U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 12b-25
NOTIFICATION OF LATE FILING
(CHECK ONE):
[x] Form 10-K and Form 10-KSB [ ] Form 20-F [ ] Form 11-K
[ ] Form 10-Q and Form 10-QSB [ ] Form N-SAR
For Period Ended: December 31, 1996
[ ] Transition Report on Form 10-K
[ ] Transition Report on Form 20-F
[ ] Transition Report on Form 11-K
[ ] Transition Report on Form 10-Q
[ ] Transition Report on Form N-SAR
For the Transition Period Ended:
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Nothing in this Form shall be construed to imply that the
Commission has verified any information contained herein.
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If the notification relates to a portion of the filing checked above,
identify the item(s) to which the notification relates:
N/A
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PART I--REGISTRANT INFORMATION
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ALL AMERICAN SEMICONDUCTOR, INC.
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Full Name of Registrant (Former Name if Applicable)
16115 N.W. 52nd Avenue
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Address of Principal Executive Office (Street and Number)
Miami, Florida 33014
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City, State and Zip Code
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PART II--RULES 12b-25(b) AND (c)
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If the subject report could not be filed without unreasonable effort or expense
and the registrant seeks relief pursuant to Rule 12b-25(b), the following should
be completed. (Check box if appropriate)
[x] (a) The reasons described in reasonable detail in Part III of this form
could not be eliminated without unreasonable effort or expense;
[x] (b) The subject annual report, semi-annual report, transition report on
Form 10-K, Form 20-F, Form 11-K or Form N-SAR, or portion thereof will
be filed on or before the fifteenth calendar day following the
prescribed due date; or the subject quarterly report or transition
report on Form 10-Q, or portion thereof will be filed on or before the
fifth calendar day following the prescribed due date; and
[ ] (c) The accountant's statement or other exhibit required by Rule 12b-25(c)
has been attached if applicable.
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PART III--NARRATIVE
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The Registrant had completed in a format for electronic transmission its Form
10-K for the year ended December 31, 1996 (the "Form 10-K") and had authorized
in sufficient time its filing agent, Evaco Financial Printers, 201 South
Biscayne Boulevard, Suite 910, Miami, Florida 33131, to electronically transmit
in a timely manner the Registrant's Form 10-K. The filing agent acknowledged the
authorization to file and assured the Registrant the Form 10-K would be timely
filed. Notwithstanding, the filing agent negligently failed to transmit via
electronic format the Form 10-K prior to 5:30 p.m. on March 31, 1997. The
Registrant was not notified of such negligent failure by its filing agent until
approximately 10:30 p.m. on March 31, 1997. Accordingly, the Registrant was
unable to timely file the Form 10-K.
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PART IV--OTHER INFORMATION
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(1) Name and telephone number of person to contact in regard to this
notification
Howard L. Flanders (305) 626-4149
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(Name) (Area Code) (Telephone Number)
(2) Have all other periodic reports required under Section 13 or 15(d) of
the Securities Exchange Act of 1934 or Section 30 of the Investment Company Act
of 1940 during the preceding 12 months or for such shorter period that the
registrant was required to file such report(s) been filed? If the answer is no,
identify report(s).
[x] Yes [ ] No
(3) Is it anticipated that any significant change in results of operations
from the corresponding period for the last fiscal year will be reflected by the
earnings statements to be included in the subject report or portion thereof?
[x] Yes [ ] No
If so: attach an explanation of the anticipated change, both narratively
and quantitatively, and if appropriate, state the reasons why a reasonable
estimate of the results cannot be made. See Selected Financial Data and
Management's Discussion and Analysis of Financial Condition and Results of
Operations annexed hereto as Exhibit "A".
ALL AMERICAN SEMICONDUCTOR, INC.
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(Name of Registrant as Specified in Charter)
has caused this notification to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: April 1, 1997 By: /s/ Howard L. Flanders
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Name: Howard L. Flanders
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Title: Vice President and CFO
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EXHIBIT "A"
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the Company for and as of
the years 1992 through 1996 has been derived from the audited Consolidated
Financial Statements of the Company. Such information should be read in
conjunction with the consolidated financial statements and related notes
included elsewhere in this report and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Statement of Operations Data
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995(1) 1994 1993 1992
- ----------------------- ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Sales(2) ................ $ 237,846,000 $ 177,335,000 $101,085,000 $ 67,510,000 $ 49,015,000
Cost of Sales(3) ............ (185,367,000) (138,089,000) (74,632,000) (49,010,000) (35,083,000)
------------- ------------- ------------ ------------ ------------
Gross Profit ................ 52,479,000 39,246,000 26,453,000 18,500,000 13,932,000
Selling, General and
Administrative Expenses ... (51,675,000) (32,321,000) (23,374,000) (14,821,000) (11,384,000)
Restructuring and Other
Nonrecurring Expenses(4) .. (4,942,000) (1,098,000) (548,000) (61,000) (114,000)
------------- ------------- ------------ ------------ ------------
Income (Loss) from Continuing
Operations ................ (4,138,000) 5,827,000 2,531,000 3,618,000 2,434,000
Interest Expense(5) ......... (7,025,000) (2,739,000) (1,772,000) (1,103,000) (1,153,000)
Other Income (Expense)-Net(6) -- -- -- 281,000 --
------------- ------------- ------------ ------------ ------------
Income (Loss) from Continuing
Operations Before Income
Taxes ..................... (11,163,000) 3,088,000 759,000 2,796,000 1,281,000
Income Tax (Provision)
Benefit ................... 2,942,000 (1,281,000) (407,000) (1,094,000) (525,000)
------------- ------------- ------------ ------------ ------------
Income (Loss) from Continuing
Operations Before
Discontinued Operations and
Extraordinary Items ....... (8,221,000) 1,807,000 352,000 1,702,000 756,000
Discontinued Operations(7) .. (1,757,000) 79,000 -- -- --
Extraordinary Items(8) ...... 58,000 -- -- -- --
------------- ------------- ------------ ------------ ------------
Net Income (Loss) ........... $ (9,920,000) $ 1,886,000 $ 352,000 $ 1,702,000 $ 756,000
============= ============= ============ ============ ============
Earnings (Loss) Per Share(9):
Primary ................... $ (.49) $ .12 $ .03 $ .19 $ .12
Fully Diluted ............. $ (.49) $ .12 $ .03 $ .18 $ .12
Balance Sheet Data
DECEMBER 31 1996 1995 1994 1993 1992
- ----------- ----------- ------------ ------------ ------------ ------------
Working Capital ............. $ 69,823,000 $ 59,352,000 $ 39,800,000 $ 27,534,000 $ 19,427,000
Total Assets ................ 112,921,000 114,474,000 57,858,000 37,968,000 28,595,000
Long-Term Debt, Including
Current Portion ........... 58,221,000 37,604,000 27,775,000 14,928,000 13,850,000
Shareholders' Equity ........ 22,396,000 32,267,000 16,950,000 15,612,000 8,517,000
Book Value Per Common Share . $ 1.13 $ 1.62 $ 1.37 $ 1.30 $ 1.10
<FN>
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(1) On December 29, 1995, the Company completed the Added Value Acquisitions.
The statement of operations data for 1995 reflects only the nonrecurring
expenses associated with such acquisitions, while the balance sheet data
reflects the assets and liabilities of the acquired companies at December
31, 1995.
(2) Net sales, including sales generated by the Company's computer products
division which was discontinued in the third quarter of 1996, were
$244,668,000 for 1996 and $180,794,000 for 1995.
</FN>
</TABLE>
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(3) 1996 includes non-cash inventory write-offs of $2,000,000 associated with
the Company's restructuring of its kitting and turnkey operations.
(4) 1996 includes non-recurring expenses consisting of: $1,092,000 relating to
restructuring the Company's kitting and turnkey operations, $587,000
relating to the termination of certain employment agreements, $445,000
relating to closing the Company's Lisle, Illinois cable assembly division,
$625,000 relating to the accrual of a postretirement benefit cost associated
with an amendment to an employment agreement with one of the Company's
executive officers, and $2,193,000 relating to an impairment of goodwill
primarily related to the Added Value Companies. 1995 includes a charge for
front-end incentive employment compensation of $1,098,000 associated with
the Added Value Acquisitions. 1994 includes a charge for relocation of plant
facilities in the amount of $185,000 and a write-off of the Company's
product development investment of $363,000.
(5) Interest expense for 1996 includes amortization and a write-down of deferred
financing fees relating to obtaining the Company's new credit facility of
approximately $2,148,000.
(6) 1993 includes approximately $237,000 of income from the settlement of a
business interruption claim.
(7) Includes income (losses) from discontinued operations of $(166,000) (net of
$125,000 income tax benefit) and $79,000 (net of $(56,000) income tax
provision) for 1996 and 1995, respectively, and a loss on disposal of
$(1,591,000) (net of $1,200,000 income tax benefit) in 1996 relating to
management's decision to discontinue its computer products division.
(8) Reflects an after-tax gain of $272,000 (net of $205,000 income tax
provision) associated with the Company's settlement of a civil litigation
and an after-tax non-cash expense of $214,000 (net of $161,000 income tax
benefit) resulting from the early extinguishment of the Company's $15
million senior subordinated promissory note.
(9) Weighted average shares (including common share equivalents) outstanding for
the years ended December 31, 1996, 1995, 1994, 1993 and 1992 were
20,115,843, 15,945,696, 13,029,714, 9,166,908 and 6,514,481, respectively,
on a primary basis and were 20,115,843, 15,945,696, 13,029,714, 9,511,500
and 6,514,481, respectively, on a fully diluted basis.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The following table sets forth for the years ended December 31, 1996, 1995 and
1994 (i) certain items in the Company's consolidated statements of operations
expressed as a percentage of net sales and (ii) the percentage change in dollar
amounts of such items as compared to the indicated prior fiscal year. All
percentages are based on net sales after excluding sales from discontinued
operations.
<TABLE>
<CAPTION>
PERIOD TO PERIOD
ITEMS AS A PERCENTAGE PERCENTAGE INCREASE
OF NET SALES /(DECREASE)
-------------------------------- -------------------
YEARS ENDED YEARS ENDED
DECEMBER 31 DECEMBER 31
-------------------------------- -------------------
1996 1995 1994 1996-95 1995-94
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Sales .................... 100.0% 100.0% 100.0% 34.1% 75.4%
Gross Profit ................. 22.1 22.1 26.2 33.7 48.4
Selling, General and
Administrative Expenses .... (21.7) (18.2) (23.1) 59.9 38.3
Restructuring and Other
Nonrecurring Expenses ...... (2.1) (.6) (.5) 350.1 100.4
Income (Loss) from
Continuing Operations ...... (1.7) 3.3 2.5 (171.0) 130.2
Interest Expense ............. (3.0) (1.5) (1.8) 156.5 54.6
Income (Loss) from
Continuing Operations Before
Income Taxes ............... (4.7) 1.7 .8 (461.5) 306.9
Income (Loss) from
Continuing Operations Before
Discontinued Operations and
Extraordinary Items ........ (3.5) 1.0 .3 (555.0) 413.4
Discontinued Operations ...... (.7) * -- (2324.1) *
Extraordinary Items .......... * -- -- * --
Net Income (Loss) ............ (4.2) 1.1 .3 (626.0) 435.8
<FN>
- ------------------
* not meaningful
</FN>
</TABLE>
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COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
SALES
Net sales for the year ended December 31, 1996, were $244.7 million before
excluding sales from discontinued operations. Excluding $6.8 million of sales
from discontinued operations, net sales for the year ended December 31, 1996,
were $237.8 million, a 34.1% increase over net sales of $177.3 million excluding
$3.5 million of sales from discontinued operations in 1995. The increase in
sales reflects revenues generated by the Added Value Acquisitions completed on
December 29, 1995, the acquisition of PPI completed effective as of January 1,
1996, revenues generated by new sales offices and an increase in revenues
generated from existing sales offices. Substantially all of the increase in net
sales is attributable to volume increases and the introduction of new products
as opposed to price increases. In 1996, the Company experienced substantial
erosion in unit selling prices on a broad range of products; however, the
Company more than compensated for this price erosion with an increase in unit
volume. While sales for 1996 were ahead of last year, sales for the second half
of 1996 were substantially below the Company's expectations due to adverse
market conditions and price erosion on a broad range of products. See "Item 1.
Business-Business Strategy." The second, third and fourth quarters of 1996,
including discontinued operations, each represented a quarterly decline in sales
when compared to the prior consecutive quarter which were the first consecutive
quarterly declines for the Company since the fourth quarter of 1991.
GROSS PROFIT
Gross profit, without giving effect in 1996 to a $2.0 million inventory
write-off associated primarily with the Company's restructuring plan of its
kitting and turnkey operations and excluding gross profits generated from
discontinued operations, was $54.5 million in 1996 representing a 38.8% increase
over gross profit of $39.2 million for 1995 excluding discontinued operations.
The increase was due to the growth in sales as well as the increase 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-offs, were
22.9% for 1996 compared to 22.1% for 1995. The increase in gross profit margins
primarily reflects a fewer number of low margin, large volume transactions
during 1996 than in the previous year. After giving effect to the inventory
write-offs and discontinued operations, gross profit dollars were $52.5 million
and the gross profit margin was 22.1% for 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") was $51.7 million for 1996
compared to $32.3 million for 1995. The increase was primarily the result of the
Added Value Acquisitions as well as the increases in staffing and facilities to
prepare for the anticipated continuation of rapid growth and the enhancement of
computer and communications systems.
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In connection with the Added Value Acquisitions, all categories of SG&A
increased. In addition, the Company incurred consulting fees associated with the
systems conversions of the acquired companies and with the further development
of the Company's value added strategies. SG&A also increased as a result of the
operations of the new divisions, Aved Industries and Apex Solutions, which were
created as part of the acquisitions. Aved Industries, through its Aved Display
Technologies Division, concentrates on the design, manufacture, sales and
marketing of flat panel display products and technical support for these
products and, through its Aved Memory Products Division, on the design,
manufacture, sales and marketing of standard and custom memory module products.
Apex Solutions was created to attempt to expand the Company's ability to support
kitting and turnkey services on a national basis. In connection with these new
divisions, the Company, during the first part of 1996 and prior to the
determination to restructure such divisions at the end of the third quarter of
1996 as discussed below, increased staffing and also incurred additional
operating expenses.
In 1993, 1994 and 1995, respectively, the Company experienced sales growth of
38%, 50% and 79% and ended 1995 with a strong backlog and other indications of
continued rapid growth for 1996. In the first quarter of 1996, sales were 76%
over the same quarter of 1995 with strong indications of continued growth for
the balance of 1996. In order to drive and support the expected future growth as
well as to support the operations of the above referenced acquisitions and the
new divisions created in connection therewith, the Company expanded its
facilities and sales personnel, opened 9 new sales offices during the latter
part of 1995 and in 1996, created and staffed northeast and southwest credit
departments, increased expenses and investments in connection with its computer
and communications systems (see "Item 1. Business-Facilities and Systems"), and
increased staffing in almost all corporate departments.
Furthermore, in an effort to diversify its business and expand its service
capabilities and product offerings, the Company, created a cable assembly
division in 1994 and in mid 1995, created a computer products division, or CPD,
which distributed motherboards and other computer products. During 1996, the
Company relocated its west coast programming and distribution center into a
significantly larger facility and added additional staff for these operations.
Effective as of January 1, 1996, the Company also acquired Programming Plus
Incorporated, or PPI (see Note 4 to Notes to Consolidated Financial Statements)
and further increased staffing to support CPD. As a result of all of the
foregoing, SG&A for 1996 reflects increased salaries, payroll taxes and employee
benefit costs as well as additional operating expenses such as rent and office
supplies.
In May 1996, the Company decided to reduce the operation of its cable assembly
division and, the division, which was originally located in Lisle, Illinois, was
relocated to the Company's Miami distribution facility. During the third quarter
of 1996, the Company decided to discontinue the operation of CPD as a result of
supply problems and related losses. See Notes 6 and 7 to Notes to Consolidated
Financial Statements.
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In addition to the items set forth above, variable SG&A expenses, including
sales commissions and telephone expenses, increased as a result of the increases
in sales in 1996 over 1995. SG&A in absolute dollars is expected to increase in
future periods.
SG&A as a percentage of net sales was 21.7% for the year ended December 31,
1996, compared to 18.2% for 1995. The increase in SG&A as a percentage of net
sales reflects the increases in expenses associated with the acquisitions and
expansion described above, the additional operating costs in connection with the
restructuring as well as with the continued building of the Company's
infrastructure to support significantly higher sales levels than were actually
attained.
Due to the adverse market conditions and the significantly lower than
anticipated sales level during the second and third quarters of 1996, the
Company developed and began implementing expense control strategies and
restructured and discontinued unprofitable divisions. During the third quarter
of 1996, the Company determined that it was not economically feasible to
continue its current level of investment in Apex Solutions, especially in light
of the adverse market conditions which were present within the industry at that
time. As a result, the Company adopted a plan to restructure its kitting and
turnkey operations. In connection with this plan, the Company reduced the
related workforce and accrued for employee severance and related benefits and
wrote down various related assets. This restructuring resulted in a pretax
charge of $1.1 million which is reflected as restructuring and other
nonrecurring expenses in the accompanying Consolidated Statements of Operations.
See Note 6 to Notes to Consolidated Financial Statements. In addition, SG&A for
1996 includes approximately $800,000 of costs primarily associated with
operating Apex Solutions during the restructuring phase. Additionally, based on
a decision made in the third quarter of 1996, the Company has ceased the
activities of CPD and has reflected this division in the accompanying
Consolidated Financial Statements as discontinued operations. See Note 7 to
Notes to Consolidated Financial Statements. The positive impact of these
strategies may not be realized until future periods. The Company believes that
as the expense adjustments take effect, including the benefits of the
restructuring of the kitting and turnkey operations and the discontinuance of
CPD, and as the adverse market conditions continue to subside, the Company
should improve its performance in the future.
At September 30, 1996, the Company recognized an impairment of goodwill in
connection with the Company's acquisitions of the Added Value Companies and PPI.
See "Acquisitions". This non-cash charge of approximately $2,428,000, which is
primarily related to the Added Value Companies, has no associated tax benefit. A
variety of factors contributed to the impairment of the goodwill relating to the
Added Value Companies. These factors include a significant reduction in the
revenues and operating results generated by the Added Value Companies' customer
base acquired by the Company, a restructuring of the Added Value Companies'
kitting and turnkey operations due to the Company determining that it was not
economically feasible to continue and expand such division as originally
planned, as well as the termination of certain principals and senior management
of the Added Value Companies who became employees of the Company at the time of
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the closing of the acquisitions. These factors have greatly reduced the
estimated future cash flows from the Added Value Companies. In December 1996, as
part of a settlement agreement with certain selling stockholders of the Added
Value Companies, the Company reacquired and canceled 95,000 shares of the
Company's common stock valued at approximately $110,000. In addition, the
Company established a receivable for $125,000 related to excess distributions
made to certain principals of the Added Value Companies in connection with the
acquisitions which, together with the benefit associated with the settlement
agreement, reduced the impairment of goodwill to $2,193,000. See Notes 4, 5 and
6 to Notes to Consolidated Financial Statements.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income from continuing operations was adversely impacted by the following
nonrecurring charges: the above mentioned inventory write-offs, impairment of
goodwill and restructuring expenses associated with the kitting and turnkey
operations; the termination of certain employment agreements entered into in
connection with certain acquisitions in the amount of $587,000; the relocation
of the Company's Lisle, Illinois cable assembly division in the amount of
$445,000; and the acceleration of an existing accrual schedule associated with
certain postretirement benefits for one of the Company's executive officers in
the amount of $625,000 (see Notes 6 and 11 to Notes to Consolidated Financial
Statements). After giving effect to all of the above mentioned charges, the
Company had a loss from continuing operations of $4.1 million for 1996. This
compared to $5.8 million of income from continuing operations for 1995
notwithstanding nonrecurring expenses of $1.1 million relating to front-end
incentive employment compensation paid in connection with the Added Value
Acquisitions. The decrease in income from continuing operations, without giving
effect to these charges, was attributable to the increase in SG&A which more
than offset the increase in sales and gross profit dollars which were well below
the Company's expectations.
INTEREST EXPENSE
Interest expense increased to $7.0 million for the year ended December 31, 1996,
as compared to $2.7 million for 1995. The increase resulted from additional
borrowings to fund the Added Value Acquisitions completed in December 1995 as
well as additional borrowings required to support the Company's growth.
Borrowings also increased to finance the Company's losses in 1996. As a result
of the growth originally anticipated for 1996 as discussed above, the Company
refinanced its credit facility with the New Credit Facility (defined below)
which, subject to the terms thereof, could allow for substantial increases in
the Company's capital base. Interest expense for 1996 reflects amortization of
deferred financing fees of $444,000 in connection with obtaining the New Credit
Facility. In addition, as a result of a projected decrease in the Company's
future utilization of the New Credit Facility based on projected cash flows, as
well as certain changes to the terms of the initial agreement, $1,704,000 of the
deferred financing fees was written-off in 1996. See "Liquidity and Capital
Resources" and Note 8 to Notes to Consolidated Financial Statements.
DISCONTINUED OPERATIONS
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In the third quarter of 1996, the Company's management decided to discontinue
CPD due to the revenues generated by this division being significantly below the
Company's expectations principally as a result of the division's primary
supplier discontinuing the production of certain products that were the mainstay
of this division. The after-tax loss from discontinued operations of $1.8
million reflects the estimated costs and expenses associated with the
discontinuance and the related disposal, including the write-off of certain
assets, as well as a provision for operating losses during the phase-out period
which is expected to continue through March 31, 1997.
NET INCOME (LOSS)
After giving effect to the previously described after-tax write-off of
inventory, impairment of goodwill, restructuring and other nonrecurring
expenses, write-off of certain deferred financing fees, as well as the loss from
discontinued operations of CPD, the Company had a net loss of $9.9 million, or
$.49 per share, for the year ended December 31, 1996, compared to net income of
$1.9 million, or $.12 per share, for 1995. Included in the 1996 operating
results is an extraordinary after-tax gain of $272,000 recognized in connection
with the Company's settlement of a civil litigation and an extraordinary
after-tax expense of $214,000 resulting from the early extinguishment of the
Company's $15 million senior subordinated promissory note in connection with the
closing of the New Credit Facility.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
SALES
Including sales from discontinued operations, the Company had sales of $180.8
million for 1995 a 78.9% increase over net sales of $101.1 million in 1994.
Excluding sales from discontinued operations the Company had net sales of $177.3
million for the year ended December 31, 1995, a 75.4% increase over in 1994.
This dramatic increase in sales reflects the success of the Company's aggressive
sales strategy and the general increase in demand for electronic products. The
increase in sales was comprised of revenues generated from existing territories,
revenues generated by new sales offices and revenues generated by a company
acquired in September 1994. Substantially all of the increase in net sales is
attributable to volume increases and the introduction of new products as opposed
to price increases.
GROSS PROFIT
Gross profit, excluding gross profit from discontinued operations, was $39.2
million in 1995 compared to $26.5 million for 1994, representing a 48.4%
increase. The increase was due to the significant growth in sales. Gross profit
margins as a percentage of net sales were 22.1% for 1995 compared to 26.2% for
1994. The decline in gross margins was attributable to the development of
long-term strategic relationships with accounts who have required
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aggressive pricing, as well as a change in the Company's product mix and the
competitive environment in the electronic distribution marketplace. The decline
in gross profit margins was more than offset by increases in sales and improved
operating efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A for 1995, after reclassifying expenses related to discontinued operations,
was $32.3 million compared to $23.4 million for 1994. The increase was primarily
the result of the Company's rapid growth and aggressive expansion. As sales grew
dramatically, selling expenses, including sales commissions and telephone
expenses, also increased. In addition, as a result of the relocation of the
Company's corporate headquarters and distribution facility in May 1994, the
expansion of the computer and communications systems, the opening of new sales
offices and the relocating of existing sales offices into larger facilities,
rent (both for realty and personalty), occupancy expenses and depreciation and
amortization costs increased. Furthermore, the Company expanded its sales
personnel, created and staffed a northeast credit department and increased
staffing in almost all corporate departments. Additionally, during 1995 the
Company opened its new programming center and created a cable assembly division
(known as American Assemblies). As a result, SG&A for 1995 reflects start-up
costs including additional salaries, payroll taxes and employee benefit costs,
increased advertising and promotion expenses and increased training costs.
SG&A as a percentage of net sales improved to 18.2% for 1995 from 23.1% for
1994. The significant improvement in SG&A as a percentage of sales reflects the
improvement in operating efficiencies and benefits from economies of scale.
INCOME FROM CONTINUING OPERATIONS
Income from continuing operations, after reflecting discontinued operations, was
$5.8 million in 1995, notwithstanding nonrecurring expenses of $1.1 million
relating to front-end incentive employment compensation paid in connection with
the Added Value Acquisitions. This represents an increase of 130.2% over income
from continuing operations of $2.5 million, including nonrecurring expenses
aggregating $548,000, in 1994. The increase in income from continuing operations
was attributable to the significant increase in sales and improved operating
efficiencies which more than offset the decline in gross profit margins and the
additional expenses associated with the Company's expansion.
INTEREST EXPENSE
Interest expense increased to $2.7 million in 1995 as compared to $1.8 million
in 1994. The increase reflects an increase in both the prime rate as well as the
average borrowings outstanding under the Company's line of credit required to
fund the Company's continued growth. Additionally, interest expense also
increased as a result of the subordinated debt issued during June 1994, debt
issued in connection with tenant improvements relating to the relocation of the
Company's corporate headquarters and distribution center in May 1994 and debt
associated with capital leases.
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NET INCOME
Net income for 1995 reached $1.9 million, a more than five-fold increase over
net income of $352,000 for 1994. Earnings per share increased 300% to $.12 in
1995 from $.03 in 1994, even with a 22% increase in the average number of shares
outstanding. The increase in earnings for 1995 resulted primarily from the
significant increase in sales and the associated increase in operating
efficiencies and benefits from economies of scale as discussed above. In
addition, this increase in earnings was achieved notwithstanding the negative
impact on earnings associated with start-up costs in connection with the cable
assembly division, the opening of the Company's programming center and the
nonrecurring expenses associated with the Added Value Acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1996 increased to $69.8 million, from working
capital of $59.4 million at December 31, 1995. The current ratio was 3.13:1 at
December 31, 1996, as compared to 2.31:1 at December 31, 1995. The increase in
the current ratio was primarily due to an increase in other current assets
relating to a receivable generated in 1996 in connection with income tax
benefits associated with the loss carryback claims, the restructuring and other
nonrecurring expenses, and discontinued operations, as well as a reduction in
accounts payable and accrued expenses. Accounts receivable levels at December
31, 1996 were $32.7 million, down from accounts receivable of $35.1 million at
December 31, 1995. The decrease in accounts receivable at December 31, 1996 was
due to a non-cash write-off of $1.1 million of accounts receivable relating to
the closing of CPD, as well as a decrease in the average number of days that
accounts receivables were outstanding from 56 days as of December 31, 1995 to 54
days as of December 31, 1996. Inventory levels were $64.2 million at December
31, 1996 compared to $67.5 million at December 31, 1995. The decrease primarily
reflects non-cash write-offs in 1996 of $2.0 million relating to the
restructuring of the kitting and turnkey operations and $650,000 relating to the
closing of CPD. Accounts payable and accrued expenses decreased to $31.8 million
at December 31, 1996 from $43.5 million at December 31, 1995. This decrease was
primarily due to the payment of liabilities incurred in connection with the
Added Value Acquisitions completed in December 1995, which was partially offset
by the increase in accrued expenses associated with the restructuring of the
kitting and turnkey operations and the closing of CPD. The balance of this
accrued expense at December 31, 1996, which represented approximately 70% of the
original liability, is expected to be paid during 1997. See Notes 6 and 7 to
Notes to Consolidated Financial Statements.
On May 3, 1996 the Company entered into a new $100 million line of credit
facility with a group of banks (the "New Credit Facility") which expires May 3,
2001. The New Credit Facility replaced the Company's then existing $45 million
line of credit facility which was to expire in May 1997 and bore interest, at
the Company's option, either at one-quarter of one percent (.25%) below prime or
two percent (2%) above certain LIBOR rates. See Note 8 to Notes to Consolidated
Financial Statements. At the time of entering into the New
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Credit Facility, borrowings under the New Credit Facility bore interest, at the
Company's option, at either prime plus one-quarter of one percent (.25%) or
LIBOR plus two and one-quarter percent (2.25%). Borrowings under the New Credit
Facility are secured by all of the Company's assets including accounts
receivable, inventories and equipment. The amounts that the Company may borrow
under the New Credit Facility are based upon specified percentages of the
Company's eligible accounts receivable and inventories (as defined). Under the
New Credit Facility, the Company is required to comply with certain affirmative
and negative covenants as well as to comply with certain financial ratios. These
covenants, among other things, place limitations and restrictions on the
Company's borrowings, investments and transactions with affiliates and prohibit
dividends and stock redemptions. Furthermore, the New Credit Facility requires
the Company to maintain certain minimum levels of tangible net worth throughout
the term of the agreement and a minimum debt service coverage ratio which is
tested on a quarterly basis. During 1996, the Company's New Credit Facility was
amended whereby certain financial covenants were modified and the Company's
borrowing rate was increased by one-quarter of one percent (.25%). See Note 8 to
Notes to Consolidated Financial Statements. At December 31, 1996, outstanding
borrowings under the New Credit Facility aggregated $50.0 million. At February
28, 1997 outstanding borrowings under the New Credit Facility had declined to
$47.0 million.
In March 1996, the Company executed a senior subordinated promissory note in the
amount of $15 million to be repaid in July 1997. In May 1996, in connection with
the New Credit Facility the Company repaid this note and, as a result of the
early extinguishment, recognized an extraordinary after-tax expense of $214,000.
See Note 8 to Notes to Consolidated Financial Statements.
The Company expects that its cash flows from operations and additional
borrowings available under the New Credit Facility will be sufficient to meet
its current financial requirements over the next twelve months.
INFLATION AND CURRENCY FLUCTUATIONS
The Company does not believe that inflation or currency fluctuations
significantly impacted its business during 1996; however, inflation, changing
interest rates and currency fluctuations have had significant effects on the
economy in the past and could adversely impact the Company's results in the
future.
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ACQUISITIONS
Effective January 1, 1996, the Company purchased all of the capital stock of
Programming Plus Incorporated ("PPI"). The purchase price for PPI consisted of
$1,375,000 of common stock of the Company, valued at $2.50 per share. Only
60,000 shares of the Company's common stock, valued at $150,000, were released
to the PPI selling shareholders at closing. The $1,225,000 balance of the
consideration ("Additional Consideration"), represented by 489,999 shares of
common stock of the Company, was retained in escrow by the Company, as escrow
agent. The Additional Consideration will be released to the PPI selling
shareholders annually if and based upon certain levels of pre-tax net income
being attained by the acquired company for the years ended December 31, 1996
through December 31, 2000. For the year ended December 31, 1996, the acquired
company did not attain that certain level of pre-tax net income and,
accordingly, none of the Additional Consideration was released. If, as of
December 31, 2000, all of the Additional Consideration has not been released,
the balance held in escrow will be canceled. The PPI selling shareholders must
vote all of the Company's common stock issued to them (whether or not held in
escrow) as directed by the Company until the escrow is terminated. In addition,
the PPI selling shareholders entered into a four-year consulting obligation with
PPI in consideration of certain automobile benefits, and a covenant not to
compete with PPI. The total amount paid by PPI for such automobile benefits and
covenant was $150,000. The acquisition was accounted for by the purchase method
of accounting which resulted in the recognition of approximately $70,000 of
excess cost over fair value of net assets acquired. The excess cost over fair
value of net assets acquired was subsequently deemed impaired and, as of
December 31, 1996, was written-off. The assets, liabilities and operating
results of PPI are included in the consolidated financial statements of the
Company from the date of acquisition. See Note 4 to Notes to Consolidated
Financial Statements.
On December 29, 1995, the Company purchased through two separate mergers with
and into the Company's wholly-owned subsidiaries (the "Added Value
Acquisitions") all of the capital stock of Added Value Electronics Distribution,
Inc. ("Added Value") and A.V.E.D.-Rocky Mountain, Inc. ("Rocky Mountain"; Rocky
Mountain together with Added Value, collectively the "Added Value Companies"),
two affiliated, privately held electronic component distributors. The purchase
price for the Added Value Companies included approximately $2,936,000 in cash
and 2,013,401 shares of common stock of the Company valued at approximately
$4,893,000 (exclusive of the 160,703 shares of common stock issued in the
transaction to a wholly-owned subsidiary of the Company). In addition, the
Company paid an aggregate of $1,200,000 in cash to the selling stockholders in
exchange for covenants not to compete, and an aggregate of $1,098,000 in cash as
front-end incentive employment compensation paid to certain key employees of the
Added Value Companies. The Company also assumed substantially all of the
sellers' disclosed liabilities of approximately $8,017,000, including
approximately $3,809,000 in bank notes which have since been repaid. The Company
may be obligated to pay to certain of the selling stockholders of the Added
Value Companies up to approximately $266,000 of additional consideration
("Additional Consideration") if the aggregate value of the shares of the
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Company's common stock issued to certain of the selling stockholders has not, by
June 30, 1998, appreciated in the aggregate by $266,000. Prior to the Company
entering into a settlement agreement with certain of the selling stockholders in
December 1996 and with an additional selling stockholder in January 1997
(collectively the "Settlement Agreements") the Additional Consideration could
have been as much as $1,900,000. See Note 4 to Notes to Consolidated Financial
Statements. The Additional Consideration is payable, subject to certain
limitations, at the election of the Company, in cash or the Company's common
stock, or a combination of cash and the Company's common stock. The Settlement
Agreement entered into in December 1996 also provided, among other things, that
certain of the selling stockholders reconvey to the Company an aggregate of
95,000 shares of common stock of the Company which were issued as part of the
purchase price for the Added Value Companies and that the Company grant to
certain selling stockholders stock options to purchase an aggregate of 50,000
shares of the Company's common stock at an exercise price of $1.50 per share
exercisable through December 30, 2001. The acquisitions were accounted for by
the purchase method of accounting which resulted in the recognition of
approximately $2,937,000 of excess cost over fair value of net assets acquired.
As a result of a reduction in the estimated future cash flows from the Added
Value Companies, the Company recognized an impairment of goodwill of
approximately $2,200,000 in 1996. See Note 5 to Notes to Consolidated Financial
Statements. The assets, liabilities and operating results of the acquired
companies are included in the consolidated financial statements of the Company
from the date of the acquisitions, December 29, 1995.
FORWARD-LOOKING STATEMENTS
This Form 10-K 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 concerning the Company's future
performance and operating results, its products, services, markets and industry,
and/or future events relating to or effecting the Company and its business and
operations. When used in this Form 10-K, the words "believes," "estimates,"
"plans," "expects," "intends," "anticipates," and similar expressions as they
relate to the Company or its management are intended to identify forward-looking
statements. The actual results or achievements of the Company could differ
materially from those indicated by the forward-looking statements because of
various risks and uncertainties related to and including, without limitation,
the effectiveness of the Company's business and marketing strategies, timing of
delivery of products from suppliers, the product mix sold by the Company, the
Company's development of new customers, existing customer demand, availability
of products from and the establishment and maintenance of relationships with
suppliers, price competition for products sold by the Company, management of
growth and expenses, the Company's ability to collect accounts receivable, price
decreases on inventory that is not price protected, gross profit margins,
availability and terms of financing to fund capital needs, the continued
enhancement of telecommunication, computer and information systems, the
continued and anticipated growth of the electronics industry and electronic
components distribution industry, a change in government tariffs or duties, a
change in interest rates, and the other risks and factors detailed in this Form
10-K and in the Company's other filings with the Securities and Exchange
Commission. 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.
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