149)
Proceeds from the sale of equipment 61,473 128,892
Business acquisitions, net of cash acquired (14,877,230)
Business acquisitions - deferred payments (243,297) (3,810,000)
Decrease (increase) in other assets 54,451 (327,264) 2,342,542
----------------- -------------- ------------
Net cash used in investing activities (347,553) (6,191,150) (13,371,352)
---------------- -------------- -----------
Cash flows from financing activities
Borrowings from line of credit 161,505,349 324,090,871 95,831,956
Payments of line of credit (182,254,268) (309,269,516) (76,391,130)
Principal payments under equipment financing (941,242) (733,983) (612,792)
Payments under term loan (139,487) (160,714) (214,286)
Payment of fractional shares (559)
Proceeds from exercise of stock options 491,561 436,625 871,008
---------------- --------------- -------------
Net cash (used in) provided by financing activities (21,338,087) 14,362,724 19,484,756
--------------- ------------- -----------
NET INCREASE (DECREASE) IN CASH 234,924 (528,080) (304,644)
Cash and cash equivalents at beginning of year 89,523 617,603 922,247
----------------- --------------- ------------
Cash and cash equivalents at end of year $ 324,447 $ 89,523 $ 617,603
================ ================ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,223,000 $ 4,120,000 $ 1,559,000
Income taxes 275,000 9,493,000 2,267,000
Supplemental schedule of non-cash financing and investing activities:
Deferred acquisition costs $ 2,099,563 $ 225,000
Equipment under capital leases and note payable 396,685 1,535,169 $ 126,229
The accompanying notes are an integral part of these statements.
F-7
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002, 2001 and 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Jaco Electronics, Inc. and Subsidiaries (the "Company") is primarily
engaged in the distribution of electronic components, including
semiconductors, capacitors, resistors, electromechanical devices, flat
panel displays and monitors and power supplies, which are used in the
manufacture and assembly of electronic products. In addition, the Company
provides contract manufacturing services.
Electronic components distribution sales include exports made principally
to customers located in Western Europe, Canada, Mexico, and the Far East.
For the years ended June 30, 2002, 2001 and 2000, export sales amounted to
approximately $32,211,000, $52,358,000 and $8,170,000, 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. Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers
cash instruments with original maturities of less than three months to
be cash equivalents.
4. Investments in Marketable Securities
Investments in marketable securities consist of investments in mutual
funds. Such investments have been classified as "available-for-sale
securities" and are reported at fair market value, which is inclusive
of an unrealized loss of $40,924 in 2002, and an unrealized gain of
$95,139 in 2001. Changes in the fair value of available-for-sale
securities are included in accumulated other comprehensive income
(loss), net of the related deferred tax effects.
F-8
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
5. Inventories
Inventories are stated at the lower of cost or estimated market value.
Cost is determined using the first-in, first-out and average cost
methods. A provision to reduce inventories to their estimated market
value has been provided for.
6. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
provided for using the straight-line method over the estimated useful
life of the assets. The Company capitalizes costs incurred for
internally developed software where economic and technological
feasibility has been established. These capitalized software costs are
being amortized on a straight-line basis over the estimated useful life
of seven years. Significant improvements are capitalized if they extend
the useful life of the asset. Routine repairs and maintenance are
expensed when incurred.
7. Goodwill And Other Intangible Assets
Goodwill and other intangible assets represent the excess of the
aggregate price paid by the Company over the fair market value of the
tangible assets acquired in business acquisitions accounted for as a
purchase.
During the year ended June 30, 2002, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." The new standards require that all business
combinations initiated after June 30, 2001 be accounted for under the
purchase method. In addition, all intangible assets acquired that are
obtained through contractual or legal right, or are capable of being
separately sold, transferred, licensed, rented or exchanged shall be
recognized as an asset apart from goodwill. Goodwill and intangibles
with indefinite lives will no longer be subject to amortization, but
will be subject to at least an annual assessment for impairment by
applying a fair value-based test. Intangible assets with finite lives
will continue to be amortized over their estimated useful lives. Those
intangible assets are reviewed for impairment under SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
F-9
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
8. Income Taxes
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and
net operating loss carryforwards for which income tax expenses or
benefits are expected to be realized in future years. A valuation
allowance had been established to reduce deferred tax assets
attributable to net operating losses of a subsidiary of the Company.
During fiscal 2001, the Company utilized a significant portion of the
net operating loss carryforwards and thus eliminated the valuation
allowance.
9. Earnings (Loss) Per Common Share
Basic earnings per share are determined by dividing the Company's net
earnings by the weighted average shares outstanding. Diluted earnings
per share include the dilutive effects of outstanding stock options.
10. Financial Instruments and Business Concentrations
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of accounts
receivable. Concentration of credit risk with respect to accounts
receivable is generally mitigated due to the large number of entities
comprising the Company's customer base, their dispersion across
geographic areas and industries, along with the Company's policy of
maintaining credit insurance. The Company routinely addresses the
financial strength of its customers and, historically, its accounts
receivable credit risk exposure is limited.
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107"),
"Fair Value of Financial Instruments," requires disclosure of the
estimated fair value of an entity's financial instrument assets and
liabilities. The Company's principal financial instrument consists of a
revolving credit facility,
F-10
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
expiring on March 14, 2004, with two participating banks. The Company
believes that the carrying amount of such debt approximates the fair
value as the variable interest rate approximates the current
prevailing interest rate.
The Company generally purchases products from manufacturers pursuant to
nonexclusive distributor agreements. During the year ended June 30,
2002, products purchased from three suppliers accounted for 15%, 12%
and 9%, respectively, of net sales. As is common in the electronics
distribution industry, from time to time the Company has experienced
terminations of relationships with suppliers. There can be no assurance
that, in the event a supplier cancelled its distributor agreement with
the Company, the Company will be able to replace the sales with sales
of other products.
11. Use of Estimates
In preparing financial statements in conformity with accounting
principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses
during the reporting period. During the fourth quarter of the year
ended June 30, 2002, the Company recorded an additional provision for
excess and slow moving inventory of approximately $1,100,000 based
upon management's current estimate of the estimated market value of
such inventory. Actual results could differ from those estimates.
12. Comprehensive Income
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," establishes rules for reporting and
display of comprehensive income and its components in financial
statements. Comprehensive income consists of net earnings and
unrealized gains and losses on available-for-sale securities and is
presented in the consolidated statement of changes in shareholders'
equity, net of applicable taxes.
F-11
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
13. Segment Reporting
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures About Segments of an Enterprise and Related Information,"
requires that the Company disclose certain information about its
operating segments defined as "components of an enterprise about which
separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate
resources and in assessing performance." Generally, financial
information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to
allocate resources to segments. The Company has two reportable segments
as defined by the provisions of SFAS No. 131.
14. Shipping and Handling Fees
Shipping and handling fees charged to customers are included in net
sales. Shipping and handling expenses paid are included as a component
of cost of good sold.
15. Advertising
Advertising costs are expensed as incurred and totaled $158,791,
$175,954 and $109,308 for the years ended June 30, 2002, 2001 and 2000,
respectively.
16. Reclassifications
Certain reclassifications have been made to prior year amounts to
conform to the fiscal 2002 presentation.
17. Impact of Recently Issued Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 144 ("SFAS No.
144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." This statement is effective for fiscal years beginning after
December 15, 2001 and supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," while retaining many of the requirements of such
statement. Management believes that the adoption of SFAS No. 144 will
not have a material impact on its results of operations or financial
position.
F-12
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145 ("SFAS No. 145"), "Rescission of SFAS Statements No.
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections."
This statement eliminates the current requirements that gains and
losses on debt extinguishment must be classified as extraordinary items
in the income statement. Instead, such gains and losses will be
classified as extraordinary items only if they are deemed to be unusual
and infrequent, in accordance with the current GAAP criteria for
extraordinary classifications. In addition, SFAS No. 145 eliminates an
inconsistency in lease accounting by requiring that modifications of
capital leases that result in reclassification as operating leases be
accounted for consistent with sales-leaseback accounting rules. The
statement also contains other nonsubstantive corrections to
authoritative accounting literature. The rescission of SFAS No. 4 is
effective in fiscal years beginning after May 15, 2002. The amendment
and technical corrections of SFAS No. 13 are effective for transactions
occurring after May 15, 2002. All other provisions of SFAS No. 145 are
effective for financial statements issued on or after May 15, 2002.
Management believes that the adoption of SFAS No. 145 will not have a
material impact on its results of operations or financial position.
In June 2002, the FASB issued Statement of Financial Accounting
Standards No. 146 ("SFAS No. 146"), "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous
accounting guidance, principally Emerging Issues Task Force Issue No.
94-3. SFAS No. 146 requires that the liability for costs associated
with an exit or disposal activity be recognized when the liability is
incurred. SFAS No. 146 also establishes that the liability should
initially be measured and recorded at fair value. Accordingly SFAS No.
146 may affect the timing of recognizing future restructuring costs as
well as the amount recognized. SFAS no. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002.
Management believes that the adoption of SFAS No. 146 will not have a
material impact on its results of operations or financial position.
F-13
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE B - INVENTORY
Inventories consist of the following:
June 30,
---------------------------------------
2002 2001
-------------- -------------
Finished goods and goods held for resale $36,382,922 $52,841,604
Work-in-process 502,936 1,401,102
Raw materials 5,725,367 7,969,415
------------ -----------
$42,611,225 $62,212,121
========== ==========
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
Useful June 30,
life ----------------------------------
in years 2002 2001
-------- ------------ -------------
Land, building and improvements 10 to 30 $ 1,513,446 $ 1,482,419
Machinery and equipment 3 to 7 12,030,190 11,573,339
Internally developed software costs 7 1,977,583 1,952,319
Transportation equipment 3 to 5 126,676 162,707
Leasehold improvements 5 to 10 1,293,424 1,293,424
----------- -----------
16,941,319 16,464,208
Less accumulated depreciation and amortization
(including $1,440,944 in 2002 and $1,378,070 in
2001 of capitalized lease amortization) 10,232,491 8,074,557
---------- -----------
$ 6,708,828 $ 8,389,651
=========== ===========
Included in machinery and equipment are assets recorded under capitalized
leases at June 30, 2002 and 2001 for $3,502,364 and $3,967,825,
respectively. Accumulated amortization of internally developed software
costs at June 30, 2002 and 2001 aggregated $934,959 and $654,010,
respectively.
F-14
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE D - GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has adopted, as of July 1, 2001, the provisions of SFAS Nos.
141 and 142. Accordingly, annual and quarterly amortization of goodwill and
franchise agreements of $1,234,000 and $308,000, respectively, are no
longer recognized. The Company has performed a transitional fair
value-based impairment test and has determined that no impairment of
goodwill or franchise agreements existed as of July 1, 2001.
The following table presents a reconciliation of net earnings (loss) and
earnings (loss) per share amounts, as reported in the financial statements,
to those amounts adjusted for goodwill and intangible asset amortization
determined in accordance with the provisions of SFAS No. 142.
June 30,
----------------------------------------------
2002 2001 2000
----------- ----------- ---------
Reported net (loss) earnings $(5,043,971) $ 9,850,397 $6,375,954
Add back: goodwill amortization 980,092 246,332
Add back: franchise agreement amortization 36,667 3,056
----------------- ------------- ------------
Adjusted net (loss) earnings $(5,043,971) $10,867,156 $6,625,342
========== ========== =========
Basic (loss) earnings per share
Reported net (loss) earnings $(0.88) $1.74 $ 1.16
Goodwill amortization 0.17 0.05
Franchise agreement amortization 0.01
-------- ---- ----
Adjusted net (loss) earnings $(0.88) $1.92 $1.21
===== ==== ====
Diluted (loss) earnings per share
Reported net (loss) earnings $(0.88) $1.59 $1.11
Goodwill amortization 0.16 0.04
Franchise agreement amortization 0.01
-------- ---- -----
Adjusted net (loss) earnings $(0.88) $1.76 $1.15
===== ==== ====
F-15
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE E - INCOME TAXES
The components of the Company's (benefit) provision for income taxes are as
follows:
June 30,
-------------------------------------------------------
2002 2001 2000
------------ ----------- ----------
Federal
Current $(2,737,000) $5,853,000 $3,448,000
Deferred 225,000 (803,000) (67,000)
----------- ---------- -----------
(2,512,000) 5,050,000 3,381,000
State (256,000) 1,722,000 1,044,000
------------ --------- ---------
$(2,768,000) $6,772,000 $4,425,000
========== ========= =========
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,
--------------------------------------------
2002 2001 2000
-------- ----------- -----
Statutory Federal tax rate (34.0)% 34.0% 34.0%
State income taxes, net of Federal tax benefit (3.3) 6.7 5.5
Sales expense for which no tax benefit arises 0.8 1.0 0.9
Other 1.1 (1.0) 0.6
------- ----- -----
Effective tax rate (35.4)% 40.7% 41.0%
===== ==== ====
F-16
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE E - INCOME TAXES (continued)
Deferred income tax assets and liabilities resulting from differences
between accounting for financial statement purposes and tax purposes are
summarized as follows:
2002 2001
----------- --------
Deferred tax assets
Net operating loss carryforwards $ 424,000 $ 187,000
Allowance for bad debts 611,000 619,000
Inventory valuation 1,554,000 1,820,000
Deferred compensation 346,000 310,000
Unrealized loss on marketable securities
available for sale 16,000
Other deferred tax assets 331,000 364,000
---------- ----------
3,282,000 3,300,000
Deferred tax liabilities
Depreciation (758,000) (594,000)
Unrealized gain on marketable securities
available for sale (34,000)
Other (73,000) (46,000)
----------- -----------
Net deferred tax asset $2,451,000 $2,626,000
========= =========
At June 30, 2002, the Company, through an acquisition, has available a
Federal net operating loss carryforward of approximately $313,000. Such net
operating loss is subject to certain limitations and expires in varying
amounts during the fiscal years 2007 through 2010. In addition, the Company
has current year net operating losses of approximately $6,600,000 that will
be carried back for a two-year period for Federal tax refund purposes.
Since most states do not permit loss carrybacks, the state effect of the
current year loss is included in the deferred tax asset.
F-17
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE F - (LOSS) EARNINGS PER COMMON SHARE
Year ended June 30,
--------------------------------------------------------------------------------------
2002 2001
---------------------------------------- --------------------------------------
Loss Shares Per Income Shares Per
(numer- (denomi- share (numer- (denomi- share
ator) nator) amount ator) nator) amount
--------- --------- ------- --------- --------- -------
Basic (loss) earnings per
share;
income available to
common shareholders $(5,043,971) 5,713,365 $(0.88) $9,850,397 5,669,560 $1.74
Effect of dilutive
securities
Stock options 509,093
--------------- -------------- --------------- ----------
Diluted (loss) earnings
per
share; income available
to common shareholders
plus assumed
conversions $(5,043,971) 5,713,365 $(0.88) $9,850,397 6,178,653 $1.59
========== ========= ========= =========
2000
----------------------------------------
Income Shares Per
(numer- (denomi- share
ator) nator) amount
--------- --------- -------
Basic (loss) earnings per
share;
income available to
common shareholders $6,375,954 5,497,866 $1.16
Effect of dilutive
securities
Stock options 268,220
------------- ----------
Diluted (loss) earnings
per
share; income available
to common shareholders
plus assumed
conversions $6,375,954 5,766,086 $1.11
========= =========
Excluded from the calculation of earnings (loss) per share are options to
purchase 844,548, 90,688 and 45,000 common shares in fiscal 2002, 2001 and
2000, respectively, as their inclusion would have been antidilutive.
F-18
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE G - DEBT AND CAPITALIZED LEASE OBLIGATIONS
Debt and capitalized lease obligations are as follows:
June 30,
---------------------------------
2002 2001
------------- -------------
Term loan and revolving line of credit (a) $33,807,703 $54,556,622
Other term loan (b) 185,202 324,689
Equipment note 30,634
Capitalized lease obligations (c) 1,947,496 2,561,909
----------- -----------
35,940,401 57,473,854
Less amounts representing interest on capitalized
lease obligations 163,216 263,706
------------ ------------
35,777,185 57,210,148
Less current maturities 897,419 1,081,905
------------ -----------
$34,879,766 $56,128,243
========== ==========
(a) Term Loan and Revolving Line of Credit Facility
The Company's agreement with its banks, as amended, provides the Company
with a $45,000,000 revolving line of credit facility. The credit facility
is based principally on eligible accounts receivable and inventories of the
Company as defined in the agreement. The agreement was amended to (i)
extend the maturity date to March 14, 2004, (ii) reduce the credit facility
line from $70 million to $45 million, and (iii) change the requirements of
certain financial covenants. The interest rate was based on the average
30-day LIBOR plus 1% to 2-1/4% depending on the Company's performance for
the immediately preceding four fiscal quarters measured by a certain
financial ratio. Effective October 1, 2002, the rate will convert to the
average 30-day LIBOR plus 2-3/4% and is subject to quarterly decreases, to
the average 30-day LIBOR plus 2-1/4%, based upon future financial
performance. Borrowings under this facility are collateralized by
substantially all of the assets of the Company. In addition, the agreement
prohibits the payment of cash dividends. The outstanding balance on the
revolving line of credit facility was $33,807,703 at June 30, 2002, with an
associated interest rate of 4.09%. The agreement also provided a waiver for
non-compliance of a certain financial covenant.
F-19
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE G - DEBT AND CAPITALIZED LEASE OBLIGATIONS (continued)
(b) Other Term Loan
The Company has a term loan which requires monthly payments $9,829
through January 31, 2004. The loan, which bears interest at 1% per
annum, is collateralized by the related equipment acquired, having a
carrying value of approximately $261,000 at June 30, 2002 and
$344,000 at June 30, 2001. The agreement contains, among other
things, restrictive covenants on one of the Company's subsidiaries,
which place limitations on significant changes in the business and
additional indebtedness.
(c) Capitalized Lease Obligations
The Company leases certain equipment under agreements accounted for
as capital leases. The aggregate obligations for the equipment
require the Company to make monthly payments through March 2005, with
implicit interest rates from 7.0% to 8.4%.
The following is a summary of the aggregate annual maturities of debt and
capitalized lease obligations as of June 30, 2002:
Capitalized
Debt leases
---- ------
Year ending June 30,
2003 $ 116,628 $ 882,558
2004 33,876,277 677,768
2005 387,170
----------- ----------
$33,992,905 $1,947,496
========== =========
F-20
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE H - COMMITMENTS AND CONTINGENCIES
1. Leases
The Company leases certain office and warehouse facilities under
noncancellable operating leases. The leases also provide for the
payment of real estate taxes and other operating expenses of the
buildings. The minimum annual lease payments under such leases are as
follows:
Year ending June 30,
2003 $1,899,386
2004 1,187,459
2005 574,695
2006 86,548
-----------
$3,748,088
==========
In addition, the Company leases office and warehouse facilities from a
partnership owned by two officers and directors of the Company. The
lease expires in December 2003 and requires minimum annual lease
payments as follows:
Year ending June 30,
2003 $ 692,293
2004 354,589
----------
$1,046,882
==========
The Company's rent expense was approximately $602,000 for each of the
years ended June 30, 2002, 2001 and 2000, respectively, in connection
with the above lease.
Rent expense on office and warehouse facilities leases for the years
ended June 30, 2002, 2001 and 2000 was approximately $2,049,000 ,
$1,826,000 and $1,235,000, respectively, net of sublease income of
approximately $115,000 and $127,000, for the years ended June 30, 2001
and 2000, respectively.
F-21
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE H - COMMITMENTS AND CONTINGENCIES (continued)
2. Other Leases
The Company also leases various office equipment and automobiles under
noncancellable operating leases expiring through June 2006. The minimum
rental commitments required under these leases at June 30, 2002 are as
follows:
Year ending June 30,
2003 $214,732
2004 95,450
2005 58,393
2006 2,948
---------
$371,523
========
3. Employment Agreements
The Company has entered into employment agreements with three executive
officers which provide for annual base salaries aggregating $785,000
through June 30, 2005 and contain provisions for severance payments in
the event of change of control as defined in the agreements. The
Company's agreements with its Chairman and Executive Vice President
provide for cash bonuses equal to 4% and 2%, respectively, of the
Company's earnings before income taxes for each fiscal year in which
such earnings are in excess of $1,000,000 or 6% and 3%, respectively,
of the Company's earnings before income taxes if such earnings are in
excess of $2,500,000 up to a maximum annual cash bonus of $720,000 and
$360,000, respectively. In addition, the Company's agreement with its
Chairman provides for deferred compensation which accrues at a rate of
$50,000 per year and becomes payable in its entirety no later than
January 15 of the year next following his cessation of employment for
any reason.
Effective July 1, 2001, the Company is obligated to provide health
insurance to the Chairman, Executive Vice President, and their
respective spouses commencing upon their termination of employment with
Jaco and ending on the later to occur of (i) their death or (ii) the
death of their respective spouses. The Company has adopted Statement of
Financial Accounting Standards No. 106, "Employer's Accounting for
Postretirement Benefits Other Than Pension," which requires the Company
to recognize the cost of providing postretirement benefits over the
employees' service periods. The recorded liabilities for these
postretirement benefits, none of which has been funded, amounted to
$48,900 at June 30, 2002. The weighted-average discount rate used in
determining the liability was 5.5%, and the annual percentage increase
in health costs was 7%.
F-22
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE H - COMMITMENTS AND CONTINGENCIES (continued)
On June 6, 2000, the Company entered into an employment agreement with
an Executive Vice President which provides for an annual base of
$300,000 through May 30, 2003. The employment agreement also provides
for an annual cash bonus equal to 2% of certain gross profit dollars,
as defined.
4. Other Matters
The Company is a party to legal matters arising in the general conduct
of business. The ultimate outcome of such matters is not expected to
have a material adverse effect on the Company's results of operations
or financial position.
NOTE I - 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, 2002, 2001 and 2000, the Company
contributed to this plan approximately $144,000, $175,000 and $116,000,
respectively.
F-23
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE J - SHAREHOLDERS' EQUITY
On June 26, 2000, the Company announced a 3-for-2 stock split which was in
the form of a 50% common stock dividend payable on July 24, 2000 to
shareholders of record on July 10, 2000. All references to the number of
weighted-average common shares outstanding and earnings per share have been
restated to reflect the 3-for-2 stock split.
In December 1992, the Board of Directors approved the adoption of a
nonqualified stock option plan, known as the "1993 Non-Qualified Stock
Option Plan," hereinafter referred to as the "1993 Plan." The Board of
Directors or Plan Committee is responsible for the granting and pricing of
these options. Such price shall be equal to the fair market value of the
common stock subject to such option at the time of grant. The options
expire five years from the date of grant and are exercisable over the
period stated in each option. In December 1997, the shareholders of the
Company approved an increase in the amount of shares reserved for the 1993
plan to 900,000 from 440,000, of which 577,500 are outstanding at June 30,
2002.
In October 1993, the Board of Directors approved the adoption of a stock
option plan for outside directors, known as the "1993 Stock Option Plan for
Outside Directors," hereinafter referred to as the "Outside Directors
Plan." Each outside director who was serving as of December 31, 1993 was
granted a nonqualified stock option to purchase 22,000 shares of the
Company's common stock at the fair market value on the date of grant. Each
outside director who was serving on December 31 of each calendar year
subsequent to 1993 was granted options to purchase 4,399 shares of the
Company's common stock annually. The Outside Directors Plan expired on
January 1, 1998, with a total of 8,798 options outstanding at June 30,
2002. Granted options shall expire upon the earlier of five years after the
date of grant or one year following the date on which the outside director
ceases to serve in such capacity.
In June 1997, the Company appointed an additional outside director to the
Board of Directors who received 15,000 options to purchase the Company's
common stock at the fair market value on the date of grant. In September
1998, two outside directors were each granted 11,250 options to purchase
the Company's common stock at the fair market value on the date of grant.
These 37,500 options, of which 22,500 are outstanding at June 30, 2002,
were not granted pursuant to any of the Company's existing stock option
plans.
F-24
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE J - SHAREHOLDERS' EQUITY (continued)
In October 2000, the Board of Directors approved the adoption of the "2000
Stock Option Plan," hereinafter referred to as the "2000 Plan." The 2000
Plan provides for the grant of incentive stock options ("ISOs") and
nonqualified stock options ("NQSOs") to employees, officers, directors,
consultants and advisers of the Company. The Board of Directors or Plan
Committee is responsible for the granting and pricing of these options.
Such price shall be equal to the fair market value of the common stock
subject to such option at the time of grant. In the case of ISOs granted to
shareholders owning more than 10% of the Company's voting securities, the
exercise price shall be no less than 110% of the fair market value of the
Company's common stock on the date of grant. All options shall expire ten
years from the date of grant of such option (five years in the case of an
ISO granted to a 10% shareholder) or on such earlier date as may be
prescribed by the Committee and set forth in the option agreement, and are
exercisable over the period stated in each option. The 2000 Plan reserves
600,000 shares of the Company's common stock, of which 235,750 are
outstanding at June 30, 2002.
Outstanding options granted to employees, directors and officers for the
last three fiscal years are summarized as follows:
Nonqualified Weighted-
stock options average
-------------------------------- exercise
Price range Shares price
----------- ------ -----
Outstanding at June 30, 1999 $1.79 - $8.50 727,943 $3.79
--------
Granted $2.50 - $13.71 258,000 4.70
Exercised $1.79 - $8.50 (153,723) 5.67
Expired $2.50 - $4.67 (41,800) 3.44
---------
Outstanding at June 30, 2000 $1.79 - $13.71 790,420 3.74
--------
Granted $6.01 - $8.00 238,250 7.91
Exercised $2.50 - $8.50 (63,500) 6.88
---------
Outstanding at June 30, 2001 $1.79 - $13.71 965,170 4.56
-------
Exercised $2.50 - $4.67 (109,973) 4.47
Expired $8.00 - $13.71 (10,649) 9.05
---------
Outstanding at June 30, 2002 $1.79 - $13.71 844,548 4.52
========
Amounts exercisable at June 30, 2002 $1.79 - $13.71 844,548 4.52
========
F-25
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE J - SHAREHOLDERS' EQUITY (continued)
The following table summarizes information concerning currently outstanding
and exercisable nonqualified stock options:
Options outstanding Options exercisable
-------------------------------------- --------------------------------------
Weighted- Weighted-
average Weighted- average Weighted-
remaining average remaining average
Number contractual exercise Number contractual exercise
Range of exercise prices outstanding life (months) price exercisable life (months) price
------------------------ ----------- --------------- ---------- ----------- --------------- ---------
$1.79 - $4.67 567,548 21 $ 2.44 567,548 21 $ 2.44
$6.01 - $8.00 235,750 101 $ 7.91 235,750 101 $ 7.91
$13.71 41,250 35 $13.71 41,250 35 $13.71
The weighted-average option fair value on the grant date was $4.82 and
$4.97 for options issued during the years ended June 30, 2001 and 2000,
respectively. There were no options issued during the year ended June 30,
2002.
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation"; it applies APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for the 2000 Plan
and does not recognize compensation expense for such 2000 Plan. If the
Company had elected to recognize compensation expense based upon the fair
value at the grant dates for awards under the 2000 Plan consistent with the
methodology prescribed by SFAS No. 123, the Company's reported net earnings
(loss) and earnings (loss) per share would be reduced (increased) to the
pro forma amounts indicated below for the years ended June 30:
2002 2001 2000
------------- -------------- --------
Net (loss) earnings
As reported $(5,043,971) $9,850,397 $6,375,954
Pro forma (5,568,933) 8,732,958 6,098,272
Net (loss) earnings per common share - basic
As reported $(0.88) $1.74 $1.16
Pro forma (0.97) 1.54 1.11
Net (loss) earnings per common share - diluted
As reported $(0.88) $1.59 $1.11
Pro forma (0.97) 1.41 1.06
F-26
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE J - SHAREHOLDERS' EQUITY (continued)
These pro forma amounts may not be representative of future disclosures
because they do not take into account pro forma compensation expense
related to grants made before fiscal 1996. The fair value of these options
was estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions for the fiscal years
ended June 30, 2001 and 2000, respectively: expected volatility of 93% and
109%; risk-free interest rates of 5.33% and 6.25%; and expected term of 3
years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the use of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective assumptions can materially
affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
The Board of Directors of the Company had authorized the purchase of up to
375,000 shares of its common stock under a stock repurchase program. In
fiscal 1998, the Board of Directors authorized the repurchase of up to an
additional 600,000 shares of the Company's common stock. The purchases were
made by the Company from time to time on the open market at the Company's
discretion and were dependent on market conditions. The Company had made
purchases of 618,300 shares of its common stock from July 31, 1996 through
September 13, 2000 for aggregate consideration of $2,204,515. On September
14, 2000, the Board of Directors passed a resolution to terminate the stock
repurchase program.
On September 18, 2001, the Company announced that its Board of Directors
authorized the repurchase of up to 250,000 shares of its outstanding common
stock. Purchases may be made from time to time in market or private
transactions at prevailing market prices. No purchases were made in fiscal
2002.
In June 1997, the Company's Board of Directors approved the adoption of a
restricted stock plan, which was subsequently ratified by shareholders
during the Company's December 1997 annual meeting. The plan enables the
Board of Directors or Plan Committee to have sole discretion and authority
to determine who may purchase restricted stock, the number of shares, the
price to be paid and the restrictions placed upon the stock. Pursuant to
this plan, the Company issued 135,000 shares of common stock to certain
employees at a purchase price of $.67 per share. Shares purchased are
subject to a four-year vesting period and the Company recognized $135,000
of compensation expense during fiscal 2001 and 2000 in connection with this
plan.
F-27
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE K - COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) and its components for the years ended June 30,
2002, 2001 and 2000 are as follows:
2002 2001 2000
------------- ------------- -----------
Net (loss) earnings $(5,043,971) $9,850,397 $6,375,954
Unrealized loss on marketable
securities (136,063) (166,240) (74,076)
Deferred tax benefit 50,402 60,678 27,038
----------- ----------- -----------
Comprehensive (loss) income $(5,129,632) $9,744,835 $6,328,916
========== ========= =========
Accumulated other comprehensive income (loss) is comprised of unrealized gains
and losses on marketable securities, net of the related tax effect.
NOTE L - ACQUISITIONS
On June 6, 2000, the Company acquired all of the issued and outstanding
shares of common stock, no par value, of Interface Electronics Corp.
("Interface"), a distributor of electronic parts, components and equipment,
located in Massachusetts. The purchase price was $15,400,000 payable in
cash at closing, plus the assumption of certain liabilities and a deferred
payment of $5,002,860, of which $2,099,563 is outstanding at June 30, 2002.
The acquisition has been accounted for as a purchase and the operations of
Interface have been included in the Company's statement of operations since
the date of acquisition. Included in other assets are the costs of the
identifiable intangible assets acquired, principally an employment
agreement which is being amortized on a straight-line basis over five years
and a franchise agreement which was
F-28
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE L - ACQUISITIONS (continued)
being amortized on a straight-line basis over fifteen years until the
Company's adoption of SFAS No. 142. The excess of the purchase price and
related expenses over the net tangible and identifiable intangible assets
acquired amounted to approximately $19,703,000 at June 30, 2002 and was
being amortized on a straight-line basis over twenty years until the
Company's adoption of SFAS No. 142. A summary of the allocation of the
assets and liabilities acquired follows:
Operating assets acquired $ 13,157,365
Employment agreement 685,000
Franchise agreement 550,000
-------
14,392,365
Liabilities assumed (13,464,389)
Transaction costs (228,241)
--------
(13,692,630)
-----------
Goodwill 19,703,125
-----------
Total purchase price $ 20,402,860
===========
On February 25, 2000, the Company purchased the operating assets of PGI,
Industries, Inc., ("PGI") an exporter of electronic components, located in
Ronkonkoma, New York. The purchase price was $1,200,000 paid in cash, plus
a deferred payment of $100,000, which has been paid. The acquisition has
been accounted for as a purchase and the operations of PGI have been
included in the Company's statement of operations since the date of
acquisition. The excess of the purchase price over the fair value of the
assets acquired, approximately $310,000 at June 30, 2002, was being
amortized on a straight-line basis over twenty years until the Company's
adoption of SFAS No. 142.
F-29
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE M - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION
The Company has two reportable segments: electronics parts distribution and
contract manufacturing. The Company's primary business activity is
conducted with small and medium size manufacturers, located in North
America, that produce electronic equipment used in a variety of industries.
Information pertaining to the Company's operations in different geographic
areas for fiscal years 2002, 2001 and 2000, is not considered material to
the financial statements.
The Company's chief operating decision maker utilizes net sales and net
earnings (loss) information in assessing performance and making overall
operating decisions and resource allocations. The accounting policies of
the operating segments are the same as those described in the summary of
significant accounting policies. The Company accounts for intersegment
sales as if the sales were to third parties, that is, at current market
prices. Information about the Company's segments is as follows:
Year ended June 30,
-------------------------------------------------------
2002 2001 2000
--------- --------- -------
----------------------(in thousands)--------------------
Net sales from external customers
Electronics components distribution $175,949 $321,124 $193,111
Contract manufacturing 18,157 29,098 16,214
--------- --------- ---------
$194,106 $350,222 $209,325
======= ======= =======
Intersegment net sales
Electronics components distribution $ 268 $ 992 $ 324
Contract manufacturing 10
--------- ---------- -----------
$ 278 $ 992 $ 324
========= ========== ==========
Operating (loss) profit
Electronics components distribution $ (5,380) $ 19,167 $ 12,012
Contract manufacturing (209) 1,575 348
--------- --------- ----------
$ (5,589) $ 20,742 $ 12,360
======== ======== ========
F-30
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE M - BUSINESS SEGMENTS AND GEOGRAPHIC INFORMATION (continued)
Year ended June 30,
-------------------------------------------------------
2002 2001 2000
--------- --------- -------
----------------------(in thousands)--------------------
Interest expense
Electronics components distribution $ 1,683 $ 3,457 $ 1,053
Contract manufacturing 540 662 506
---------- ---------- ----------
$ 2,223 $ 4,119 $ 1,559
========= ========= =========
Income tax (benefit) provision
Electronics components distribution $ (2,503) $ 6,400 $ 4,489
Contract manufacturing (265) 372 (64)
---------- ---------- ----------
$ (2,768) $ 6,772 $ 4,425
========= ========= =========
Identifiable assets
Electronics components distribution $ 97,412 $117,069 $115,109
Contract manufacturing 13,223 19,246 10,995
--------- -------- --------
$110,635 $136,315 $126,104
======= ======= =======
Capital expenditures
Electronics components distribution $ 174 $ 1,238 $ 612
Contract manufacturing 31 759 280
---------- ---------- ---------
$ 205 $ 1,997 $ 892
========= ========= =========
Depreciation and amortization
Electronics components distribution $ 1,439 $ 2,297 $ 1,209
Contract manufacturing 893 926 659
---------- ---------- ----------
$ 2,332 $ 3,223 $ 1,868
========= ========= =========
F-31
Jaco Electronics, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
June 30, 2002, 2001 and 2000
NOTE N - SUPPLEMENTAL SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter ended
-------------
June 30, March 31, December 31, September 30, June 30,
2002 2002 2001 2001 2001
----------- ----------- ----------- ----------- -----------
Net sales $52,972,961 $49,297,412 $42,405,312 $49,430,523 $72,146,768
Gross profit 6,159,286 7,196,967 6,601,562 8,015,501 10,777,533
Net (loss) earnings (1,545,878) (674,550) (1,320,995) (1,502,548) (437,625)
Net (loss) earnings per common share
Basic $(0.27) $(0.12) $(0.23) $(0.26) $(0.08)
Diluted (0.27) (0.12) (0.23) (0.26) (0.08)
Quarter ended
-------------
March 31, December 31, September 30,
2001 2000 2000
----------- ----------- -----------
Net sales $83,680,954 $100,235,652 $94,158,828
Gross profit 15,367,532 20,077,191 20,617,658
Net (loss) earnings 1,585,493 4,044,662 4,657,867
Net (loss) earnings per common share
Basic $0.28 $0.72 $0.83
Diluted 0.26 0.65 0.75
F-32
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS ON SCHEDULE
Board of Directors and Shareholders
Jaco Electronics, Inc.
In connection with our audits of the consolidated financial statements of Jaco
Electronics, Inc. and Subsidiaries for the years ended June 30, 2002 and 2001
referred to in our report dated September 19, 2002, 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, 2002. 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
September 19, 2002
F-33
Jaco Electronics, Inc. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 2002, 2001 and 2000
Column A Column B Column C Column D Column E
-------- -------- ---------------------------- -------- --------
Additions
----------------------------
(1) (2)
Charged to
Balance at Charged to other Balance
beginning costs and accounts - Deductions - at end of
Description of period expenses describe describe period
----------- ----------- ---------- ------------ ----------- --------
Allowance for doubtful accounts
Year ended June 30, 2002 $1,695,000 $ 418,000 $ 79,000 (a) $ 583,000 (b) $ 1,609,000
========= ========== ======== ========== ==========
Year ended June 30, 2001 $1,111,000 $1,398,000 $ 25,000 (a) $ 839,000 (b) $1,695,000
========= ========= ======== ========== =========
Year ended June 30, 2000 $ 440,000 $ 598,000 $178,000 (a)(c) $ 105,000 (b) $1,111,000
========== ========== ======= ========== =========
Reserve for slow-moving and
obsolete inventory
Year ended June 30, 2002 $2,291,000 $2,098,000 $1,298,000 (d) $ 3,091,000
========= ========= ========= ==========
Year ended June 30, 2001 $2,406,000 $ 865,000 $ 980,000 (d) $2,291,000
========= ========== ========== =========
Year ended June 30, 2000 $1,526,000 $1,266,000 $ 386,000 (d) $2,406,000
========= ========= ========== =========
(a) Recoveries of accounts.
(b) Represents write-offs of uncollectible accounts.
(c) Includes balance attributable to acquired subsidiary.
(d) Disposal and sale of slow-moving and obsolete inventory.
F-34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JACO ELECTRONICS, INC.
By:/s/ Joel H Girsky
----------------------------
Joel H. Girsky, Chairman of the
Board, President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
Chairman of the Board, September 27, 2002
/s/ Joel H. Girsky President and Treasurer
----------------- (Principal Executive Officer)
Joel H. Girsky
Executive Vice President- September 27, 2002
/s/ Jeffrey D. Gash Finance and Secretary
--------------- (Prinicpal Financial and
Jeffrey D. Gash Accounting Officer)
Vice Chairman of the Board September 27, 2002
/s/ Joseph F. Oliveri and Executive Vice President
-----------------
Joseph F. Oliveri
Executive Vice President and September 27, 2002
/s/ Charles B. Girsky Director
---------------------
Charles B. Girsky
/s/ Stephen A. Cohen Director September 27, 2002
-------------------
Stephen A. Cohen
/s/ Edward M. Frankel Director September 27, 2002
--------------------
Edward M. Frankel
/s/ Joseph F. Hickey, Jr. Director September 27, 2002
--------------------
Joseph F. Hickey, Jr
CERTIFICATION
I, Joel H. Girsky, certify that:
1. I have reviewed this annual report on Form 10-K of Jaco Electronics, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
Date: September 27, 2002
/s/ Joel H. Girsky
---------------------------------
Chairman, President and Treasurer
(Principal Executive Officer)
CERTIFICATION
I, Jeffrey D. Gash, certify that:
1. I have reviewed this annual report on Form 10-K of Jaco Electronics, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report.
Date: September 27, 2002
/s/ Jeffrey D. Gash
----------------------------------------------
Executive Vice President, Finance and Secretary
(Principal Financial Officer)