================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
--or--
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2001
Commission File Number: 0-16207
ALL AMERICAN SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2814714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16115 Northwest 52nd Avenue, Miami, Florida 33014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 621-8282
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. x Yes No
--- ---
As of November 9, 2001, 4,040,150 shares (including 32,141 shares held by a
wholly-owned subsidiary of the Registrant) of the common stock of All American
Semiconductor, Inc. were outstanding.
================================================================================
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
FORM 10-Q - INDEX
Part Item Page
No. No. Description No.
-----------------------------------------------------------------------------------------------------
I FINANCIAL INFORMATION:
1. Financial Statements
Consolidated Condensed Balance Sheets at September 30, 2001
(Unaudited) and December 31, 2000................................................ 1
Consolidated Condensed Statements of Operations for the Quarters
and Nine Months Ended September 30, 2001 and 2000 (Unaudited).................... 2
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 2001 and 2000 (Unaudited)........................ 3
Notes to Consolidated Condensed Financial Statements (Unaudited)................... 4
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 8
3. Quantitative and Qualitative Disclosures about Market Risk......................... 11
II OTHER INFORMATION:
2. Changes in Securities and Use of Proceeds.......................................... 12
4. Submission of Matters to a Vote of Security Holders................................ 12
6. Exhibits and Reports on Form 8-K................................................... 13
SIGNATURES......................................................................... 13
i
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30 December 31
ASSETS 2001 2000
------------------------------------------------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash .............................................................. $ 625,000 $ 335,000
Accounts receivable, less allowances for doubtful
accounts of $2,497,000 and $3,283,000............................. 59,798,000 91,812,000
Inventories......................................................... 98,427,000 146,444,000
Other current assets, including income tax benefit.................. 12,273,000 3,745,000
--------------- ---------------
Total current assets.............................................. 171,123,000 242,336,000
Property, plant and equipment - net................................... 3,747,000 4,255,000
Deposits and other assets............................................. 3,322,000 2,687,000
Excess of cost over fair value of net assets acquired - net........... 459,000 950,000
--------------- ---------------
$ 178,651,000 $ 250,228,000
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt................................... $ 262,000 $ 240,000
Accounts payable and accrued expenses............................... 64,360,000 81,234,000
Income taxes payable................................................ - 968,000
Other current liabilities........................................... 261,000 304,000
--------------- ---------------
Total current liabilities......................................... 64,883,000 82,746,000
Long-term debt:
Notes payable....................................................... 80,671,000 120,643,000
Subordinated debt................................................... 6,009,000 6,043,000
Other long-term debt................................................ 1,180,000 1,198,000
--------------- ---------------
152,743,000 210,630,000
--------------- ---------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued........................................... -- --
Common stock, $.01 par value, 40,000,000 shares authorized,
4,040,150 and 4,039,620 shares issued and outstanding............. 40,000 40,000
Capital in excess of par value...................................... 26,328,000 26,326,000
Retained earnings................................................... 475,000 14,167,000
Treasury stock, at cost, 183,246 shares............................. (935,000) (935,000)
--------------- ---------------
25,908,000 39,598,000
--------------- ---------------
$ 178,651,000 $ 250,228,000
=============== ===============
See notes to consolidated condensed financial statements
1
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarters Nine Months
PERIODS ENDED SEPTEMBER 30 2001 2000 2001 2000
------------------------------------------------------------------------------------------------------------------
NET SALES.................................. $ 88,767,000 $ 151,758,000 $ 314,746,000 $ 382,463,000
Cost of sales.............................. (70,910,000) (120,080,000) (258,737,000) (303,746,000)
--------------- --------------- --------------- ---------------
Gross profit............................... 17,857,000 31,678,000 56,009,000 78,717,000
Selling, general and
administrative expenses.................. (16,668,000) (21,053,000) (57,467,000) (57,533,000)
Impairment of goodwill..................... -- -- (450,000) --
--------------- --------------- --------------- ---------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS..................... 1,189,000 10,625,000 (1,908,000) 21,184,000
Interest expense........................... (1,860,000) (2,246,000) (6,978,000) (5,666,000)
--------------- --------------- --------------- ---------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES...................... (671,000) 8,379,000 (8,886,000) 15,518,000
Income tax (provision) benefit............. 290,000 (3,603,000) 3,452,000 (6,675,000)
--------------- --------------- --------------- ---------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE
DISCONTINUED OPERATIONS.................. (381,000) 4,776,000 (5,434,000) 8,843,000
Discontinued operations:
Income (loss) from operations (net
of $26,000; $(244,000) and $(43,000)
income tax benefit (provision)) ......... -- (35,000) 323,000 57,000
Loss on disposal (net of $6,474,000
income tax benefit) ..................... -- -- (8,581,000) --
--------------- --------------- --------------- ---------------
NET INCOME (LOSS).......................... $ (381,000) $ 4,741,000 $ (13,692,000) $ 8,900,000
=============== =============== =============== ===============
Basic earnings per share:
Income (loss) from
continuing operations.................... $ (.10) $ 1.24 $ (1.41) $ 2.31
Discontinued operations.................... -- (.01) (2.14) .02
------- ------- ------- -------
Net income (loss) ......................... $ (.10) $ 1.23 $ (3.55) $ 2.33
======= ======= ======= =======
Diluted earnings per share:
Income (loss) from
continuing operations.................... $ (.10) $ 1.11 $ (1.41) $ 2.14
Discontinued operations.................... -- (.01) (2.14) .01
------- ------- ------- -------
Net income (loss).......................... $ (.10) $ 1.10 $ (3.55) $ 2.15
======= ======= ======= =======
See notes to consolidated condensed financial statements
2
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 2001 2000
------------------------------------------------------------------------------------------------------------------
Cash Flows Provided By (Used For) Operating Activities................ $ 32,642,000 $ (36,633,000)
-------------- --------------
Cash Flows From Investing Activities:
Acquisition of property and equipment................................. (342,000) (753,000)
Decrease (increase) in other assets................................... 8,004,000 (42,000)
-------------- --------------
Cash flows provided by (used for) investing activities.......... 7,662,000 (795,000)
-------------- --------------
Cash Flows From Financing Activities:
Net borrowings (repayments) under line of credit agreement............ (39,834,000) 37,430,000
Repayments of notes payable........................................... (182,000) (213,000)
Purchase of treasury shares........................................... -- (28,000)
Net proceeds from issuance of equity securities....................... 2,000 382,000
-------------- --------------
Cash flows provided by (used for) financing activities.......... (40,014,000) 37,571,000
-------------- --------------
Increase in cash...................................................... 290,000 143,000
Cash, beginning of period............................................. 335,000 173,000
-------------- --------------
Cash, end of period................................................... $ 625,000 $ 316,000
============== ==============
Supplemental Cash Flow Information:
Interest paid......................................................... $ 6,898,000 $ 4,453,000
============== ==============
Income taxes paid..................................................... $ 874,000 $ 4,071,000
============== ==============
See notes to consolidated condensed financial statements
3
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited Consolidated Condensed
Financial Statements include all adjustments (consisting of normal recurring
accruals or adjustments only) necessary to present fairly the financial position
at September 30, 2001, and the results of operations and the cash flows for all
periods presented. The results of operations for the interim periods are not
necessarily indicative of the results to be obtained for the entire year.
For a summary of significant accounting policies (which have not changed from
December 31, 2000) and additional financial information, see the Company's
Annual Report on Form 10-K for the year ended December 31, 2000, including the
consolidated financial statements and notes thereto which should be read in
conjunction with these financial statements.
The accompanying unaudited interim financial statements have been prepared in
accordance with instructions to Form 10-Q and, therefore, do not include all
information and footnotes required to be in conformity with accounting
principles generally accepted in the United States of America.
Earnings Per Share
------------------
The following average shares were used for the computation of basic and diluted
earnings per share:
Quarters Nine Months
Periods Ended September 30 2001 2000 2001 2000
-----------------------------------------------------------------------------------------
Basic............................... 3,856,904 3,844,454 3,856,904 3,820,112
Diluted............................. 3,856,904 4,295,192 3,856,904 4,140,648
2. LONG-TERM DEBT
Outstanding borrowings at September 30, 2001 under the Company's line of credit
facility aggregated $80,655,000. The Company's credit facility was amended
subsequent to but effective as of the balance sheet date. As part of the
amendment, the line of credit facility was reduced from $125 million to $100
million to better match the Company's present borrowing requirements. The credit
facility was previously amended to reduce the line of credit from $150 million
to $125 million effective at the end of the second quarter of 2001. These
reductions benefit the Company by decreasing the amount of the fee charged on
the unused portion of the credit facility. In connection with the reductions of
the credit facility, $102,000 and $112,000 of deferred financing fees were
written off to interest expense effective as of September 30 and June 30, 2001,
respectively. As part of these amendments, effective September 30 and June 30,
2001, certain financial covenants were modified. Also effective June 30, 2001,
the interest rate margins on the credit facility were increased to, at the
Company's option, 1.0% for the prime rate portion or 3.25% for the LIBOR
portion, commencing August 14, 2001. Borrowings under this facility are
collateralized by substantially all of the Company's assets.
4
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
3. OPTIONS
During the quarter ended September 30, 2001, no stock options were granted by
the Company pursuant to the Employees', Officers', Directors' Stock Option Plan,
as previously amended and restated (the "Employee Stock Option Plan"). During
the quarter ended September 30, 2001, 9,620 stock options were canceled at
exercise prices ranging from $3.27 to $13.02 per share.
During the quarter ended September 30, 2001, the Company granted an aggregate of
3,000 stock options to three individuals pursuant to the 2000 Nonemployee
Director Stock Option Plan, as amended (the "Director Stock Option Plan"). These
options have an exercise price of $5.35 per share (fair market value at date of
grant), vest over a two-year period and are exercisable over a ten-year period.
At the Company's 2001 annual meeting of shareholders which was held on August
22, 2001 (the "Annual Meeting"), the shareholders of the Company approved an
amendment to the Employee Stock Option Plan increasing the number of shares of
Common Stock reserved for issuance under the Employee Stock Option Plan to
1,100,000 shares. At the Annual Meeting the shareholders of the Company also
approved an amendment to the Director Stock Option Plan to increase the number
of nonqualified stock options to purchase shares of common stock automatically
awarded to each nonemployee director on the date of each annual meeting of the
shareholders of the Company to 1,000 shares.
During the quarter ended June 30, 2001, the Company granted an aggregate of
7,750 stock options to six individuals pursuant to the Employee Stock Option
Plan. These options have an exercise price of $5.64 per share (fair market value
at date of grant), vest over a five-year period and are exercisable over a
six-year period. During the quarter ended June 30, 2001, 109,800 stock options
were canceled at exercise prices ranging from $3.27 to $16.71 per share. The
109,800 stock options canceled include 88,900 options canceled effective June
21, 2001 which had exercise prices ranging from $13.02 to $16.71 per share. In
connection with the cancellation of these 88,900 options, the Company has agreed
with each of the Company's employees electing such cancellation to issue no
earlier than six months but no later than nine months from the date of
cancellation, an equal number of options at the then fair market value of the
Company's common stock.
During the quarter ended June 30, 2001, the Company granted 1,500 stock options
to one individual pursuant to the Director Stock Option Plan. These options have
an exercise price of $7.15 per share (fair market value at date of grant), vest
over a two-year period and are exercisable over a ten-year period.
During the quarter ended March 31, 2001, no stock options were granted by the
Company pursuant to its stock option plans. During the quarter ended March 31,
2001, under the Employee Stock Option Plan a total of 530 stock options were
exercised at exercise prices ranging from $3.27 to $4.49 per share and a total
of 2,000 stock options were canceled at exercise prices ranging from $3.27 to
$13.02 per share.
4. SPECIAL CHARGES
As a result of a slowing economy and a severe widespread industry downturn, in
the second quarter of 2001, the Company was forced to write off certain accounts
receivable aggregating approximately $1.5 million. This write-off is reflected
in "Selling, general and administrative expenses" in the accompanying unaudited
Consolidated Condensed Statements of Operations for the nine months ended
September 30, 2001.
5
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
During 2000, the Company's inventory levels increased substantially to support
higher levels of sales based on customer orders and forecasts. Inventory also
increased during 2000 as a result of the addition of new suppliers and the
anticipated sales growth related thereto. During the fourth quarter of 2000, a
combination of excess product availability, a slowing economy and other factors
created a sudden and significant adverse change in market conditions in our
industry. As a result of this change, the customer base had a significant amount
of excess inventory. In an effort to correct their inventory positions,
customers began rescheduling and canceling their orders and returned significant
amounts of inventory. Accordingly, purchase orders with the Company's supplier
base were delayed or canceled and the Company used its inventory return
privileges wherever possible. These efforts were made in an attempt to achieve
inventory levels which more closely support the Company's reduced backlog from
its customers as well as to improve the Company's product mix. Even after taking
these measures, as industry conditions continued to worsen, the prospect of
customers taking the inventory that was returned or subject to rescheduled
orders became more and more remote. As a result of this and the severe adverse
industry conditions, the Company wrote off inventory aggregating approximately
$6.0 million during the second quarter of 2001. The portion of inventory that
was written off has been scrapped and removed from stock. There can be no
assurance that adverse market conditions will not continue or worsen and that
further corrections may not be necessary in the future.
5. DISCONTINUED OPERATIONS
As a result of an acquisition in 1995, the Company created Aved Display
Technologies ("ADT"), a separate division engaged in the design, development and
manufacture of several proprietary driver board products for flat panel display
applications. In the fourth quarter of 2000, the Company created a division
which operated under the name Integrated Display Technologies ("IDT"). This
division was intended to address customer needs for design, integration and
turnkey support for display solutions and specialized display applications. Due
to the overall weakness in the economy, the negative impact of the broad-based
industry slowdown and other factors, ADT and IDT did not generate cash flows as
anticipated. As a result, management decided to discontinue these divisions. The
Company finalized its plan of disposal during the second quarter of 2001.
Accordingly, these divisions are accounted for as discontinued operations and
the results of operations for all periods shown are segregated in the
accompanying unaudited Consolidated Condensed Statements of Operations. The loss
on disposal of $15,055,000 on a pretax basis includes the estimated costs and
expenses associated with the disposal of $14,943,000 primarily made up of the
write-off of $4,488,000 of inventory and $8,586,000 of accounts receivable. The
inventory that was written off has been scrapped and removed from stock. In
addition, the loss on disposal includes a provision of $112,000 on a pretax
basis for operating losses during the phase-out period, which continued for
approximately two months.
Sales from these divisions, including the related turnkey support business, were
$768,000 for the three months ended September 30, 2000; and were $6,997,000 for
the nine months ended September 30, 2001 and $3,330,000 for the comparable 2000
period. The net assets of discontinued operations, after reflecting certain
non-cash write-offs included in the accompanying unaudited Consolidated
Condensed Balance Sheet at September 30, 2001, are summarized as follows:
Other current assets................................. $ 21,000
Property, plant and equipment - net.................. 18,000
Current liabilities.................................. (8,000)
----------
Net assets........................................... $ 31,000
==========
6
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
6. IMPAIRMENT OF GOODWILL
The Company periodically reviews the value of its excess of cost over the fair
value of net assets acquired to determine if an impairment has occurred. As part
of this review, the Company measures the estimated future operating cash flows
of acquired businesses and compares that with the carrying value of excess of
cost over the fair value of net assets. As a result of its review, a write-down
of approximately $450,000 was recorded as of June 30, 2001.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets", effective for fiscal years beginning
after December 15, 2001. Under the new rules, the pooling of interests method of
accounting is no longer allowed for business combinations and goodwill will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over
their useful lives.
The Company will apply the new rules on accounting for goodwill beginning in the
first quarter of 2002. The Company will perform the first of the required
impairment tests of goodwill as of January 1, 2002 and has not yet determined
what the effect of these tests will be on the earnings and financial position of
the Company. The effect of the nonamortization provisions of the Statements is
not expected to be material.
7
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------
All American Semiconductor, Inc. and its subsidiaries (the "Company") is a
national distributor of electronic components manufactured by others. The
Company distributes a full range of semiconductors (active components),
including transistors, diodes, memory devices, microprocessors, microcontrollers
and other integrated circuits, as well as passive components, such as
capacitors, resistors, inductors and electromechanical products, including
cable, switches, connectors, filters and sockets. These products are sold
primarily to original equipment manufacturers in a diverse and growing range of
industries, including manufacturers of computers and computer-related products;
home office and portable equipment; networking, satellite, wireless and other
communications products; Internet infrastructure equipment and appliances;
automobiles; consumer goods; robotics and industrial equipment; defense and
aerospace equipment; and medical instrumentation. The Company also sells
products to contract electronics manufacturers, or electronics manufacturing
services, or EMS, providers who manufacture products for companies in all
electronics industry segments. Through the Aved Memory Products division of its
subsidiary, Aved Industries, Inc., the Company also designs and has manufactured
under the label of its subsidiary's division, certain memory modules which are
sold to original equipment manufacturers. Prior to the second quarter of 2001,
the Company also designed and had manufactured under the label of Aved Display
Technologies, a division of the Company, certain board-level products including
flat panel display driver boards. As a result of adverse industry conditions and
other factors, management decided to discontinue its Aved Display Technologies
division during the second quarter of 2001. See Note 5 to Notes to Consolidated
Condensed Financial Statements (Unaudited).
Results of Operations
---------------------
Net sales from continuing operations for the quarter and nine months ended
September 30, 2001 were $88.8 million and $314.7 million, respectively,
representing a 41.5% and 17.7% decrease over record sales from continuing
operations of $151.8 million and $382.5 million for the same periods of 2000.
The decreases were attributable to a broad-based industry slowdown, continued
weakness in demand for electronic components as well as the general weakness in
the overall economy. Management expects that the weakness in sales may continue
through at least the first quarter of 2002. See Note 5 to Notes to Consolidated
Condensed Financial Statements (Unaudited) for net sales from discontinued
operations.
Gross profit was $17.9 million for the third quarter of 2001, representing a
43.6% decrease from gross profit of $31.7 million for the same period of 2000.
Without giving effect to a non-cash inventory write-off of approximately $6.0
million which occurred in the second quarter of 2001 (see Note 4 to Notes to
Consolidated Condensed Financial Statements (Unaudited)), gross profit was $62.0
million for the first nine months of 2001, representing a 21.2% decrease from
gross profit of $78.7 million for the same period of 2000. The decreases were
due to the declines in sales as well as decreases in gross profit margins as a
percentage of net sales. The gross profit margin as a percentage of net sales
was 20.1% for the third quarter of 2001 compared to 20.9% for the third quarter
of 2000. For the first nine months of 2001, without giving effect to the
inventory write-off in the second quarter of 2001, the gross profit margin as a
percentage of net sales was 19.7% compared to 20.6% for the same period of 2000.
The decreases in gross profit margins reflect a general industry slowdown,
continued weakness in demand for electronic components and excess product
availability. In addition, we continue to develop long-term strategic
relationships with accounts that have required aggressive pricing programs and
we expect a greater number of low margin, large volume transactions. Management
therefore expects the downward pressure on gross profit margins to continue.
After giving effect to the inventory write-off taken in the second quarter of
2001, gross profit dollars were $56.0 million and the gross profit margin was
17.8% for the first nine months of 2001.
8
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
Selling, general and administrative expenses ("SG&A") was $16.7 million for the
third quarter of 2001 compared to $21.1 million for the third quarter of 2000.
SG&A for the first nine months of 2001, without giving effect to the write-off
of $1.5 million of accounts receivable, was $56.0 million compared to $57.5
million for the same period of 2000. The decreases in SG&A for the third quarter
and first nine months of 2001, compared to the 2000 periods, reflect the
implementation of certain expense reduction programs, including workforce and
salary reductions, all of which began during the second quarter of 2001. The
decreases also reflect a reduction in variable expenses associated with the
decline in gross profit dollars. After giving effect to the write-off of certain
accounts receivable taken in the second quarter of 2001, SG&A was $57.5 million
for the first nine months of 2001.
SG&A as percentage of net sales was 18.8% for the third quarter of 2001 compared
to 13.9% for the same period of 2000. Without giving effect to the write-off of
accounts receivable taken in the second quarter of 2001, SG&A as a percentage of
net sales was 17.8% for the first nine months of 2001 compared to 15.0% for the
first nine months of 2000. The increases in SG&A as a percentage of net sales
reflect the significant declines in sales, slightly offset by the decreases in
SG&A discussed above. After taking into account the write-off of accounts
receivable taken in the second quarter of 2001, SG&A as a percentage of net
sales for the first nine months of 2001 was 18.3%.
Income from continuing operations was $1.2 million for the third quarter of 2001
compared to $10.6 million for the third quarter of 2000. Excluding the non-cash
charges for inventory write-offs, accounts receivable write-offs and a $450,000
write-off of goodwill (see Note 6 to Notes to Consolidated Condensed Financial
Statements (Unaudited)) all taken in the second quarter of 2001, income from
continuing operations was $6.0 million for the first nine months of 2001
compared to $21.2 million for the first nine months of 2000. The decreases in
income from continuing operations for the third quarter and first nine months of
2001 (excluding the non-cash charges in the nine-month period), compared to the
same periods of 2000, were primarily attributable to decreases in sales and
gross profit dollars which were partially offset by the decreases in SG&A
described above. See Notes 4 and 6 to Notes to Consolidated Condensed Financial
Statements (Unaudited). After giving effect to the non-cash charges taken in the
second quarter of 2001, the Company had a loss from continuing operations of
$(1.9) million for the nine months ended September 30, 2001 compared to $21.2
million of income from continuing operations for the same period of 2000.
Interest expense decreased to $1.9 million for the third quarter of 2001
compared to $2.2 million for the same period of 2000. The decrease in interest
expense resulted from a decrease in our average borrowings, as well as a
decrease in overall interest rates which more than offset the impact from the
increase in our interest rate margins discussed below. Interest expense
increased to $7.0 million for the first nine months of 2001 compared to $5.7
million for the first nine months of 2000. The increase in interest expense for
the nine months ended September 30, 2001 resulted from the growth in our average
borrowings during the first half of 2001 caused by the increases in inventory
and accounts receivable as well as the expansion of our infrastructure which
began during the second half of 2000 and continued into early 2001, all to
support higher levels of sales experienced during the second half of 2000 and
the anticipation of higher sales levels continuing through 2001. Effective
August 14, 2001, the interest rate margins under the Company's line of credit
agreement increased. The impact from the growth in average borrowings and the
increase in the Company's interest rate margins during the first nine months of
2001 was partially offset by a decrease in overall interest rates. Interest
expense for the third quarter and first nine months of 2001 includes non-cash
charges of $102,000 and $214,000, respectively, representing write-offs of
deferred financing fees in connection with the reductions of the Company's
credit facility in the second and third quarters of 2001. See Note 2 to Notes to
Consolidated Condensed Financial Statements (Unaudited).
9
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
Due to the overall weakness in the economy, the negative impact of the
broad-based industry slowdown and other factors, Aved Display Technologies
("ADT") and Integrated Display Technologies ("IDT") did not generate the cash
flows anticipated. As a result, during the second quarter of 2001, management
decided to discontinue these divisions. Accordingly, these divisions are
accounted for as discontinued operations in the accompanying unaudited
Consolidated Condensed Financial Statements. The loss on disposal of $15.1
million on a pretax basis includes the estimated costs and expenses associated
with the disposal of $14.9 million primarily made up of the write-off of $4.5
million of inventory and $8.6 million of accounts receivable. In addition, the
loss on disposal includes a provision of $112,000 on a pretax basis for
operating losses during the phase-out period, which continued for approximately
two months. See Note 5 to Notes to Consolidated Condensed Financial Statements
(Unaudited).
The Company had a net loss for the quarter ended September 30, 2001 of
$(381,000), or $(.10) per share (diluted), compared to net income of $4.7
million, or $1.10 per share (diluted), for the quarter ended September 30, 2000.
After giving effect to the non-cash charges and the loss from discontinued
operations discussed above, the Company had a net loss of $(13.7) million, or
$(3.55) per share (diluted), for the first nine months of 2001, compared to net
income of $8.9 million, or $2.15 per share (diluted), for the comparable 2000
period.
Liquidity and Capital Resources
-------------------------------
Working capital at September 30, 2001 decreased to $106.2 million from working
capital of $159.6 million at December 31, 2000. The current ratio was 2.64:1 at
September 30, 2001 compared to 2.93:1 at December 31, 2000. The decrease in
working capital was primarily due to decreases in accounts receivable and
inventory which were partially offset by a decrease in accounts payable and an
income tax benefit. Accounts receivable levels at September 30, 2001 were $59.8
million, compared to accounts receivable of $91.8 million at December 31, 2000.
The decrease in accounts receivable was due to the significant reduction in
sales in the third quarter of 2001 compared to the latter part of 2000.
Inventory levels were $98.4 million at September 30, 2001, down from $146.4
million at December 31, 2000. The decrease in inventory reflects our efforts to
bring inventory positions in line with the reduced levels of sales as well as
the non-cash inventory write-offs taken in the second quarter of 2001. Accounts
payable and accrued expenses decreased to $64.4 million at September 30, 2001
compared to $81.2 million at December 31, 2000 as a result of reduced purchases
combined with the delay or cancellation of purchase orders in an effort to bring
inventory levels in line with the reduced level of sales.
Outstanding borrowings under the Company's line of credit facility aggregated
$80.7 million at September 30, 2001. The Company's credit facility was amended
subsequent to but effective as of the balance sheet date. As part of the
amendment, the line of credit facility was reduced from $125 million to $100
million to better match the Company's present borrowing requirements. The credit
facility was previously amended to reduce the line of credit from $150 million
to $125 million effective at the end of the second quarter of 2001. These
reductions benefit the Company by decreasing the amount of the fee charged on
the unused portion of the credit facility. In connection with the reductions of
the credit facility, $102,000 and $112,000 of deferred financing fees were
written off to interest expense effective as of September 30 and June 30, 2001,
respectively. As part of the amendments, effective September 30 and June 30,
2001, certain financial covenants were modified. Also effective June 30, 2001,
the interest rate margins on the credit facility were increased to, at the
Company's option, 1.0% for the prime rate portion or 3.25% for the LIBOR
portion, commencing August 14, 2001. Borrowings under this facility are
collateralized by substantially all of the Company's assets.
The Company currently expects that its cash flows from operations and additional
borrowings available under its credit facility will be sufficient to meet the
Company's current financial requirements over the next twelve months.
10
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
Forward-Looking Statements; Business Risks
------------------------------------------
This Form 10-Q contains forward-looking statements (within the meaning of
Section 21E. of the Securities Exchange Act of 1934, as amended), representing
the Company's current expectations and beliefs relating to the Company's future
performance and operating results, its bookings, products, services, markets and
industry, and/or future events relating to or effecting the Company and its
business and operations. If and when used in this Form 10-Q, the words
"believes," "estimates," "plans," "expects," "attempts," "intends,"
"anticipates," "could," "may," "explore" and similar expressions as they relate
to the Company or its management are intended to identify forward-looking
statements. The actual performance, results or achievements of the Company could
differ materially from those indicated by the forward-looking statements because
of various risks and uncertainties. Factors that could adversely affect the
Company's future results, performance or achievements include, without
limitation: the continuance of or increase in the broad-based industry slowdown
resulting in the decline or increasing decline (as the case may be) in demand
for electronic components and further excess customer inventory; continuing or
worsening in the overall economic weakness; the reduced effectiveness of the
Company's business and marketing strategies; an increase in the allowance for
doubtful accounts receivable and bad debts or further write-offs of accounts
receivable as a result of the weakened and/or further weakening financial
condition of certain of the Company's customers; further write-offs of inventory
arising from customers returning additional inventory and further canceling
orders or the devaluation of inventory as a result of adverse market conditions;
a reduction in the Company's development of new customers, existing customer
demand as well as the level of demand for products of its customers;
deterioration in the relationships with existing suppliers; price erosion in and
price competition for products sold by the Company; difficulty in the management
and control of expenses; the failure to achieve the expected impact from expense
reduction programs and further expense reductions to the extent necessary; the
inability of the Company to generate revenue commensurate with the level of
personnel and size of its infrastructure; price decreases on inventory that is
not price protected; decreases in gross profit margins, including decreasing
margins resulting from the Company being required to have aggressive pricing
programs; an increasing number of low-margin, large volume transactions and
increased availability of the supply for certain products; increased competition
from third party logistics companies, e-brokers and other Internet providers
through the use of the Internet as well as from its traditional competitors;
insufficient funds from operations, from the Company's credit facility and from
other sources (debt and/or equity) to support the Company's operations; problems
with telecommunication, computer and information systems; the inability of the
Company to expand its product offerings and continue to enhance its service
capabilities and the timing and cost thereof; a decline in technology growth;
the failure to achieve acceptance of or to grow in all or some of the new
technologies that have been or are being supported by the Company; the impact on
certain of the Company's suppliers and customers of economic or financial
turbulence in off-shore economies and/or financial markets, change in government
tariffs or duties, currency fluctuations; an increase in interest rates; the
adverse impact of terrorism on the economy; and the other risks and factors
including those detailed in this Form 10-Q and in the Company's Form 10-K for
the fiscal year ended December 31, 2000 and other filings with the Securities
and Exchange Commission and in its press releases. These risks and uncertainties
are beyond the ability of the Company to control. In many cases, the Company
cannot predict the risks and uncertainties that could cause actual results to
differ materially from those indicated by the forward-looking statements.
Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The Company's credit facility bears interest based on interest rates tied to the
prime or LIBOR rate, either of which may fluctuate over time based on economic
conditions. As a result, the Company is subject to market risk for changes in
interest rates and could be subjected to increased or decreased interest
payments if market interest rates fluctuate. If market interest rates increase,
the impact may have a material adverse effect on the Company's financial
results.
11
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
================================================================================
ITEM 2. Changes in Securities and Use of Proceeds
------- -----------------------------------------
(c) Sales of Unregistered Securities
--------------------------------
The Company has not issued or sold any unregistered securities during the
quarter ended September 30, 2001, although, pursuant to the Company's 2000
Nonemployee Director Stock Option Plan, as amended, the Company granted
stock options to three individuals to purchase an aggregate of 3,000 shares
of the Company's Common Stock at an exercise price of $5.35 per share. The
stock options vest over a two-year period and are exercisable over a
ten-year period. All of the stock options were granted by the Company in
reliance upon the exemption from registration available under Section 4(2)
of the Securities Act of 1933, as amended. See Note 3 to Notes to
Consolidated Condensed Financial Statements (Unaudited).
ITEM 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
(a) On August 22, 2001, the Company held its 2001 annual meeting of
shareholders (the "Annual Meeting").
(b) One matter voted on at the Annual Meeting was the election of two directors
of the Company. The two nominees, who were existing directors of the
Company and nominees of the Company's Board of Directors, were re-elected
at the Annual Meeting as directors of the Company, receiving the number and
percentage of votes for election and abstentions as set forth next to their
respective names below:
Nominee for Director For Abstain
-------------------- --------- -------
Daniel M. Robbin 3,202,168 91.1% 313,086 8.9%
Lewis B. Freeman 3,202,168 91.1% 313,086 8.9%
The other directors whose term of office as directors continued after the
Annual Meeting are Paul Goldberg, Bruce M. Goldberg, Howard L. Flanders,
Rick Gordon, Robin L. Crandell and Richard E. Siegel.
(c) The following three additional matters were separately voted upon at the
Annual Meeting and each of the matters received the votes of the holders of
the number of shares of Common Stock and the percentage of total votes cast
by holders represented in person or by proxy at the Annual Meeting as
indicated below:
(1) Proposal to approve the increase in the number of shares of common
stock reserved for issuance under the Employees', Officers', Directors'
Stock Option Plan, as previously amended and restated, to 1,100,000
shares
For 1,211,227 67.6%
Against 565,039 31.5%
Abstain 16,945 .9%
12
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
================================================================================
(2) Proposal to approve the increase in the number of nonqualified stock
options automatically awarded to each nonemployee director on the date
of each annual meeting of shareholders of the Company under the 2000
Nonemployee Director Stock Option Plan, as amended, to 1,000 shares
For 1,190,541 66.4%
Against 526,313 29.3%
Abstain 76,357 4.3%
(3) Proposal to ratify the selection of Lazar Levine & Felix LLP as the
Company's independent public accountants for the year ending December
31, 2001
For 3,438,850 97.8%
Against 67,624 1.9%
Abstain 8,780 .3%
There were 1,722,043 broker or nominee non-votes for each of proposals (1)
and (2) above.
(d) Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits
10.1 Amendment No. 10 to Loan and Security Agreement dated November 14,
2001.
11.1 Statement Re: Computation of Per Share Earnings (Unaudited).
(b) Reports on Form 8-K
-------------------
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 2001.
------------------------
SIGNATURES
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.
All American Semiconductor, Inc.
---------------------------------------------------
(Registrant)
Date: November 19, 2001 /s/ Paul Goldberg
---------------------------------------------------
Paul Goldberg, Chairman of the Board
(Duly Authorized Officer)
Date: November 19, 2001 /s/ Howard L. Flanders
---------------------------------------------------
Howard L. Flanders, Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
13