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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, 2003
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. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of May 7, 2003, 3,813,809 shares of the common stock of All American
Semiconductor, Inc. were outstanding.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
FORM 10-Q - INDEX
Part Item Page
No. No. Description No.
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I FINANCIAL INFORMATION:
1. Financial Statements
Consolidated Condensed Balance Sheets at March 31, 2003
(Unaudited) and December 31, 2002..................................................... 1
Consolidated Condensed Statements of Income for the Quarters
Ended March 31, 2003 and 2002 (Unaudited)............................................. 2
Consolidated Condensed Statements of Cash Flows for the
Quarters Ended March 31, 2003 and 2002 (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............................. 11
4. Controls and Procedures................................................................ 11
II OTHER INFORMATION:
6. Exhibits and Reports on Form 8-K....................................................... 12
SIGNATURES............................................................................. 12
CERTIFICATIONS......................................................................... 12
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31 December 31
ASSETS 2003 2002
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(Unaudited)
Current assets:
Cash ...................................................... $ 615,000 $ 644,000
Accounts receivable, less allowances for doubtful
accounts of $1,706,000 and $1,718,000 ................... 40,933,000 41,234,000
Inventories ............................................... 51,062,000 52,762,000
Other current assets ...................................... 4,408,000 4,641,000
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Total current assets .................................... 97,018,000 99,281,000
Property, plant and equipment - net ......................... 2,862,000 2,796,000
Deposits and other assets ................................... 2,434,000 2,501,000
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$ 102,314,000 $ 104,578,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt ......................... $ 68,000 $ 78,000
Accounts payable and accrued expenses ..................... 42,012,000 44,336,000
Other current liabilities ................................. 254,000 197,000
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Total current liabilities ............................... 42,334,000 44,611,000
Long-term debt:
Notes payable ............................................. 33,988,000 34,013,000
Subordinated debt ......................................... 5,949,000 5,958,000
Other long-term debt ...................................... 1,171,000 1,171,000
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83,442,000 85,753,000
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Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued ................................. -- --
Common stock, $.01 par value, 40,000,000 shares authorized,
3,813,809 and 3,820,954 shares issued and outstanding ... 38,000 38,000
Capital in excess of par value ............................ 25,298,000 25,312,000
Accumulated deficit ....................................... (6,464,000) (6,525,000)
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18,872,000 18,825,000
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$ 102,314,000 $ 104,578,000
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See notes to consolidated condensed financial statements
1
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
QUARTERS ENDED MARCH 31 2003 2002
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NET SALES ............................................ $ 69,869,000 $ 82,142,000
Cost of sales ........................................ (55,987,000) (66,501,000)
------------ ------------
Gross profit ......................................... 13,882,000 15,641,000
Selling, general and administrative expenses ......... (13,198,000) (14,490,000)
------------ ------------
INCOME FROM OPERATIONS ............................... 684,000 1,151,000
Interest expense ..................................... (576,000) (967,000)
------------ ------------
INCOME BEFORE INCOME TAXES ........................... 108,000 184,000
Income tax provision ................................. (47,000) (65,000)
------------ ------------
NET INCOME ........................................... $ 61,000 $ 119,000
============ ============
Earnings per share:
Basic and diluted .................................. $ .02 $ .03
===== =====
See notes to consolidated condensed financial statements
2
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
QUARTERS ENDED MARCH 31 2003 2002
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Cash Flows Provided By Operating Activities ................... $ 211,000 $ 17,744,000
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Cash Flows From Investing Activities:
Acquisition of property and equipment ......................... (253,000) (46,000)
Decrease in other assets ...................................... 67,000 81,000
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Cash flows provided by (used for) investing activities ..... (186,000) 35,000
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Cash Flows From Financing Activities:
Net repayments under line of credit agreement ................. (25,000) (17,930,000)
Repayments of notes payable ................................... (15,000) (60,000)
Purchase of treasury shares ................................... (14,000) --
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Cash flows used for financing activities ................... (54,000) (17,990,000)
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Decrease in cash .............................................. (29,000) (211,000)
Cash, beginning of period ..................................... 644,000 636,000
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Cash, end of period ........................................... $ 615,000 $ 425,000
============ ============
Supplemental Cash Flow Information:
Interest paid ................................................. $ 470,000 $ 947,000
============ ============
Income taxes refunded - net ................................... $ (106,000) $ (7,273,000)
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See notes to consolidated condensed financial statements
3
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited Consolidated Condensed
Financial Statements include all adjustments (consisting of normal recurring
accruals or adjustments only) necessary to present fairly the financial position
at March 31, 2003, and the results of operations and the cash flows for all
periods presented. The results of operations for the interim periods are not
necessarily indicative of the results to be obtained in any future interim
period or for the entire year.
For a summary of significant accounting policies (which have not changed from
December 31, 2002) and additional financial information, see the Company's
Annual Report on Form 10-K for the year ended December 31, 2002, including the
consolidated financial statements and notes thereto which should be read in
conjunction with these financial statements.
The accompanying unaudited interim financial statements have been prepared in
accordance with instructions to Form 10-Q and, therefore, do not include all
information and footnotes required to be in conformity with accounting
principles generally accepted in the United States of America.
Stock-Based Compensation
------------------------
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related Interpretations to account for the option
plans using the intrinsic value method. Accordingly, no compensation cost has
been recognized for the option plans. Had compensation cost for the option plans
been determined using the fair value based method, as defined in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company's net earnings and earnings per share
would have been adjusted to the pro forma amounts indicated below. The Company
adopted Statement of Financial Accounting Standards No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123" as of January 1, 2003, which amended SFAS 123. The effect of
the adoption of this statement was not material as the Company continues to use
the intrinsic value method allowed under SFAS 123.
Quarters Ended March 31 2003 2002
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Net earnings:
As reported $ 61,000 $ 119,000
Pro forma 20,000 106,000
Basic and diluted earnings per share:
As reported $ .02 $ .03
Pro forma .01 .03
The fair value of each option grant was estimated on the date of the grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for the quarters ended March 31, 2003 and 2002, respectively:
expected volatility of 109% and 108%; risk-free interest rate of 4.1% and 4.0%;
and expected lives of 2 to 5 years.
The effects of applying SFAS 123 in the above pro forma disclosures are not
indicative of future amounts as future amounts are likely to be affected by the
number of grants awarded and since additional awards are generally expected to
be made at varying prices.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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Earnings Per Share
------------------
The following average shares were used for the computation of basic and diluted
earnings per share:
Quarters Ended March 31 2003 2002
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Basic ................................... 3,819,763 3,856,904
Diluted ................................. 3,819,862 3,878,447
2. LONG-TERM DEBT
At March 31, 2003, outstanding borrowings under the Company's $60 million line
of credit facility aggregated $33,988,000. The Company repaid all outstanding
borrowings under this facility, which were collateralized by substantially all
of the Company's assets, in connection with entering into a new credit facility
described below.
On May 14, 2003, subsequent to the balance sheet date, the Company entered into
a new $65 million credit facility (the "New Credit Facility") which expires May
14, 2006. Borrowings under the New Credit Facility bear interest at one of three
pricing levels dependent on the Company's debt service coverage ratio at the
quarterly pricing date (as defined), and are secured by all of the Company's
assets including accounts receivable, inventories and equipment. At the first
pricing level, at the Company's option, the rate will be either (a) .5% over the
greater of the Federal funds rate plus .5% and prime or (b) 2.75% over LIBOR. At
the second level, at the Company's option, the rate will be either (a) 1% over
the greater of the Federal funds rate plus .5% and prime or (b) 3.25% over
LIBOR. At the third level, at the Company's option, the rate will be either (a)
1.5% over the greater of the Federal funds rate plus .5% and prime or (b) 3.75%
over LIBOR. In accordance with the New Credit Facility, pricing will be at the
third level until June 30, 2003 (the first pricing date). In connection with the
New Credit Facility the Company recorded deferred financing fees aggregating
approximately $1.2 million. These fees will be amortized over the term of the
new facility in interest expense. As with our previous facility, 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) and the Company is required to comply with certain
affirmative and negative covenants and certain financial ratios. The covenants,
among other things, place limitations and restrictions on the Company's
borrowings, investments, capital expenditures and transactions with affiliates,
prohibit dividends and acquisitions and prohibit stock redemptions in excess of
an aggregate cost of $2.0 million during the term of the New Credit Facility.
The New Credit Facility requires the Company to maintain certain minimum levels
of tangible net worth throughout the term of the agreement as well as a minimum
debt service coverage ratio and a minimum inventory turnover level, each tested
on a quarterly basis.
3. OPTIONS
During the quarter ended March 31, 2003, no stock options were granted by the
Company pursuant to the Employees', Officers', Directors' Stock Option Plan, as
previously amended and restated (the "Option Plan"). During the quarter ended
March 31, 2003, a total of 29,710 stock options previously granted pursuant to
the Option Plan expired or were canceled at exercise prices ranging from $3.27
to $5.34 per share.
During the quarter ended March 31, 2003, no stock options were granted by the
Company pursuant to the 2000 Nonemployee Director Stock Option Plan, as amended.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
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4. STOCK REPURCHASE PROGRAM
In connection with the Company's stock repurchase program, which provides for
the repurchase of up to $2.0 million in purchase price of the Company's common
stock, the Company repurchased 7,145 shares of its common stock at an average
price of $1.99 per share, or an aggregate price of $14,000, during the quarter
ended March 31, 2003. Including previous purchases, the Company has repurchased
190,281 shares at an aggregate price of $581,000 under this program. Shares
purchased under this program are immediately retired.
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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
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Operations
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All American Semiconductor, Inc. and its subsidiaries (the "Company") is a
distributor of electronic components manufactured by others. The Company
distributes a full range of semiconductors (active components), including
transistors, diodes, memory devices, microprocessors, microcontrollers and other
integrated circuits, as well as passive components, such as capacitors,
resistors, inductors and electromechanical products, including cable, switches,
connectors, filters and sockets. These products are sold primarily to original
equipment manufacturers in a diverse and growing range of industries, including
manufacturers of computers and computer-related products; home office and
portable equipment; networking, satellite, wireless and other communications
products; Internet infrastructure equipment and appliances; automobiles;
consumer goods; voting and gaming machines; point-of-sale equipment; robotics
and industrial equipment; defense and aerospace equipment; and medical
instrumentation. The Company also sells products to contract electronics
manufacturers, or electronics manufacturing services, or EMS, providers who
manufacture products for companies in all electronics industry segments. Through
the Aved Memory Products division of its subsidiary, Aved Industries, Inc., the
Company also designs and has manufactured under the label of its subsidiary's
division certain memory modules which are sold to original equipment
manufacturers.
Critical Accounting Policies and Estimates
------------------------------------------
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the unaudited Consolidated Condensed Financial Statements and accompanying
notes. Estimates are used for, but not limited to, the accounting for the
allowance for doubtful accounts, inventories, income taxes, a postretirement
benefit obligation and loss contingencies. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results could differ from these
estimates under different assumptions or conditions.
The Company believes the following critical accounting policies, among others,
may be impacted significantly by judgement, assumptions and estimates used in
the preparation of the unaudited Consolidated Condensed Financial Statements:
The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). Under SAB 101, revenue is recognized at the point of
passage to the customer of title and risk of loss, and when there is persuasive
evidence of an arrangement, the sales price is determinable, and collection of
the resulting receivable is reasonably assured. The Company generally recognizes
revenue at the time of shipment. Sales are reflected net of discounts and
returns.
The allowance for doubtful accounts is maintained to provide for losses arising
from customers' inability to make required payments. If there is a deterioration
of our customers' credit worthiness and/or there is an increase in the length of
time that the receivables are past due greater than the historical assumptions
used, additional allowances may be required.
Inventories are stated at the lower of cost (determined on an average cost
basis) or market. Based on our assumptions about future demand and market
conditions as well as the Company's distribution agreements with its suppliers,
which generally provide for price protection and obsolescence credits,
inventories are written-down to market value. If our assumptions about future
demand change, and/or actual market conditions are less favorable than those
projected, additional write-downs of inventories may be required.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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Deferred tax assets are recorded based on the Company's projected future taxable
income and the resulting utilization of the deferred tax assets. To the extent
that the Company would not be able to realize all or part of its deferred tax
assets in the future, an adjustment to the deferred tax assets would be
necessary and charged to income.
The Company calculates a postretirement benefit obligation using actuarial life
expectancy tables and an assumed discount rate. If the assumptions used in this
calculation change, an adjustment to the postretirement benefit obligation may
be required.
Loss contingencies arise in the ordinary course of business. In determining loss
contingencies, we evaluate the likelihood of the loss or impairment of an asset
or the incurrence of a liability, as well as our ability to reasonably estimate
the amount of such loss. We accrue for an estimated loss contingency when it is
probable that a liability has been incurred or an asset has been impaired and
the amount of the loss can be reasonably estimated.
Results of Operations
---------------------
Net sales for the first quarter of 2003 were $69.9 million, a decrease of 14.9%
from net sales of $82.1 million for the same period of 2002. The decrease was
primarily attributable to a continuation of the industry downturn that began
during the fourth quarter of 2000. Net sales were also negatively impacted by a
weakness in demand for electronic components, a trend of electronics
manufacturing to move offshore as well as the general weakness in the overall
economy which has been further compounded by the recent geopolitical events.
Management expects that the weakness in market conditions may continue through
much of 2003. Additionally, management expects that the trend for electronics
manufacturing to move offshore, where the Company currently has very limited
sales presence, will continue. In an effort to increase its offshore presence,
the Company recently established operations in the U.K. to support the European
market and in South Korea to support the Asian market.
Gross profit was $13.9 million for the first quarter of 2003, down 11.2% from
$15.6 million for the same period of 2002. The decrease in gross profit was
primarily due to the decrease in net sales which was partially offset by a
slight improvement in gross profit margins. Gross profit margins as a percentage
of net sales were 19.9% for the first three months of 2003 compared to 19.0% for
the same period of 2002. The slight improvement in gross profit margins reflects
a fewer number of low margin, large volume transactions. Notwithstanding this
slight improvement, there is continued pressure on gross profit margins
reflecting the continued weakness in demand for electronic components, excess
product availability as well as a change in our product mix, including an
increase in sales of flat panel displays which generally sell at lower gross
margins. In addition, we continue to develop long-term strategic relationships
with accounts that require aggressive pricing programs and we expect a greater
number of low margin, large volume transactions. Management therefore expects
that the downward pressure on gross profit margins may continue and may result
in a decrease in our gross profit margins as a percentage of net sales.
Selling, general and administrative expenses ("SG&A") decreased to $13.2 million
for the first quarter of 2003 from $14.5 million for the first quarter of 2002.
The improvement in SG&A reflects a reduction in variable expenses associated
with the decline in sales and gross profit dollars. In addition, the improvement
reflects a reduction in operating lease expenses as well as a reduction in
discretionary expenditures.
SG&A as a percentage of net sales was 18.9% for the quarter ended March 31, 2003
compared to 17.6% for the same period of 2002. The increase in SG&A as a
percentage of net sales reflects the decline in sales which more than offset the
reduction in SG&A.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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Income from operations was $684,000 for the first quarter of 2003 compared to
$1.2 million for the first quarter of 2002. The decrease in income from
operations was due to the decline in sales and gross profit dollars for the
reasons discussed previously, which decreases were partially offset by the
slight improvement in SG&A described above.
Interest expense decreased significantly to $576,000 for the first quarter of
2003 from $967,000 for the same period of 2002. The substantial decrease in
interest expense resulted from significant decreases in our average borrowings
and decreases in overall interest rates. Our average borrowings decreased by $27
million when comparing the first quarter of 2003 and 2002. The decrease in
average borrowings was due to decreases in our inventory and accounts
receivable. In addition, a refund of income taxes receivable contributed to the
decrease in average borrowings. In connection with the New Credit Facility (see
"Liquidity and Capital Resources" below and Note 2 to Notes to Consolidated
Condensed Financial Statements (Unaudited)), interest expense in future quarters
will reflect the noncash amortization of deferred financing fees estimated at
$100,000 per quarter for an aggregate of $1.2 million over the term of the New
Credit Facility.
Net income was $61,000 or $.02 per share (diluted) for the quarter ended March
31, 2003, compared to $119,000 or $.03 per share (diluted) for the same period
of 2002.
Liquidity and Capital Resources
-------------------------------
Working capital at March 31, 2003 and December 31, 2002 was $54.7 million. The
current ratio was 2.29:1 at March 31, 2003 compared to 2.23:1 at December 31,
2002. Accounts receivable levels at March 31, 2003 were $40.9 million compared
to $41.2 million at December 31, 2002. Inventory levels were $51.1 million at
March 31, 2003, down from $52.8 million at December 31, 2002. Accounts payable
and accrued expenses decreased to $42.0 million at March 31, 2003 compared to
$44.3 million at December 31, 2002.
In connection with the Company's stock repurchase program, which provides for
the repurchase of up to $2.0 million in purchase price of the Company's common
stock, the Company repurchased 7,145 shares of its common stock at an average
price of $1.99 per share, or an aggregate price of $14,000, during the quarter
ended March 31, 2003. Including previous purchases, the Company has repurchased
190,281 shares at an aggregate price of $581,000 under this program.
At March 31, 2003, outstanding borrowings under the Company's $60 million line
of credit facility aggregated $33,988,000. The Company repaid all outstanding
borrowings under this facility, which were collateralized by substantially all
of the Company's assets, in connection with entering into a new credit facility
described below.
On May 14, 2003, subsequent to the balance sheet date, the Company entered into
a new $65 million credit facility (the "New Credit Facility") which expires May
14, 2006. Borrowings under the New Credit Facility bear interest at one of three
pricing levels dependent on the Company's debt service coverage ratio at the
quarterly pricing date (as defined), and are secured by all of the Company's
assets including accounts receivable, inventories and equipment. At the first
pricing level, at the Company's option, the rate will be either (a) .5% over the
greater of the Federal funds rate plus .5% and prime or (b) 2.75% over LIBOR. At
the second level, at the Company's option, the rate will be either (a) 1% over
the greater of the Federal funds rate plus .5% and prime or (b) 3.25% over
LIBOR. At the third level, at the Company's option, the rate will be either (a)
1.5% over the greater of the Federal funds rate plus .5% and prime or (b) 3.75%
over LIBOR. In accordance with the New Credit Facility, pricing will be at the
third level until June 30, 2003 (the first pricing date). In connection with the
New Credit Facility the Company recorded deferred financing fees aggregating
approximately $1.2 million. These fees will be amortized over the term of the
new facility in interest expense. As with our previous facility, 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) and the Company is required to comply with certain
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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affirmative and negative covenants and certain financial ratios. The covenants,
among other things, place limitations and restrictions on the Company's
borrowings, investments, capital expenditures and transactions with affiliates,
prohibit dividends and acquisitions and prohibit stock redemptions in excess of
an aggregate cost of $2.0 million during the term of the New Credit Facility.
The New Credit Facility requires the Company to maintain certain minimum levels
of tangible net worth throughout the term of the agreement as well as a minimum
debt service coverage ratio and a minimum inventory turnover level, each tested
on a quarterly basis.
Long-term debt, operating leases, purchase obligations and other long-term
obligations as of March 31, 2003 mature as follows:
Payments Due by Period
---------------------------------------------------------
Less than More than
Obligations Total 1 year 1-3 years 4-5 years 5 years
--------------------------------------------------------------------------------------------------------------
Long-term debt (1) ................ $ 39,996,000 $ 59,000 $ 39,305,000 $ 162,000 $ 470,000
Operating leases .................. 15,400,000 3,600,000 7,800,000 1,600,000 2,400,000
Purchase obligations (2) .......... 36,100,000 36,100,000 -- -- --
Other long-term obligations (3) ... 1,180,000 9,000 -- -- 1,171,000
------------ ------------ ------------ ------------ ------------
Total obligations ................. $ 92,676,000 $ 39,768,000 $ 47,105,000 $ 1,762,000 $ 4,041,000
============ ============ ============ ============ ============
---------
(1) Reflected on the unaudited Consolidated Condensed Balance Sheet as of March
31, 2003 and includes $33,988,000 under the Company's $60 million credit
facility which was replaced on May 14, 2003 with the New Credit Facility
which matures on May 14, 2006.
(2) Represents commitments to purchase inventory.
(3) Reflected on the unaudited Consolidated Condensed Balance Sheet as of March
31, 2003 and includes a postretirement benefit obligation of $1,171,000.
The Company currently expects that its cash flows from operations and additional
borrowings available under its New Credit Facility will be sufficient to meet
the Company's current financial requirements over the next twelve months.
Off-Balance Sheet Arrangements
------------------------------
The Company continues to guarantee the future payment to a third party of
certain leases which were previously pledged to the Company as collateral for
the payment of outstanding receivables which were owed by a customer. This
guaranty was made when the leases were sold to this third party who paid to the
Company in 2001 the net present value of the future payments of the leases. The
maximum exposure under this guaranty, which continues through the latest lease
expiration date of March 31, 2006, was $808,000 with a net present value of
$650,000 at March 31, 2003.
Forward-Looking Statements; Business Risks and Uncertainties
------------------------------------------------------------
This Form 10-Q contains forward-looking statements (within the meaning of
Section 21E. of the Securities Exchange Act of 1934, as amended), representing
the Company's current expectations and beliefs relating to the Company's or
industry's future performance, its future operating results, its sales,
products, services, markets and industry, market conditions and/or future events
relating to or effecting the Company and its business and operations, including
All American's attainment of new customers and success with new business
opportunities and global expansion. 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
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
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those indicated by the forward-looking statements because of various risks and
uncertainties. Factors that could adversely affect the Company's future results,
performance or achievements include, without limitation: the continuance of the
broad-based industry downturn resulting in the decline in demand for electronic
components and further excess customer inventory; continuing or worsening in the
overall economic weakness; the continuance of a trend for electronics
manufacturing to move offshore; the level of effectiveness of the Company's
business and marketing strategies, including those outside North America; an
increase in the allowance for doubtful accounts receivable and bad debts or
further write-offs of accounts receivable as a result of the weakened and/or
further weakening financial condition of certain of the Company's customers;
further write-offs of inventory arising from customers returning additional
inventory and further canceling orders or the devaluation of inventory as a
result of adverse market conditions; a reduction in the Company's development of
new customers, existing customer demand as well as the level of demand for
products of its customers; deterioration in the relationships with existing
suppliers, particularly one of our largest suppliers; price erosion in and price
competition for products sold by the Company; difficulty in the management and
control of expenses; the inability of the Company to generate revenue
commensurate with the level of personnel and size of its infrastructure; price
decreases on inventory that is not price protected; decreases in gross profit
margins, including decreasing margins resulting from the Company being required
to have aggressive pricing programs; an increasing number of low-margin, large
volume transactions and increased availability of the supply for certain
products; increased competition from third party logistics and fulfillment
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, including the borrowing base
formula under the credit facility not permitting the Company to borrow the
maximum amount under the facility, and from other sources (debt and/or equity)
to support the Company's operations; problems with telecommunication, computer
and information systems; the inability of the Company to expand its product
offerings or obtain product during periods of allocation; the inability of the
Company to continue to enhance its service capabilities and the timing and cost
thereof; the failure to achieve acceptance of or to grow in all or some of the
new technologies that have been or are being supported by the Company; an
increase in interest rates; the adverse impact of any product liability or
warranty claims; the impact from changes in accounting rules; the adverse impact
of war and terrorism on the economy; and the other risks and factors detailed in
this Form 10-Q and in the Company's Form 10-K for the fiscal year ended December
31, 2002 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. The Company undertakes no
obligation to update publicly or revise any forward-looking statements, business
risks and/or uncertainties.
Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
The Company's New Credit Facility bears interest based on interest rates tied to
the Federal funds rate, prime or LIBOR, any of which may fluctuate over time
based on economic conditions. As a result, the Company is subject to market risk
for changes in interest rates and could be subjected to increased or decreased
interest payments if market interest rates fluctuate. If market interest rates
increase, the impact may have a material adverse effect on the Company's
financial results.
Controls and Procedures
-----------------------
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
Within 90 days of the filing date of this report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our chief executive officer and the chief financial officer, of the
effectiveness of the design and operation of our "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934, Rules 13a -
14(c) and 15d - 14(c)). Based on this evaluation, our chief executive officer
and chief financial officer have concluded that as of the date of the evaluation
our disclosure controls and procedures are effective to ensure that all material
information required to be filed in this report has been made known to them.
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
Changes In Internal Controls
----------------------------
As of the date of this report there have been no significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) Exhibits
--------
10.1 Credit Agreement among Harris Trust and Savings Bank, as a
lender and administrative agent, US Bank National Association,
as co-agent, and the other lenders party thereto and the
Company, as borrower, dated May 14, 2003.
11.1 Statement Re: Computation of Per Share Earnings (Unaudited).
99.1 Certification of Chief Executive Officer Pursuant to 18
U.S.C.ss.1350.
99.2 Certification of Chief Financial Officer Pursuant to 18
U.S.C.ss.1350.
(b) Reports on Form 8-K
-------------------
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2003.
------------------------
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 15, 2003 /s/ Bruce M. Goldberg
--------------------------------------------
Bruce M. Goldberg, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: May 15, 2003 /s/ Howard L. Flanders
--------------------------------------------
Howard L. Flanders, Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
------------------------
CERTIFICATIONS
I, Bruce M. Goldberg, President and Chief Executive Officer of All American
Semiconductor, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of All American
Semiconductor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ Bruce M. Goldberg
------------------------
Bruce M. Goldberg
President and Chief Executive Officer
I, Howard L. Flanders, Executive Vice President and Chief Financial Officer of
All American Semiconductor, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of All American
Semiconductor, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
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ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
================================================================================
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 /s/ Howard L. Flanders
------------------------------
Howard L. Flanders
Executive Vice President and
Chief Financial Officer
14