================================================================================
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 June 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 August 10, 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 June 30, 2001
(Unaudited) and December 31, 2000............................ 1
Consolidated Condensed Statements of Operations for the
Quarters and Six Months Ended June 30, 2001 and 2000
(Unaudited).................................................. 2
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 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.................................... 7
3. Quantitative and Qualitative Disclosures about Market Risk.... 10
II OTHER INFORMATION:
2. Changes in Securities and Use of Proceeds..................... 11
6. Exhibits and Reports on Form 8-K.............................. 11
SIGNATURES.................................................... 11
i
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30 December 31
ASSETS 2001 2000
-------------------------------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash ......................................................... $ 107,000 $ 335,000
Accounts receivable, less allowances for doubtful
accounts of $2,563,000 and $3,283,000 ...................... 61,231,000 91,812,000
Inventories .................................................. 121,523,000 146,444,000
Other current assets ......................................... 4,518,000 3,745,000
------------- -------------
Total current assets ....................................... 187,379,000 242,336,000
Property, plant and equipment - net ............................ 3,953,000 4,255,000
Deposits and other assets, including income tax benefit ........ 11,216,000 2,687,000
Excess of cost over fair value of net assets acquired - net .... 473,000 950,000
------------- -------------
$ 203,021,000 $ 250,228,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt ............................ $ 257,000 $ 240,000
Accounts payable and accrued expenses ........................ 64,599,000 81,234,000
Income taxes payable ......................................... -- 968,000
Other current liabilities .................................... 263,000 304,000
------------- -------------
Total current liabilities .................................. 65,119,000 82,746,000
Long-term debt:
Notes payable ................................................ 104,412,000 120,643,000
Subordinated debt ............................................ 6,021,000 6,043,000
Other long-term debt ......................................... 1,180,000 1,198,000
------------- -------------
176,732,000 210,630,000
------------- -------------
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 ............................................ 856,000 14,167,000
Treasury stock, at cost, 183,246 shares ...................... (935,000) (935,000)
------------- -------------
26,289,000 39,598,000
------------- -------------
$ 203,021,000 $ 250,228,000
============= =============
See notes to consolidated condensed financial statements
1
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarters Six Months
PERIODS ENDED JUNE 30 2001 2000 2001 2000
-----------------------------------------------------------------------------------------------------------
NET SALES .............................. $ 100,062,000 $ 124,479,000 $ 225,979,000 $ 230,705,000
Cost of sales .......................... (86,922,000) (98,553,000) (187,827,000) (183,666,000)
------------- ------------- ------------- -------------
Gross profit ........................... 13,140,000 25,926,000 38,152,000 47,039,000
Selling, general and
administrative expenses .............. (19,552,000) (19,077,000) (40,799,000) (36,480,000)
Impairment of goodwill ................. (450,000) -- (450,000) --
------------- ------------- ------------- -------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS ................ (6,862,000) 6,849,000 (3,097,000) 10,559,000
Interest expense ....................... (2,357,000) (1,763,000) (5,118,000) (3,420,000)
------------- ------------- ------------- -------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES .................. (9,219,000) 5,086,000 (8,215,000) 7,139,000
Income tax (provision) benefit ......... 3,593,000 (2,188,000) 3,162,000 (3,072,000)
------------- ------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE
DISCONTINUED OPERATIONS .............. (5,626,000) 2,898,000 (5,053,000) 4,067,000
Discontinued operations:
Income from operations (net of $168,000;
$39,000; $244,000 and $70,000
income tax provision) ................ 225,000 51,000 323,000 92,000
Loss on disposal (net of $6,474,000
income tax benefit) .................. (8,581,000) -- (8,581,000) --
------------- ------------- ------------- -------------
NET INCOME (LOSS) ...................... $ (13,982,000) $ 2,949,000 $ (13,311,000) $ 4,159,000
============= ============= ============= =============
Basic earnings per share:
Income (loss) from
continuing operations ................ $(1.46) $ .76 $(1.31) $ 1.07
Discontinued operations ................ (2.17) .01 (2.14) .02
------ ------ ------ ------
Net income (loss) ...................... $(3.63) $ .77 $(3.45) $ 1.09
====== ====== ====== ======
Diluted earnings per share:
Income (loss) from
continuing operations ................ $(1.46) $ .70 $(1.31) $ 1.00
Discontinued operations ................ (2.17) .01 (2.14) .02
------ ------ ------ ------
Net income (loss) ...................... $(3.63) $ .71 $(3.45) $ 1.02
====== ====== ====== ======
See notes to consolidated condensed financial statements
2
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 2001 2000
---------------------------------------------------------------------------------------------
Cash Flows Provided by (Used For) Operating Activities ....... $ 16,056,000 $(12,619,000)
------------ ------------
Cash Flows From Investing Activities:
Acquisition of property and equipment ........................ (267,000) (503,000)
Decrease in other assets ..................................... 244,000 15,000
------------ ------------
Cash flows used for investing activities .................. (23,000) (488,000)
------------ ------------
Cash Flows From Financing Activities:
Net borrowings (repayments) under line of credit agreement ... (16,139,000) 13,144,000
Repayments of notes payable .................................. (124,000) (139,000)
Purchase of treasury shares .................................. -- (28,000)
Net proceeds from issuance of equity securities .............. 2,000 170,000
------------ ------------
Cash flows provided by (used for) financing activities .... (16,261,000) 13,147,000
------------ ------------
Increase (decrease) in cash .................................. (228,000) 40,000
Cash, beginning of period .................................... 335,000 173,000
------------ ------------
Cash, end of period .......................................... $ 107,000 $ 213,000
============ ============
Supplemental Cash Flow Information:
Interest paid ................................................ $ 5,220,000 $ 2,672,000
============ ============
Income taxes paid ............................................ $ 819,000 $ 1,693,000
============ ============
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 June 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 generally accepted
accounting principles.
Earnings Per Share
------------------
The following average shares were used for the computation of basic and diluted
earnings per share:
Quarters Six Months
Periods Ended June 30 2001 2000 2001 2000
--------------------------------------------------------------------------------
Basic .................. 3,856,904 3,813,910 3,856,904 3,807,939
Diluted ................ 3,856,904 4,177,872 3,856,904 4,082,140
2. LONG-TERM DEBT
Outstanding borrowings at June 30, 2001 under the Company's line of credit
facility aggregated $104,350,000. The Company's credit facility was amended
subsequent to but effective as of the balance sheet date. As part of this
amendment, the line of credit facility was reduced from $150 million to $125
million to better match the Company's borrowing requirements. This change
benefits the Company by reducing the amount of the fee charged on the unused
portion of the credit facility. Since June 30, 2001, outstanding borrowings
under the credit facility have declined to $94,684,000 at August 10, 2001. In
connection with the reduction of the credit facility to $125 million, $112,000
of deferred financing fees was written off to interest expense effective as of
June 30, 2001. Also as part of the amendment, effective June 30, 2001, certain
financial covenants were modified. In addition, 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, effective August 14, 2001.
Borrowings under this facility are collateralized by substantially all of the
Company's assets.
3. OPTIONS
During the quarter ended June 30, 2001, the Company granted an aggregate of
7,750 stock options to six individuals pursuant to the Employees', Officers',
Directors' Stock Option Plan, as previously amended and restated (the "Employee
Stock Option Plan"). These options have an exercise price of $5.64 per share
(fair market value at date of grant) and 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
4
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
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 Nonemployee Director Stock Option Plan. These
options have an exercise price of $7.15 per share (fair market value at date of
grant) and 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, 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.
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 improved 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 have been delayed or canceled and the Company has 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 is being 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
5
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
broad-based industry slowdown and other factors, ADT and IDT have not generated
cash flows as anticipated. As a result, management has 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 is being 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 is expected to
continue for approximately two months.
Sales from these divisions, including the related turnkey support business, were
$2,878,000 for the three months ended June 30, 2001 and $1,515,000 for the same
period of 2000; and were $6,997,000 for the six months ended June 30, 2001 and
$2,562,000 for the 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 June 30, 2001, are summarized as
follows:
Accounts receivable .................... $ 986,000
Other current assets ................... 36,000
Property, plant and equipment - net .... 19,000
Current liabilities .................... (34,000)
-----------
Net assets ............................. $ 1,007,000
===========
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.
6
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 six months ended June
30, 2001 were $100.1 million and $226.0 million, respectively, representing a
19.6% and 2.0% decrease over net sales from continuing operations of $124.5
million and $230.7 million for the same periods of 2000. The decreases were
attributable to a broad-based industry slowdown, reduced demand relating to
excess inventory at our customer base as well as the general weakness in the
overall economy. Management expects that the weakness in sales may continue
through at least the third quarter of 2001. See Note 5 to Notes to Consolidated
Condensed Financial Statements (Unaudited) for net sales from discontinued
operations.
Without giving effect to a non-cash inventory write-off of approximately $6.0
million resulting from adverse industry conditions (see Note 4 to Notes to
Consolidated Condensed Financial Statements (Unaudited)), gross profit was $19.1
million in the second quarter of 2001 representing a 26.2% decrease from gross
profit of $25.9 million for the same period of 2000. For the first six months of
2001, gross profit was $44.1 million, without giving effect to the inventory
write-off discussed above, compared to $47.0 million for the same period of
2000, representing at 6.1% decrease. The decreases were due to the decline in
sales as well as a decrease in gross profit margins as a percentage of net
sales. Gross profit margins as a percentage of net sales, without giving effect
to the inventory write-off, were 19.1% and 19.5% for the second quarter and
first six months of 2001 compared to 20.8% and 20.4% for the second quarter and
first six months of 2000. The decrease in gross profit margins reflects a
general industry slowdown, reduced demand relating to excess inventory at the
customer base and improved 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 downward pressure on gross
profit margins in the future. After giving effect to the inventory write-off,
gross profit dollars were $13.1 million and $38.2 million and gross profit
margins were 13.1% and 16.9% for the second quarter and first six months of
2001, respectively.
7
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Selling, general and administrative expenses ("SG&A"), without giving effect to
a write-off of $1.5 million of accounts receivable, was $18.1 million for the
second quarter of 2001 compared to $19.1 million for the second quarter of 2000.
The decrease in SG&A for the second quarter of 2001, compared to the 2000
period, reflects the implementation of certain expense reduction programs,
including workforce reductions and a hiring freeze, all of which began during
the second quarter of 2001. SG&A for the first half of 2001, without giving
effect to the write-off of certain accounts receivable, was $39.3 million
compared to $36.5 million for the same period of 2000. The increase in SG&A for
the first six months, when comparing 2001 to 2000, was due to increases in our
management team, expansion of our sales force and increases in our staff in
almost every department, which began during the second half of 2000 and
continued into early 2001 to support higher levels of sales experienced during
the second half of 2000 and the anticipation of higher sales levels continuing
through 2001. At the same time, we increased our infrastructure to support the
changing needs and additional requirements of our customers. At the end of the
first quarter of 2001 it became apparent that industry conditions were worsening
and, in an effort to reduce operating losses, the Company began expense
reduction programs during the second quarter of 2001. After giving effect to the
write-off of certain accounts receivable, SG&A was $19.6 million and $40.8
million for the second quarter and first six months of 2001.
SG&A as a percentage of net sales, without giving effect to the write-off of
accounts receivable discussed above, was 18.1% and 17.4% for the quarter and six
months ended June 30, 2001, compared to 15.3% and 15.8% for the same periods of
2000. The increases in SG&A as a percentage of net sales reflect the increases
in expenses associated with the expansion strategies discussed above at a time
when sales unexpectedly declined. After taking into account the write-off of
accounts receivable, SG&A as a percentage of net sales was 19.5% and 18.1% for
the quarter and six months ended June 30, 2001.
Excluding the non-cash charges for inventory and accounts receivable write-offs
discussed above and also excluding a $450,000 non-cash write-off of goodwill
(see Note 6 to Notes to Consolidated Condensed Financial Statements
(Unaudited)), income from continuing operations was $1.0 million and $4.8
million for the second quarter and first six months of 2001 compared to $6.8
million and $10.6 million for the 2000 periods. The decrease in income from
continuing operations for the second quarter of 2001, excluding the non-cash
charges, compared to the same period of 2000 was primarily attributable to
decreases in sales and gross profit dollars. For the six months ended June 30,
2001, income from continuing operations, excluding the non-cash charges,
decreased compared to the six months ended June 30, 2000 due to a reduction in
sales and gross profit dollars as well as an increase in SG&A. See Notes 4 and 6
to Notes to Consolidated Condensed Financial Statements (Unaudited). After
giving effect to the non-cash charges, the Company had a loss from continuing
operations of $(6.9) million for the second quarter of 2001 compared to $6.8
million of income from continuing operations for the second quarter of 2000.
After giving effect to the non-cash charges, for the first six months ended June
30, 2001, the loss from continuing operations was $(3.1) million compared to
$10.6 million of income from continuing operations for the same period of 2000.
Interest expense increased to $2.4 million and $5.1 million for the second
quarter and first half of 2001, from $1.8 million and $3.4 million for the same
periods of 2000. The increases in interest expense resulted from growth in our
average borrowings caused by the previously mentioned expansion of our
infrastructure to support the Company's anticipated sales growth as well as
increases in inventory and accounts receivable. The impact from the growth in
average borrowings was partially offset by a decrease in interest rates.
Effective August 14, 2001, the interest rate margins under the Company's line of
credit agreement, as discussed below and in Note 2 to Notes to Consolidated
Condensed Financial Statements (Unaudited), increased. The impact from this rate
increase should be partially offset in the short term by the anticipated
continued reduction in average borrowings as well as decreases in overall
interest rates.
8
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") have not generated cash
flows as 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 is expected to continue for
approximately two months. See Note 5 to Notes to Consolidated Condensed
Financial Statements (Unaudited).
After giving effect to the non-cash charges and the loss from discontinued
operations discussed above, the Company had net losses of $(14.0) million, or
$(3.63) per share (diluted), and $(13.3) million, or $(3.45) per share
(diluted), for the quarter and six months ended June 30, 2001, compared to net
income of $2.9 million, or $0.71 per share (diluted), and $4.2 million, or $1.02
per share (diluted), for the 2000 periods.
Liquidity and Capital Resources
-------------------------------
Working capital at June 30, 2001 decreased to $122.3 million from working
capital of $159.6 million at December 31, 2000. The current ratio was 2.88:1 at
June 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. Accounts
receivable levels at June 30, 2001 were $61.2 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 second quarter
of 2001 compared to the latter part of 2000, as well as to the non-cash
write-offs discussed previously. Inventory levels were $121.5 million at June
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 discussed
previously. Accounts payable and accrued expenses decreased to $64.6 million at
June 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 levels of sales.
Outstanding borrowings at June 30, 2001 under the Company's line of credit
facility aggregated $104.4 million. The Company's credit facility was amended
subsequent to but effective as of the balance sheet date. As part of this
amendment, the line of credit facility was reduced from $150 million to $125
million to better match the Company's borrowing requirements. This change
benefits the Company by reducing the amount of the fee charged on the unused
portion of the credit facility. Since June 30, 2001, outstanding borrowings
under the credit facility have declined to $94.7 million at August 10, 2001. In
connection with the reduction of the credit facility to $125 million, $112,000
of deferred financing fees was written off to interest expense effective as of
June 30, 2001. Also as part of the amendment, effective June 30, 2001, certain
financial covenants were modified. In addition, 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, effective 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.
9
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; 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 open new sales offices in a timely and
cost-effective manner and 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 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; a change in interest rates;
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.
10
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 June 30, 2001, although, pursuant to the Company's Employee
Stock Option Plan, the Company granted stock options to six individuals
during the quarter ended June 30, 2001, to purchase 7,750 shares of the
Company's Common Stock at an exercise price of $5.64 per share and,
pursuant to the Company's Nonemployee Director Stock Option Plan, the
Company granted stock options to one individual during the quarter ended
June 30, 2001 to purchase an aggregate of 1,500 shares of the Company's
Common Stock at an exercise price of $7.15 per share. The stock options
relating to the Employee Stock Option Plan vest over a five-year period and
are exercisable over a six-year period and the stock options relating to
the Nonemployee Director Stock Option Plan 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 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits
--------
10.1 Amendment No. 9 to Loan and Security Agreement dated August
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 June 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: August 14, 2001 /s/ PAUL GOLDBERG
-----------------------------------------
Paul Goldberg, Chairman of the Board
(Duly Authorized Officer)
Date: August 14, 2001 /s/ HOWARD L. FLANDERS
-----------------------------------------
Howard L. Flanders, Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
11