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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, 2002
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 8, 2002, 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.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
FORM 10-Q - INDEX
Part Item Page
No. No. Description No.
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I FINANCIAL INFORMATION:
1. Financial Statements
Consolidated Condensed Balance Sheets at September 30, 2002
(Unaudited) and December 31, 2001................................................. 1
Consolidated Condensed Statements of Operations for the Quarters
and Nine Months Ended September 30, 2002 and 2001 (Unaudited)..................... 2
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 2002 and 2001 (Unaudited)......................... 3
Notes to Consolidated Condensed Financial Statements (Unaudited).................... 4
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................. 6
3. Quantitative and Qualitative Disclosures about Market Risk.......................... 11
4. Controls and Procedures............................................................. 11
II OTHER INFORMATION:
2. Changes in Securities and Use of Proceeds........................................... 11
4. Submission of Matters to a Vote of Security Holders................................. 11
6. Exhibits and Reports on Form 8-K.................................................... 12
SIGNATURES.......................................................................... 13
CERTIFICATIONS...................................................................... 13
i
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30 December 31
ASSETS 2002 2001
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(Unaudited)
Current assets:
Cash .............................................................. $ 445,000 $ 636,000
Accounts receivable, less allowances for doubtful
accounts of $1,987,000 and $1,845,000............................. 47,678,000 41,217,000
Inventories......................................................... 58,218,000 81,032,000
Other current assets, including income taxes receivable............. 5,451,000 14,904,000
Net assets of discontinued operations............................... - 36,000
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Total current assets.............................................. 111,792,000 137,825,000
Property, plant and equipment - net................................... 2,961,000 3,476,000
Deposits and other assets............................................. 2,636,000 2,821,000
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$ 117,389,000 $ 144,122,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt................................... $ 79,000 $ 234,000
Accounts payable and accrued expenses............................... 55,498,000 50,848,000
Income taxes payable................................................ 859,000 -
Other current liabilities........................................... 347,000 174,000
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Total current liabilities......................................... 56,783,000 51,256,000
Long-term debt:
Notes payable....................................................... 34,610,000 68,662,000
Subordinated debt................................................... 5,968,000 5,999,000
Other long-term debt................................................ 1,171,000 1,180,000
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98,532,000 127,097,000
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Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued........................................... - -
Common stock, $.01 par value, 40,000,000 shares authorized,
4,040,150 shares issued and outstanding........................... 40,000 40,000
Capital in excess of par value...................................... 26,328,000 26,328,000
Accumulated deficit................................................. (6,532,000) (8,408,000)
Treasury stock, at cost, 202,461 and 183,246 shares................. (979,000) (935,000)
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18,857,000 17,025,000
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$ 117,389,000 $ 144,122,000
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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 2002 2001 2002 2001
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NET SALES.................................. $ 85,523,000 $ 88,767,000 $ 255,062,000 $ 314,746,000
Cost of sales.............................. (70,192,000) (70,910,000) (208,560,000) (258,737,000)
-------------- -------------- -------------- --------------
Gross profit............................... 15,331,000 17,857,000 46,502,000 56,009,000
Selling, general and
administrative expenses.................. (14,234,000) (16,668,000) (43,115,000) (57,467,000)
Impairment of goodwill..................... - - - (450,000)
-------------- -------------- -------------- ---------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS.................... 1,097,000 1,189,000 3,387,000 (1,908,000)
Interest expense........................... (720,000) (1,860,000) (2,497,000) (6,978,000)
Other income - net......................... 2,220,000 - 2,220,000 -
-------------- -------------- -------------- --------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES...................... 2,597,000 (671,000) 3,110,000 (8,886,000)
Income tax (provision) benefit............. (1,038,000) 290,000 (1,234,000) 3,452,000
-------------- -------------- -------------- --------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE DISCONTINUED
OPERATIONS............................... 1,559,000 (381,000) 1,876,000 (5,434,000)
Discontinued operations:
Income from operations (net of
$244,000 income tax provision)........... - - - 323,000
Loss on disposal (net of $6,474,000
income tax benefit)...................... - - - (8,581,000)
-------------- -------------- -------------- --------------
NET INCOME (LOSS).......................... $ 1,559,000 $ (381,000) $ 1,876,000 $ (13,692,000)
============== ============== ============== ==============
BASIC AND DILUTED EARNINGS
PER SHARE:
Income (loss) from
continuing operations before
discontinued operations.................. $ .40 $ (.10) $ .49 $ (1.41)
Discontinued operations.................... - - - (2.14)
------- ------- ------- -------
Net income (loss).......................... $ .40 $ (.10) $ .49 $ (3.55)
======= ======= ======= =======
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 2002 2001
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Cash Flows Provided by Operating Activities........................... $ 34,089,000 $ 32,642,000
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Cash Flows From Investing Activities:
Acquisition of property and equipment................................. (158,000) (342,000)
Decrease in other assets.............................................. 185,000 8,004,000
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Cash flows provided by investing activities....................... 27,000 7,662,000
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Cash Flows From Financing Activities:
Net repayments under line of credit agreement......................... (34,052,000) (39,834,000)
Repayments of notes payable........................................... (211,000) (182,000)
Purchase of treasury shares........................................... (44,000) -
Net proceeds from issuance of equity securities....................... - 2,000
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Cash flows used for financing activities.......................... (34,307,000) (40,014,000)
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Increase (decrease) in cash........................................... (191,000) 290,000
Cash, beginning of period............................................. 636,000 335,000
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Cash, end of period................................................... $ 445,000 $ 625,000
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Supplemental Cash Flow Information:
Interest paid......................................................... $ 2,497,000 $ 6,898,000
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Income taxes paid (refunded) - net.................................... $ (9,272,000) $ 874,000
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See notes to consolidated condensed financial statements
3
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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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, 2002, 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 in any future interim
period or for the entire year.
For a summary of significant accounting policies (which have not changed from
December 31, 2001) and additional financial information, see the Company's
Annual Report on Form 10-K for the year ended December 31, 2001, 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 2002 2001 2002 2001
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Basic................................. 3,851,185 3,856,904 3,854,998 3,856,904
Diluted............................... 3,851,345 3,856,904 3,855,125 3,856,904
2. LONG-TERM DEBT
Outstanding borrowings at September 30, 2002 under the Company's line of credit
facility aggregated $34,610,000. Borrowings under this facility are
collateralized by substantially all of the Company's assets. The Company's
credit facility was amended subsequent to the balance sheet date. In connection
with the amendment, the line of credit facility was reduced from $85 million to
$60 million to reduce the amount of fees charged for the unused portion and to
better match the Company's present borrowing requirements.
3. OPTIONS
During the quarter ended September 30, 2002, no stock options were granted by
the Company pursuant to the Employees', Officers', Directors' Stock Option Plan,
as previously amended and restated (the "Option Plan"). During the quarter ended
September 30, 2002, a total of 73,800 stock options previously granted pursuant
to the Option Plan were canceled at exercise prices ranging from $3.45 to $5.64
per share.
During the quarter ended June 30, 2002, no stock options were granted by the
Company pursuant to the Option Plan. During the quarter ended June 30, 2002, a
total of 400 stock options previously granted pursuant to the Option Plan were
canceled at exercise prices ranging from $3.45 to $6.20 per share.
During the quarter ended March 31, 2002, in connection with a prior cancellation
of certain stock options, the Company granted 81,000 stock options pursuant to
the Option Plan at an exercise price of $3.45 per share. These stock options
vest over two years and are exercisable through March 3, 2005.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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During the quarter and nine months ended September 30, 2002, the Company granted
1,500 stock options to one individual pursuant to the 2000 Nonemployee Director
Stock Option Plan, as amended. These options have an exercise price of $1.96 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 June 30, 2002,
1,500 stock options previously granted pursuant to the 2000 Nonemployee Director
Stock Option Plan, as amended, were canceled at an exercise price of $7.15 per
share.
4. OTHER INCOME
In September 2002, the Company entered into an agreement with a customer (the
"Agreement") to whom the Company had previously supplied display integration and
turnkey support. The Agreement provided, among other things, that the Company
release the then-existing indebtedness of the customer, which indebtedness had
been previously written off by the Company primarily in the nine-month period
ended September 30, 2001, and certain related security interests. In
consideration of these releases, the Company received approximately $2.0 million
in cash and 11,000,000 shares, $.01 par value per share, of common stock of this
customer. These shares are not registered under the Securities Act of 1933 and
are not publicly traded. The shares are subject to a voting arrangement outside
the control of the Company. As a result of the voting arrangement, the Company
has given up substantially all of its voting rights. The Company has reflected
the value of these shares in Deposits and Other Assets on the unaudited
Consolidated Condensed Balance Sheet at September 30, 2002, based on an
independent appraisal of these shares at $19,000 as of the date these shares
were received by the Company. The combined value of the cash and stock, together
with lease payments that the Company previously collected from leases that were
pledged to the Company as collateral, aggregated approximately $2.2 million
after deducting related legal expenses associated with the transaction. This
amount is reflected as Other Income on the unaudited Consolidated Condensed
Statements of Operations for the quarter and nine months ended September 30,
2002.
5. STOCK REPURCHASE PROGRAM
During August 2002, the Company's Board of Directors authorized the continuance
of the stock repurchase program, originally approved by the Board and announced
in 1999, which provided for the repurchase of up to $2,000,000 in purchase price
of the Company's common stock. The stock repurchases may, at the discretion of
the Company's management, be made from time to time at prevailing prices in the
open market or through privately negotiated transactions. The Company's
management will base its decision on market conditions, the price of the
Company's common stock and other factors. The Company currently intends to make
stock repurchases using available cash flow from operations. During the quarter
ended September 30, 2002, the Company repurchased 19,215 shares of its common
stock at an average price of $2.31 per share, or an aggregate price of
approximately $44,000, which, together with previous purchases, represents
166,401 shares at an aggregate price of approximately $528,000 purchased under
the program. The aggregate cost of repurchased shares is included in treasury
stock on the unaudited Consolidated Condensed Balance Sheet as of September 30,
2002.
5
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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Management's Discussion and Analysis of Financial Condition and Results of
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Operations
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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; voting and gaming machines; point-of-sale
equipment; 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.
Critical Accounting Policies and Estimates
------------------------------------------
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the unaudited Consolidated Condensed Financial Statements and accompanying
notes. Estimates are used for, but not limited to, the accounting for the
allowance for doubtful accounts, inventories, income taxes and loss
contingencies. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from these estimates under different
assumptions or conditions.
The Company believes the following critical accounting policies, among others,
may be impacted significantly by judgement, assumptions and estimates used in
the preparation of the unaudited Consolidated Condensed Financial Statements:
The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). Under SAB 101, revenue is recognized at the point of
passage to the customer of title and risk of loss, and when there is persuasive
evidence of an arrangement, the sales price is determinable, and collection of
the resulting receivable is reasonably assured. The Company generally recognizes
revenue at the time of shipment. Sales are reflected net of discounts and
returns.
The allowance for doubtful accounts is maintained to provide for losses arising
from customers' inability to make required payments. If there is a deterioration
of our customers' credit worthiness and/or there is an increase in the length of
time that the receivables are past due greater than the historical assumptions
used, additional allowances may be required.
Inventories are stated at the lower of cost (determined on an average cost
basis) or market. Based on our assumptions about future demand and market
conditions as well as the Company's distribution agreements with its suppliers,
which generally provide for price protection and obsolescence credits,
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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inventories are written-down to market value. If our assumptions about future
demand change, and/or actual market conditions are less favorable than those
projected, additional write-downs of inventories may be required.
Deferred tax assets are recorded based on the Company's projected future taxable
income and the resulting utilization of the deferred tax assets. To the extent
that the Company would not be able to realize all or part of its deferred tax
assets in the future, an adjustment to the deferred tax assets would be
necessary and charged to income.
Loss contingencies arise in the ordinary course of business. In determining loss
contingencies, we evaluate the likelihood of the loss or impairment of an asset
or the incurrence of a liability, as well as our ability to reasonably estimate
the amount of such loss. We accrue for an estimated loss contingency when it is
probable that a liability has been incurred or an asset has been impaired and
the amount of the loss can be reasonably estimated.
Results of Operations
---------------------
Net sales for the quarter ended September 30, 2002 were $85.5 million, a 3.7%
decrease from net sales of $88.8 million for the same period of 2001, excluding
sales from discontinued operations. Net sales for the nine months ended
September 30, 2002 were $255.1 million, a 19.0% decrease from net sales of
$314.7 million for the same period of 2001, excluding sales from discontinued
operations. The decreases were primarily attributable to a severe broad-based
industry downturn which began during the first quarter of 2001 and progressively
and significantly worsened throughout 2001 and has not recovered, weakness in
demand for electronic components, a trend of electronics manufacturing to move
offshore as well as the general weakness in the overall economy. Management
expects that the weakness in market conditions will continue through at least
the end of this year and possibly through much of 2003. Additionally, management
expects that the trend for electronics manufacturing to move offshore, where the
Company currently has very limited sales presence, will continue.
Gross profit was $15.3 million for the third quarter of 2002, down 14.1% from
$17.9 million for the same period of 2001. Gross profit was $46.5 million for
the first nine months of 2002, down 25.0% from $62.0 million for the same period
of 2001, excluding from the 2001 period gross profit from discontinued
operations and without giving effect in the 2001 period to a non-cash inventory
write-off of approximately $6.0 million resulting from adverse industry
conditions. The decreases in gross profit were primarily due to decreases in net
sales and gross profit margins. Gross profit margins as a percentage of net
sales were 17.9% for the third quarter of 2002 compared to 20.1% for the third
quarter of 2001. Gross profit margins as a percentage of net sales were 18.2%
for the first nine months of 2002 compared to 19.7% for the first nine months of
2001, excluding in the 2001 period the inventory write-off. The decline in gross
profit margins reflects the continued weakness in demand for electronic
components, excess product availability as well as a change in our product mix,
including an increase in sales of flat panel displays which generally sell at
lower gross margins. 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 that the downward pressure on gross profit margins may
continue. After giving effect to the inventory write-off, gross profit was $56.0
million and the gross profit margin was 17.8% for the first nine months of 2001.
Selling, general and administrative expenses ("SG&A") decreased to $14.2 million
for the third quarter of 2002 from $16.7 million for the third quarter of 2001.
SG&A decreased to $43.1 million for the first nine months of 2002 from $56.0
million for the same period of 2001 without giving effect to a write-off of $1.5
million of accounts receivable in the second quarter of 2001. The improvements
in SG&A reflect the benefit from 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
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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in variable expenses associated with the decline in sales and gross profit
dollars. After giving effect to the write-off of certain accounts receivable,
SG&A was $57.5 million for the first nine months of 2001.
SG&A as a percentage of net sales was 16.6% for the third quarter of 2002
compared to 18.8% for the same period of 2001. SG&A as a percentage of net sales
was 16.9% for the first nine months of 2002 compared to 17.8% for the first nine
months of 2001 without giving effect to the write-off of accounts receivable in
the second quarter of 2001 as discussed above. The decreases in SG&A as a
percentage of net sales were due to the improvements in SG&A in absolute dollars
discussed above which more than offset the impact from the decline in net sales.
After taking into account the write-off of accounts receivable, SG&A as a
percentage of net sales was 18.3% for the nine months ended September 30, 2001.
Income from continuing operations was $1.1 million for the third quarter of 2002
compared to $1.2 million for the third quarter of 2001. Income from continuing
operations was $3.4 million for the first nine months of 2002 compared to $6.0
million for the first nine months of 2001 excluding from the 2001 period the
non-cash charges for inventory and accounts receivable write-offs and a $450,000
non-cash write-off of goodwill. The decrease in income from continuing
operations for the nine months ended September 30, 2002 compared to the same
period of 2001 was due to the significant decline in sales and gross profit
dollars for the reasons discussed previously, which decreases were partially
offset by the improvement in SG&A described above. After giving effect to the
non-cash charges, the Company had a loss from continuing operations of $1.9
million for the first nine months of 2001.
In September 2002, the Company entered into an agreement with a customer (the
"Agreement") to whom the Company had previously supplied display integration and
turnkey support. The Agreement provided, among other things, that the Company
release the then-existing indebtedness of the customer, which indebtedness had
been previously written off by the Company primarily in the nine-month period
ended September 30, 2001, and certain related security interests. In
consideration of these releases, the Company received approximately $2.0 million
in cash and 11,000,000 shares, $.01 par value per share, of common stock of this
customer. These shares are not registered under the Securities Act of 1933 and
are not publicly traded. The shares are subject to a voting arrangement outside
the control of the Company. As a result of the voting arrangement, the Company
has given up substantially all of its voting rights. The Company has reflected
the value of these shares in Deposits and Other Assets on the unaudited
Consolidated Condensed Balance Sheet at September 30, 2002, based on an
independent appraisal of these shares at $19,000 as of the date these shares
were received by the Company. The combined value of the cash and stock, together
with lease payments that the Company previously collected from leases that were
pledged to the Company as collateral, aggregated approximately $2.2 million
after deducting related legal expenses associated with the transaction. This
amount is reflected as Other Income on the unaudited Consolidated Condensed
Statements of Operations for the quarter and nine months ended September 30,
2002.
Interest expense decreased significantly to $720,000 and $2.5 million for the
third quarter and first nine months of 2002, from $1.9 million and $7.0 million
for the same periods of 2001. These substantial decreases in interest expense
resulted from significant decreases in our average borrowings and decreases in
overall interest rates. Our average borrowings decreased by approximately $55
million on a quarterly basis for the third quarter of 2002 as compared to the
same period of 2001 and by approximately $62 million when comparing the
year-to-date periods of 2002 and 2001. The decreases in average borrowings were
due to decreases in our inventory and accounts receivable as well as from the
positive effects of our expense reduction programs. In addition, the decrease
when comparing the year-to-date periods was also attributable to a decrease in
income taxes receivable.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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Net income was $1.6 million or $.40 per share (diluted) for the quarter ended
September 30, 2002, and $1.9 million or $.49 per share (diluted) for the first
nine months of 2002. For the corresponding periods of 2001 the Company had a net
loss of $381,000 or $.10 per share (diluted), and a net loss of $13.7 million or
$3.55 per share (diluted). Included in the first nine months of 2001 are the
non-cash charges for inventory, accounts receivable and goodwill write-offs
mentioned above, as well as a $15.1 million pretax loss on disposal associated
with discontinued operations, including a write-off of $4.5 million of inventory
and $8.6 million of accounts receivable.
Liquidity and Capital Resources
-------------------------------
Working capital at September 30, 2002 decreased to $55.0 million from working
capital of $86.6 million at December 31, 2001. The current ratio was 1.97:1 at
September 30, 2002 compared to 2.69:1 at December 31, 2001. The decreases in
working capital and the current ratio were primarily due to a substantial
decrease in inventory, a decrease in income taxes receivable and an increase in
accounts payable. These changes to working capital were partially offset by an
increase in accounts receivable. Accounts receivable levels at September 30,
2002 were $47.7 million compared to accounts receivable of $41.2 million at
December 31, 2001. The increase in accounts receivable reflects an increase in
the level of sales during the third quarter of 2002 compared to the latter part
of 2001. Inventory levels were $58.2 million at September 30, 2002, down from
$81.0 million at December 31, 2001. The significant decrease in inventory
reflects our sustained efforts to bring inventory positions in line with the
current levels of sales. Accounts payable and accrued expenses increased to
$55.5 million at September 30, 2002 compared to $50.8 million at December 31,
2001. Notwithstanding the decrease in the inventory balance, accounts payable
and accrued expenses increased as a result of an increase in current purchases
of inventory to support the increase in sales since the fourth quarter of 2001.
During August 2002, the Company's Board of Directors authorized the continuance
of the stock repurchase program, originally approved by the Board and announced
in 1999, which provided for the repurchase of up to $2.0 million in purchase
price of the Company's common stock. The stock repurchases may, at the
discretion of the Company's management, be made from time to time at prevailing
prices in the open market or through privately negotiated transactions. The
Company's management will base its decision on market conditions, the price of
the Company's common stock and other factors. The Company currently intends to
make stock repurchases using available cash flow from operations. During the
quarter ended September 30, 2002, the Company repurchased 19,215 shares of its
common stock at an average price of $2.31 per share, or an aggregate price of
approximately $44,000, which, together with previous purchases, represents
166,401 shares at an aggregate price of approximately $528,000 purchased under
the program. The aggregate cost of repurchased shares is included in treasury
stock on the unaudited Consolidated Condensed Balance Sheet as of September 30,
2002.
Outstanding borrowings under the Company's line of credit facility aggregated
$34.6 million at September 30, 2002 down from $68.7 million at December 31,
2001. The decline in outstanding borrowings during the first nine months of 2002
primarily reflects the decrease in working capital discussed previously.
Borrowings under this facility are collateralized by substantially all of the
Company's assets. The Company's credit facility was amended subsequent to the
balance sheet date. In connection with the amendment, the line of credit
facility was reduced from $85 million to $60 million to reduce the amount of
fees charged for the unused portion and to better match the Company's present
borrowing requirements.
In September 2002, the Company entered into an agreement with a customer which
provided, among other things, that the Company release the then-existing
indebtedness of the customer, which indebtedness had been previously written off
by the Company primarily in the nine-month period ended
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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September 30, 2001, and certain related security interests. In consideration of
these releases, the Company received approximately $2.0 million in cash in
addition to certain stock and other consideration. The net cash proceeds
received were used to reduce the outstanding borrowings under the Company's
credit facility. The Company continues to guarantee the future payment to a
third party of certain leases which were previously pledged to the Company as
collateral for the payment of outstanding receivables which were owed by this
customer. This guaranty was made when the leases were sold to this third party
who paid to the Company the net present value of the future payments of the
leases. The maximum exposure under this guaranty was approximately $735,000 at
September 30, 2002.
In addition to its borrowings under its line of credit facility and other
long-term debt obligations reflected on its unaudited Consolidated Condensed
Balance Sheet, the Company has operating leases for office space and equipment
that have initial or remaining noncancelable lease terms in excess of one year
as of September 30, 2002. The amounts of the Company's obligations with respect
to operating leases are approximately $3.7 million, $3.2 million, $2.4 million,
$1.7 million and $732,000 for each of the twelve-month periods ending September
30, 2003, 2004, 2005, 2006 and 2007, respectively.
The Company currently expects that its cash flows from operations and additional
borrowings available under its credit facility, as amended subsequent to the
balance sheet date, will be sufficient to meet the Company's current financial
requirements over the next twelve months.
Forward-Looking Statements; Business Risks and Uncertainties
------------------------------------------------------------
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 or
industry's future performance, its future operating results, its sales,
products, services, markets and industry, market conditions and/or future events
relating to or affecting 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 the broad-based
industry downturn resulting in the decline in demand for electronic components
and further excess customer inventory; the continuance of a trend for
electronics manufacturing to move offshore, continuing or worsening in the
overall economic weakness; the reduced effectiveness of the Company's business
and marketing strategies including those outside North America; 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 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
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
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 or obtain product during periods of allocation; the inability of the
Company to continue to enhance its service capabilities and the timing and cost
thereof; 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; an
increase in interest rates; the impact from changes in accounting rules; 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 reports on Forms
10-K for the fiscal year ended December 31, 2001 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.
Controls and Procedures
-----------------------
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our chief executive officer and chief financial officer, of the effectiveness of
the design and operation of our disclosure controls and procedures. Based on
this evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective in timely
accumulating and communicating to them material information required to be
disclosed in our reports filed with the Securities and Exchange Commission. As
of the date of this report there have been no significant changes in our
internal controls or in other factors that could significantly affect those
controls subsequent to the date of their last evaluation.
PART II. OTHER INFORMATION
ITEM 2. Changes In Securities and Use of Proceeds
------- -----------------------------------------
(c) Sales of Unregistered Securities
--------------------------------
During the quarter ended September 30, 2002, the Company did not issue or
sell any unregistered securities, although, pursuant to the Company's 2000
Nonemployee Director Stock Option Plan, as amended, the Company granted
stock options to one individual to purchase 1,500 shares of the Company's
common stock at an exercise price of $1.96 per share. The stock options
vest over a two-year period and are exercisable over a ten-year period. 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 October 2, 2002, the Company held its 2002 annual meeting of
shareholders (the "Annual Meeting").
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
(b) One matter voted on at the Annual Meeting was the election of three
directors of the Company. The three 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
-------------------- --------- -------
Bruce M. Goldberg 3,747,565 98.4% 61,165 1.6%
Howard L. Flanders 3,747,565 98.4% 61,165 1.6%
Richard E. Siegel 3,747,565 98.4% 61,165 1.6%
The other directors whose term of office as directors continued after the
Annual Meeting are Paul Goldberg, Rick Gordon, Robin L. Crandell, Howard M.
Pinsley and Daniel M. Robbin.
(c) The following additional matter was separately voted upon at the Annual
Meeting and 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:
Proposal to ratify the selection of Lazar Levine & Felix LLP as the
Company's independent public accountants for the year ending December 31,
2002
For 3,763,750 98.8%
Against 37,075 1.0%
Abstain 7,905 .2%
(d) Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits
--------
10.1 Amendment No. 12 to Loan and Security Agreement dated October 31,
2002.
10.2 Amendment B to the All American Semiconductor, Inc. Profit Sharing
401(k) Plan.
10.3 Composition Agreement dated September 18, 2002 among ParView,
Inc., AmeriCapital, LLC and the Company (without exhibits).
11.1 Statement Re: Computation of Per Share Earnings (Unaudited).
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C.ss.1350.
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C.ss.1350.
(b) Reports on Form 8-K
-------------------
A Current Report on Form 8-K dated August 15, 2002 was filed on that date
reporting in Item 5 thereof the continuation of the Company's stock
repurchase program.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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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 13, 2002 /s/ Bruce M. Goldberg
-----------------------------------------
Bruce M. Goldberg, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: November 13, 2002 /s/ Howard L. Flanders
-----------------------------------------
Howard L. Flanders, Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
------------------------
CERTIFICATIONS
I, Bruce M. Goldberg, President and Chief Executive Officer of All American
Semiconductor, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of All American
Semiconductor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Bruce M. Goldberg
---------------------------
Bruce M. Goldberg
President and Chief Executive Officer
I, Howard L. Flanders, Executive Vice President and Chief Financial Officer of
All American Semiconductor, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of All American
Semiconductor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002 /s/ Howard L. Flanders
---------------------------------
Howard L. Flanders
Executive Vice President and
Chief Financial Officer
14