<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ------------------------
Commission File Number 0-5896
JACO ELECTRONICS, INC.
----------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-1978958
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
145 OSER AVENUE, HAUPPAUGE, NEW YORK 11788
--------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (516) 273-5500
Indicated by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Number of Shares of Registrant's Common Stock Outstanding as of May 7, 1997 -
3,888,221
- ---------
(Excluding 87,500 Shares of Treasury Stock)
<PAGE> 2
FORM 10-Q March 31, 1997
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JACO ELECTRONICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 355,297 $ 164,161
Marketable securities 552,848 493,281
Accounts receivable - net 23,848,505 22,217,130
Inventories 32,437,371 30,089,508
Prepaid expenses and other 1,496,530 739,530
Prepaid income taxes 390,782
Deferred income taxes 788,000 708,000
----------- -----------
Total current assets 59,869,333 54,411,610
Property, plant and equipment - net 4,824,301 4,226,617
Deferred income taxes 226,000 189,000
Excess of cost over net assets acquired 4,169,390 1,241,533
Other assets 1,618,309 1,073,969
----------- -----------
$70,707,333 $61,142,729
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 3
FORM 10-Q March 31, 1997
Page 3
JACO ELECTRONICS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
LIABILITIES & SHAREHOLDERS' EQUITY: 1997 1996
------------ -----------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 17,863,325 $16,589,852
Current maturities of long term debt and
capitalized lease obligations 566,721 474,082
Income taxes payable 383,970
------------ -----------
Total current liabilities 18,430,046 17,447,904
Long term debt and capitalized lease obligations 16,086,905 8,791,270
Deferred compensation 637,500 600,000
SHAREHOLDERS' EQUITY:
Preferred stock - authorized, 100,000 shares,
$10 par value; none issued
Common stock - authorized 10,000,000 shares,
$.10 par value; issued 3,975,721 and 3,955,721
shares, respectively, and 3,888,221 and
3,955,721 outstanding, respectively 397,572 395,572
Additional paid-in capital 22,180,295 22,024,795
Unrealized gain on marketable securities 103,812 68,245
Retained earnings 13,571,203 11,814,943
Treasury stock (700,000)
------------ -----------
Total shareholders' equity 35,552,882 34,303,555
------------ -----------
$ 70,707,333 $61,142,729
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
FORM 10-Q March 31, 1997
Page 4
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET SALES $38,661,610 $43,176,834
----------- -----------
COST AND EXPENSES:
Cost of goods sold 30,798,265 34,543,777
----------- -----------
Gross profit 7,863,345 8,633,057
Selling, general and administrative expenses 7,012,577 6,523,812
----------- -----------
Operating profit 850,768 2,109,245
Interest expense 266,430 222,505
----------- -----------
Earnings before income taxes 584,338 1,886,740
Income tax provision 237,000 774,000
----------- -----------
NET EARNINGS $ 347,338 $ 1,112,740
=========== ===========
Net earnings per common share $ .09 $ .28
=========== ===========
Weighted average common shares and common
equivalent shares outstanding 3,937,253 4,025,060
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
FORM 10-Q March 31, 1997
Page 5
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NET SALES $115,178,339 $126,850,196
------------ ------------
COST AND EXPENSES:
Cost of goods sold 91,187,699 100,854,729
------------ ------------
Gross profit 23,990,640 25,995,467
Selling, general and administrative expenses 20,366,027 19,750,214
------------ ------------
Operating profit 3,624,613 6,245,253
Interest expense 672,353 1,157,655
------------ ------------
Earnings before income taxes 2,952,260 5,087,598
Income tax provision 1,196,000 2,087,000
------------ ------------
NET EARNINGS $ 1,756,260 $ 3,000,598
============ ============
Net earnings per common share $ .45 $ .88
============ ============
Weighted average common shares and common
equivalent shares outstanding 3,937,384 3,399,293
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
FORM 10-Q March 31, 1997
Page 6
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Gain on Total
------------ Paid-In Marketable Retained Treasury Shareholders'
Shares Amount Capital Securities Earnings Stock Equity
------ ------ ------- ---------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1996 3,955,721 $395,572 $22,024,795 $ 68,245 $11,814,943 $34,303,555
Issuance of common stock in
connection with acquisition 20,000 2,000 155,500 157,500
Unrealized gain on marketable
securities 35,567 35,567
Purchase of treasury stock $(700,000) (700,000)
Net earnings 1,756,260 1,756,260
--------- -------- ----------- -------- ----------- --------- -----------
Balance at March 31, 1997 3,975,721 $397,572 $22,180,295 $103,812 $13,571,203 $(700,000) $35,552,882
========= ======== =========== ======== =========== ========= ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
FORM 10-Q March 31, 1997
Page 7
JACO ELECTRONICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 1,756,260 $ 3,000,598
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
Depreciation and amortization 571,052 505,740
Deferred compensation 37,500 37,500
Deferred income tax provision (141,000) (181,000)
Amortization of intangible assets 166,846 53,623
(Gain) loss on sale of equipment (10,094) 8,918
Provision for doubtful accounts 220,206 514,640
Changes in operating assets and liabilities, net
of effect of acquisitions
Increase in operating assets - net (1,847,191) (5,861,674)
Decrease in operating liabilities - net (574,142) (2,561,994)
------------- -------------
Net cash provided by (used in) operating activities 179,437 (4,483,649)
------------- -------------
Cash flows from investing activities
Capital expenditures (682,586) (487,575)
Proceeds from sales of equipment 36,683 17,037
Business acquisitions - net (4,694,519)
Decrease in due from officers - net 309,808
Increase in other assets (218,449) (12,015)
------------- -------------
Net cash used in investing activities (5,558,871) (172,745)
------------- -------------
Cash flows from financing activities
Proceeds from public offering - net 17,139,966
Borrowings under line of credit 118,419,608 128,785,498
Payments under line of credit (111,773,984) (132,901,107)
Principal payments under equipment financing
and term loans (375,054) (8,347,882)
Purchase of treasury stock (700,000)
Proceeds from exercise of stock options 20,300
Payments for fractional shares (1,268)
------------- -------------
Net cash provided by financing activities 5,570,570 4,695,507
------------- -------------
NET INCREASE IN CASH 191,136 39,113
------------- -------------
Cash at beginning of period 164,161 393,671
------------- -------------
Cash at end of period $ 355,297 $ 432,784
============= =============
Supplemental schedule of noncash financing and
investing activities:
Equipment under capital leases $ 355,824
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE> 8
FORM 10-Q March 31, 1997
Page 8
JACO ELECTRONICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
1) The accompanying condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring accrual adjustments,
which are in the opinion of management, necessary for a fair
presentation of the consolidated financial position and the results of
operations at and for the periods presented. Such financial statements
do not include all the information or footnotes necessary for a complete
presentation. Therefore, they should be read in conjunction with the
Company's audited consolidated statements for the year ended June 30,
1996 and the notes thereto included in the Company's annual report on
Form 10-K. The results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
2) On October 20, 1995, the Company completed a public offering of
1,600,000 shares of its common stock at $12.75 per share. The offering
consisted of 1,325,000 shares offered by the Company and 275,000 shares
offered by certain officers and directors of the Company. On December 8,
1995, the underwriters of the public offering exercised a portion of
their over-allotment option for an additional 160,000 shares at a price
per share equal to that of the public offering. The Company's net
proceeds from the public offering of $17,139,966, as adjusted, after
deducting the underwriters commission and costs of the public offering,
were used to reduce its bank indebtedness. In connection with the public
offering the Company also issued stock warrants, to the representative
underwriters, to purchase up to 70,000 shares of common stock at an
exercise price per share equal to 180% of the public offering price
which expire on October 20, 1999.
3) In April 1996, the Company announced that its Board of Directors
authorized the purchase of up to 250,000 shares of its outstanding
common stock under a stock repurchase program. The purchases may be made
by the Company from time to time in the open market at the Company's
discretion. Through March 31, 1997, the Company purchased 87,500 shares
of its common stock for aggregate consideration of $700,000.
4) For interim financial reporting purposes, the Company uses the gross
profit method in computing inventories which consists of goods held for
resale.
5) Earnings per share has been computed based on weighted average number of
shares outstanding, including approximately 49,000 and 51,000 common
stock equivalents for the three and nine months ended March 31, 1997
respectively, and approximately 70,000 and 75,000 common stock
equivalents for the three and nine months ended March 31, 1996,
respectively.
6) During August 1996, and January 1997, the Company purchased QPS
Electronics, Inc. and Corona Electronics, Inc. respectively, both of
which are electronic component distributors. Aggregate consideration
paid for the acquisitions approximated $4.9 million of which $157,500
was paid through the issuance of 20,000 shares of the Company's common
stock. These acquisitions have been accounted for by the purchase method
and, as such, the fair value of the assets and liabilities acquired have
been recorded on the date of the respective acquisitions. The respective
results of their operations are included with those of the Company's
from the date of acquisition. The excess of the purchase price, as
adjusted is being amortized using the straight line method over a period
of 20 years. Pro forma historical results of operations are not
presented as such results, would not be materially different from the
historical results of the Company.
<PAGE> 9
FORM 10-Q March 31, 1997
Page 9
JACO ELECTRONICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this filing, and elsewhere, which look forward in time involve
risks and uncertainties which may effect the actual results of operations. The
following important factors, among others, have affected and, in the future,
could affect the Company's actual results: dependence on a limited number of
suppliers for products which generate a significant portion of the Company's
sales, the effect upon the Company of increases in tariffs or duties, changes in
trade treaties, strikes or delays in air or sea transportation and possible
future United States legislation with respect to pricing and/or import quotas on
products imported from foreign countries, and general economic downturns in the
electronic distribution industry which may have adverse economic effect upon
manufacturers, end users of electronic components and electronic component
distributors.
GENERAL
Jaco is a distributor of electronic components and provider of contract
manufacturing and value-added services. Products distributed by Jaco include
semiconductors, capacitors, resistors and electromechanical devices and motors
used in the assembly and manufacturing of electronic equipment.
The Company's customers are primarily small and medium sized manufacturers. The
trend for these customers has been to shift certain manufacturing functions to
third parties (outsourcing). The Company intends to seek to capitalize on this
trend toward outsourcing by increasing sales of products enhanced by value-added
services. Value-added services currently provided by Jaco consist of configuring
complete computer systems to customer specifications both in tower and desktop
configurations, kitting (e.g. supplying sets of specified quantities of products
to a customer that are prepackaged for ease of feeding the customer's production
lines), and contract manufacturing services through the Company's wholly-owned
subsidiary, Nexus Custom Electronics, Inc.
<PAGE> 10
FORM 10-Q March 31, 1997
Page 10
Results of Operations
The following table sets forth certain items in the Company's statement of
earnings as a percentage of net sales for the periods shown;
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of goods sold 79.7 80.0 79.2 79.5
---- ---- ---- ----
Gross profit 20.3 20.0 20.8 20.5
Selling, general and
administrative expenses 18.1 15.1 17.7 15.6
---- ---- ---- ----
Operating profit 2.2 4.9 3.1 4.9
Interest expense .7 .5 .6 .9
---- ---- ---- ----
Earnings before income taxes 1.5 4.4 2.5 4.0
Income tax provision .6 1.8 1.0 1.6
---- ---- ---- ----
NET EARNINGS .9% 2.6% 1.5% 2.4%
==== ==== ==== ====
</TABLE>
Comparison of the three and nine months ended March 31, 1997 and March 31, 1996
Net sales for the three and nine months ended March 31, 1997 were $38.7 million
and $115.2 million as compared to $43.2 million and $126.9 million for the three
and nine months ended March 31, 1996. This represented a 10.5% and 9.2%
decrease in net sales, respectively. The Company believes that the decrease in
net sales as compared to the previous quarter is primarily the result of an
overall industry weakness as it relates to component pricing. The Company is
selling a greater number of components than last year, but has not been able
to offset the price reductions that have taken place. The Company believes it
is positioned for growth as a result of two strategic acquisitions
that incurred during the current fiscal year, including Corona Electronics,
Inc. ("Corona"), a component distributor located in Southern California,
acquired January, 1997 (see note A-6).
<PAGE> 11
FORM 10-Q March 31, 1997
Page 11
Gross profit margins increased slightly for the three and nine months ended
March 31, 1997 as compared to the same periods last year. Though unit pricing
has continued to decline, sales of passive components, which historically have
maintained a slightly higher gross profit margin as compared to active
components, have increased during the three months ended March 31, 1997 and now
represents 50% of component revenues for the current fiscal year.
Selling, general and administrative expenses ("SG&A") were $7.0 million and
$20.4 million for the three and nine months ended March 31, 1997 compared to
$6.5 million and $19.8 million for the comparable prior periods. The Company
continues to monitor costs. The increase in SG&A during the quarter, was
primarily the result of a one-time charge, net of insurance recovery, to
settle an action and the expenses relating to the operations of Corona.
Interest expense increased to $266,000 for the three months ended March 31, 1997
compared to $223,000 for the same period last year. This increase was primarily
attributable to the additional borrowings required due to the acquisition of
Corona (see note A-6) and the increase during the quarter in inventory. When
comparing the nine months ended March 31, 1997 compared to the same period last
year, interest expense decreased as a result of the reduction of indebtedness
under the Company's credit facility by application of the net proceeds of
$17,140,000 from the Company's public offering completed in October, 1995.
Net earnings for the three and nine months ended March 31, 1997 were $347,000
and $1,756,000 or $.09 and $.45 per share, respectively, as compared to
$1,113,000 and $3,001,000, or $.28 and $.88 per share, respectively, for the
comparable periods during the last fiscal year. The decrease in net earnings was
primarily attributable to the decrease in net sales. The one-time charge, net of
insurance recovery and income taxes, incurred during the quarter, to settle an
action resulted in a decrease in net earnings of $201,000 or $.05 per share. The
Company believes it is necessary to maintain current cost levels to continue to
develop new customers and to provide the value-added services that customers
require.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a total credit facility of $30,000,000, $1,500,000 (the
outstanding balance as of March 31, 1997 was approximately $857,000) is
structured as a term loan, payable in equal monthly installments of $17,857 and
the balance of which is structured as a revolving line of credit. The credit
facility carries a borrowing rate equal to the higher of the prime rate or the
federal funds rate +1/2% or, at the Company's option, LIBOR plus 2.0% for fixed
periods of time. The Company must comply with various financial covenants, all
of which the Company believes itself to be in compliance. As of March 31, 1997,
the Company had outstanding borrowings of $15.4 million, with additional
borrowing capacity of $14.6 million available under the revolving line of
credit.
Working capital was $41.4 million as of March 31, 1997, as compared to $37.0
million as of June 30, 1996, an increase of $4.4 million or approximately 12%.
The increase was primarily attributable to a net increase in current assets from
the acquisition of Corona during January, 1997.
<PAGE> 12
FORM 10-Q March 31, 1997
Page 12
In April 1996, the Company's Board of Directors authorized the purchase of up to
250,000 shares of its common stock under a stock repurchase program. As of May
9, 1997 the Company has repurchased 87,500 shares at an average market price of
$8.00 per share.
For the nine months ended March 31, 1997, the Company's net cash provided by
operating activities was approximately $.2 million as compared to net cash used
in operating activities of approximately $4.5 million for the nine months ended
March 31, 1996, an increase of $4.7 million. The increase is primarily
attributable to accounts receivable and inventory increasing by $1.1
million (net of assets acquired from business acquisitions) for the nine months
ended March 31, 1997, as compared to a $6.3 million increase in these assets for
the nine months ended March 31, 1996. In addition, current liabilities increased
by $1.0 million for the nine months ended March 31, 1997, as compared to a
reduction in current liabilities of $2.5 million for the nine months ended March
31, 1996. Net cash used in investing activities increased to $5.6 million for
the nine months ended March 31, 1997, as compared to $.2 million for the nine
months ended March 31, 1996 an increase of $5.4 million. The two acquisitions
completed during fiscal 1997 required approximately $4.7 million which were
financed through the Company's line of credit. Net cash provided by financing
activities increased $.9 million to $5.6 million for the nine months ended
March 31, 1997 when compared to $4.7 million for the nine months ended March
31, 1996. Fiscal 1996 reflects the proceeds of the Company's public offering,
which reduced cash provided by financing activities, by application of such
proceeds against the Company's bank borrowings. The Company's cash expenditures
may vary significantly from current levels, based on a number of factors,
including but not limited to, future acquisitions, if any.
In connection with the January 1997 acquisition of Corona, the
Company increased its borrowings under its existing revolving line of credit by
approximately $4.2 million. Additionally, the Company increased its borrowings
by approximately $2.0 million to finance an increase in inventory.
The Company believes that cash flow from operations and funds available under
its credit facility will be sufficient to fund the Company's capital needs for
at least the next twelve months.
INFLATION
Inflation has not had a significant impact on the Company's operations during
the last three fiscal years.
<PAGE> 13
FORM 10-Q March 31, 1997
Page 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Nothing to Report
Item 2. Changes in Securities
Nothing to Report
Item 3. Defaults Upon Senior Securities
Nothing to Report
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to Report
Item 5. Other Information
Nothing to Report
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
27. Financial Data Schedule
b) Reports on Form 8-K: None
<PAGE> 14
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JACO ELECTRONICS, INC.
(Registrant)
BY: /s/ Jeffrey D. Gash
--------------------------------------------
Jeffrey D. Gash, Vice President/Finance
(Principal Financial Officer)
DATED: May 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 355,297
<SECURITIES> 552,848
<RECEIVABLES> 24,837,063
<ALLOWANCES> 988,558
<INVENTORY> 32,437,371
<CURRENT-ASSETS> 59,869,333
<PP&E> 6,957,677
<DEPRECIATION> 2,133,376
<TOTAL-ASSETS> 70,707,333
<CURRENT-LIABILITIES> 18,430,046
<BONDS> 16,724,405
0
0
<COMMON> 397,572
<OTHER-SE> 35,155,310
<TOTAL-LIABILITY-AND-EQUITY> 70,707,333
<SALES> 115,178,339
<TOTAL-REVENUES> 115,178,339
<CGS> 91,187,699
<TOTAL-COSTS> 91,187,699
<OTHER-EXPENSES> 20,366,027
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 672,353
<INCOME-PRETAX> 2,952,260
<INCOME-TAX> 1,196,000
<INCOME-CONTINUING> 1,756,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,756,260
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
