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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 MARCH 31, 1999
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 May 13, 1999, 19,866,906 shares (including 160,703 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
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Part Item Page
No. No. Description No.
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I FINANCIAL INFORMATION:
1. Financial Statements
Consolidated Condensed Balance Sheets at March 31, 1999
(Unaudited) and December 31, 1998........................................... 1
Consolidated Condensed Statements of Income for the Quarters
Ended March 31, 1999 and 1998 (Unaudited)................................... 2
Consolidated Condensed Statements of Cash Flows for the
Quarters Ended March 31, 1999 and 1998 (Unaudited).......................... 3
Notes to Consolidated Condensed Financial Statements (Unaudited).............. 4
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 5
3. Quantitative and Qualitative Disclosures about Market Risk.................... 7
II OTHER INFORMATION:
2. Changes in Securities and Use of Proceeds..................................... 8
6. Exhibits and Reports on Form 8-K.............................................. 8
SIGNATURES.................................................................... 8
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i
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
ASSETS 1999 1998
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(UNAUDITED)
<S> <C> <C>
Current assets:
Cash .................................................... $ 323,000 $ 473,000
Accounts receivable, less allowances for doubtful
accounts of $1,605,000 and $1,412,000 ................. 42,980,000 37,821,000
Inventories ............................................. 69,232,000 69,063,000
Other current assets .................................... 2,659,000 2,574,000
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Total current assets .................................. 115,194,000 109,931,000
Property, plant and equipment - net ....................... 4,406,000 4,506,000
Deposits and other assets ................................. 3,464,000 3,458,000
Excess of cost over fair value of net assets acquired - net 1,041,000 1,062,000
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$ 124,105,000 $ 118,957,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt ....................... $ 212,000 $ 269,000
Accounts payable and accrued expenses ................... 40,936,000 41,229,000
Income taxes payable .................................... -- 56,000
Other current liabilities ............................... 227,000 185,000
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Total current liabilities ............................. 41,375,000 41,739,000
Long-term debt:
Notes payable ........................................... 48,641,000 43,306,000
Subordinated debt ....................................... 6,170,000 6,187,000
Other long-term debt .................................... 1,216,000 1,216,000
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97,402,000 92,448,000
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Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued ............................... -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 19,866,906 shares issued and outstanding .. 199,000 199,000
Capital in excess of par value .......................... 25,592,000 25,592,000
Retained earnings ....................................... 1,363,000 1,169,000
Treasury stock, at cost, 180,295 shares ................. (451,000) (451,000)
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26,703,000 26,509,000
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$ 124,105,000 $ 118,957,000
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</TABLE>
See notes to consolidated condensed financial statements
1
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
QUARTERS ENDED MARCH 31 1999 1998
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NET SALES ...................................... $ 70,649,000 $ 63,530,000
Cost of sales .................................. (57,010,000) (49,419,000)
------------ ------------
Gross profit ................................... 13,639,000 14,111,000
Selling, general and administrative expenses ... (12,203,000) (12,104,000)
------------ ------------
INCOME FROM OPERATIONS ......................... 1,436,000 2,007,000
Interest expense ............................... (1,096,000) (1,098,000)
------------ ------------
INCOME BEFORE INCOME TAXES ..................... 340,000 909,000
Income tax provision ........................... (146,000) (391,000)
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NET INCOME ..................................... $ 194,000 $ 518,000
============ ============
Basic and diluted earnings per share ........... $ .01 $ .03
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See notes to consolidated condensed financial statements
2
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
QUARTERS ENDED MARCH 31 1999 1998
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Cash Flows Used For Operating Activities ......... $(5,144,000) $ (669,000)
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Cash Flows From Investing Activities:
Acquisition of property and equipment ............ (144,000) (40,000)
Increase in other assets ......................... (118,000) (77,000)
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Cash flows used for investing activities ..... (262,000) (117,000)
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Cash Flows From Financing Activities:
Net borrowings under line of credit agreement .... 5,335,000 503,000
Repayments of notes payable ...................... (79,000) (60,000)
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Cash flows provided by financing activities .. 5,256,000 443,000
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Decrease in cash ................................. (150,000) (343,000)
Cash, beginning of period ........................ 473,000 444,000
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Cash, end of period .............................. $ 323,000 $ 101,000
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Supplemental Cash Flow Information:
Interest paid .................................... $ 830,000 $ 913,000
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Income taxes paid ................................ $ 237,000 $ 479,000
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See notes to consolidated condensed financial statements
3
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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 March 31, 1999, 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, 1998) and additional financial information, see the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, including the
consolidated financial statements and notes thereto which should be read in
conjunction with these financial statements.
EARNINGS PER SHARE
The following average shares were used for the computation of basic and diluted
earnings per share:
QUARTERS ENDED MARCH 31 1999 1998
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Basic ............................ 19,686,611 19,683,600
Diluted .......................... 19,686,611 20,146,069
2. LONG-TERM DEBT
Outstanding borrowings at March 31, 1999 under the Company's $100 million line
of credit facility aggregated $48,598,000.
3. OPTIONS
During the quarter ended March 31, 1999, the Company granted an aggregate of
195,000 stock options to 30 individuals pursuant to the Employees', Officers',
Directors' Stock Option Plan, as previously amended and restated (the "Stock
Option Plan"). These options have an exercise price of $.90 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 March 31, 1999,
118,000 stock options were canceled at exercise prices ranging from $1.00 to
$1.44 per share.
4
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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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 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
("OEMs") in a diverse and growing range of industries, including manufacturers
of computers and computer-related products, networking, satellite and
communications products, consumer goods, robotics and industrial equipment,
defense and aerospace equipment and medical instrumentation. The Company also
sells products to contract electronics manufacturers who manufacture products
for companies in all electronics industry segments. Through the Aved Memory
Products and Aved Display Technologies divisions of its subsidiary, Aved
Industries, Inc., the Company also designs and has manufactured under the label
of its subsidiary's divisions, certain board level products including memory
modules and flat panel display driver boards. These products are also sold to
OEMs.
RESULTS OF OPERATIONS
Net sales for the first quarter of 1999 reached a new record at $70.6 million,
up 11.2% from net sales of $63.5 million for the same period of 1998. The
increase in sales reflects increased sales in most territories as the Company
has refocused its efforts on internal growth after the negative impact from the
failed merger in 1998.
Gross profit was $13.6 million for the first quarter of 1999 compared to $14.1
million for the 1998 period. The decrease in gross profit was attributable to
the decline in gross profit margins which more than offset the increase in net
sales. Gross profit margins as a percentage of net sales were 19.3% for the
first three months of 1999 compared to 22.2% for the same period of 1998. The
decline in gross profit margins reflects increased competition, a greater number
of low margin, large volume transactions during the first quarter of 1999 than
in the first quarter of 1998 and continued changes in the Company's product mix.
In addition, the Company has experienced lower margins relating to the
development of long-term strategic relationships with accounts which have
required aggressive pricing programs. Management expects downward pressure on
gross profit margins to continue in the future.
Selling, general and administrative expenses ("SG&A") was $12.2 million for the
first quarter of 1999 compared to $12.1 million for the first quarter of 1998.
Despite a reduction in variable expenses associated with the decline in gross
profit, SG&A for the 1999 period increased slightly over 1998 primarily as a
result of an increase in the Company's infrastructure to support the additional
needs and requirements of our customers. Furthermore, in an effort to once again
drive expansion and internal growth, the Company opened a new sales office
during the second quarter of 1998, opened two additional sales offices during
the second quarter of 1999 and increased its management personnel during 1999.
Due to these factors, the Company expects that SG&A will increase in future
periods.
SG&A as a percentage of net sales improved to 17.3% for the quarter ended March
31, 1999, compared to 19.1% for the same period of 1998. The improvement in SG&A
as a percentage of sales reflects the increase in net sales.
Income from operations was $1.4 million for the first quarter of 1999 compared
to $2.0 million for the first quarter of 1998. Net income was $194,000 ($.01 per
share) for the quarter ended March 31, 1999, compared to $518,000 ($.03 per
share) for the same period of 1998. The decreases in income from operations and
net income were primarily attributable to the decrease in gross profit margins
discussed above.
5
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1999 increased to $73.8 million from working
capital of $68.2 million at December 31, 1998. The current ratio improved to
2.78:1 at March 31, 1999, compared to 2.63:1 at December 31, 1998. The increases
in working capital and in the current ratio were due primarily to an increase in
accounts receivable. Accounts receivable levels at March 31, 1999 were $43.0
million, up from accounts receivable of $37.8 million at December 31, 1998,
reflecting increased sales for March 1999 over December 1998.
At March 31, 1999, outstanding borrowings under the Company's line of credit
facility aggregated $48.6 million.
The Company expects that its cash flows from operations and additional
borrowings available under its credit facility will be sufficient to meet its
current financial requirements over the next twelve months.
YEAR 2000 ISSUE
The Company has evaluated its business information technology (IT) systems as
well as its non-IT systems and has surveyed its major vendors. The Company
currently believes that its internal systems are in compliance with Year 2000
requirements or, to the extent any further required modifications are necessary,
will comply with Year 2000 requirements without material expenditures of funds
or internal resources. Based upon the survey of the Company's major suppliers,
the Company currently believes that Year 2000 issues of its suppliers should not
have a material adverse effect on the Company's business, operations or
financial condition. Nevertheless, to the extent the Company's vendors
(particularly its major vendors) experience Year 2000 difficulties, the Company
may face delays in obtaining or even be unable to obtain certain products and
services and therefore may be unable to make shipments to customers resulting in
a material adverse effect on the Company's business, operations and financial
condition. The Company has not surveyed its customers and on a limited basis has
surveyed certain other third parties with which it has a business relationship.
As no assessment has been made of any potential impact by customers'
non-compliance (such as the ability of customers to electronically interface
with the Company), the Company does not have a cost estimate to address any
non-compliance by these customers nor can any assurance be given that such
non-compliance will not result in a material adverse effect on the Company's
business, operations and financial condition. The Company has not undertaken an
analysis (nor does it currently intend to analyze) the effect of a worst-case
Year 2000 scenario on the Company's business, operations or financial condition
and, accordingly, the materiality of such effect (if any) is uncertain and the
Company does not have a contingency plan and currently does not intend to create
one.
FORWARD-LOOKING STATEMENTS
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 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-Q, 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. Factors that could adversely affect the
Company's future results, performance or achievements include, without
limitation, the effectiveness of the Company's business and marketing
strategies, timing of delivery of products from suppliers, price increases from
suppliers that cannot be passed on to the Company's customers at the same rate,
the product mix sold by the Company, the Company's development of new customers,
existing customer demand as well as the level of demand for products of its
6
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customers, utilization by the Company of excess capacity, availability of
products from and the establishment and maintenance of relationships with
suppliers, price erosion in and price competition for products sold by the
Company, the ability of the Company to enter or expand new market areas in a
cost effective manner, the ability of the Company to expand its product
offerings and to continue to enhance its service capabilities and the timing and
cost thereof, the ability of the Company to open new branches in a timely and
cost-effective manner, the availability of acquisition opportunities and the
associated costs, 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, including decreasing margins relating to the
Company being required to have aggressive pricing programs, increased
competition from third party logistics companies and e-brokers through the use
of the Internet as well as from its traditional competitors, availability and
terms of financing to fund capital needs, the continued enhancement of
telecommunication, computer and information systems and the cost thereof, the
achievement by the Company and its vendors and customers and other third parties
with which the Company has a business relationship of Year 2000 compliance in a
timely and cost efficient manner, the continued and anticipated growth of the
electronics industry and electronic components distribution industry, 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, the state
of the general economy, the success of the Company in avoiding the delisting of
its common stock from The Nasdaq Stock Market, and the other risks and factors
detailed in this Form 10-Q, in the Company's 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.
7
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
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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 March 31, 1999, except that, pursuant to the
Company's Employees', Officers', Directors' Stock Option Plan, as
previously amended and restated, the Company granted stock options to
30 individuals during the quarter ended March 31, 1999, to purchase
195,000 shares of the Company's common stock at an exercise price of
$.90 per share. The stock options vest over a five-year period and are
exercisable over a six-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
11.1 Statement Re: Computation of Per Share Earnings (Unaudited).
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1999.
------------------------
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: May 17, 1999 /s/ PAUL GOLDBERG
----------------------------------------------------
Paul Goldberg, Chairman of the Board
(Duly Authorized Officer)
Date: May 17, 1999 /s/ HOWARD L. FLANDERS
----------------------------------------------------
Howard L. Flanders, Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
8
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
QUARTERS ENDED MARCH 31 1999 1998
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BASIC EARNINGS PER SHARE:
Net Income ................................ $ 194,000 $ 518,000
============ ===========
Weighted Average Shares Outstanding ....... 19,686,611 19,683,600
============ ===========
Basic Earnings Per Share .................. $ .01 $ .03
======= =======
DILUTED EARNINGS PER SHARE:
Net Income ................................ $ 194,000 $ 518,000
============ ===========
Weighted Average and Dilutive Shares:
Weighted average shares outstanding ..... 19,686,611 19,683,600
Dilutive shares ......................... -- 462,469
------------ -----------
19,686,611 20,146,069
============ ===========
Diluted Earnings Per Share ................ $ .01 $ .03
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from the Registrant's
consolidated condensed financial statements as of and for the three months ended
March 31, 1999, and is qualified in its entirety by reference to such
consolidated financial statements.
</LEGEND>
<CIK> 0000818074
<NAME> ALL AMERICAN SEMICONDUCTOR, INC.
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<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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