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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File Number: 0-16207
ALL AMERICAN SEMICONDUCTOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2814714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16115 N.W. 52nd Avenue
Miami, Florida 33014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 621-8282
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 20, 2002, 4,040,150 shares (including 32,141 shares held by a
wholly-owned subsidiary of the Registrant) of the common stock of ALL AMERICAN
SEMICONDUCTOR, INC. were outstanding, and the aggregate market value of the
common stock held by non-affiliates was $14,200,000.
Documents Incorporated by Reference:
Portions of the definitive proxy statement to be filed within 120 days after the
end of the Registrant's fiscal year are incorporated by reference into Part III.
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ALL AMERICAN SEMICONDUCTOR, INC.
FORM 10-K - 2001
Table of Contents
Part Item Page
No. No. Description No.
--- --- ----------- ---
I 1 Business...................................................................... 1
2 Properties.................................................................... 12
3 Legal Proceedings............................................................. 13
4 Submission of Matters to a Vote of Security-Holders........................... 13
II 5 Market for the Registrant's Common Equity and Related Stockholder Matters..... 13
6 Selected Financial Data....................................................... 15
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................... 16
7A Quantitative and Qualitative Disclosures about Market Risk.................... 26
8 Financial Statements and Supplementary Data................................... 26
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................... 26
III 10 Directors and Executive Officers of the Registrant............................ 26
11 Executive Compensation........................................................ 26
12 Security Ownership of Certain Beneficial Owners and Management................ 26
13 Certain Relationships and Related Transactions................................ 26
IV 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K............... 27
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PART I
ITEM 1. Business
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General
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All American Semiconductor, Inc. and its subsidiaries (collectively, the
"Company"; sometimes referred to herein as "Registrant") is a national
distributor of electronic components manufactured by others. The Company
distributes a full range of semiconductors (active components), including
transistors, diodes, memory devices, microprocessors, microcontrollers and other
integrated circuits, as well as passive components, such as capacitors,
resistors, inductors and electromechanical products, including cable, switches,
connectors, filters and sockets. These products are sold primarily to original
equipment manufacturers in a diverse and growing range of industries, including
manufacturers of computers and computer-related products; home office and
portable equipment; networking, satellite, wireless and other communications
products; Internet infrastructure equipment and appliances; automobiles;
consumer goods; voting and gaming machines; point-of-sale equipment; robotics
and industrial equipment; defense and aerospace equipment; and medical
instrumentation. The Company also sells products to contract electronics
manufacturers, or electronics manufacturing services, or EMS, providers who
manufacture products for companies in all electronics industry segments. Through
the Aved Memory Products division of its subsidiary, Aved Industries, Inc., the
Company also designs and has manufactured under the label of its subsidiary's
division, certain memory modules which are sold to original equipment
manufacturers. Prior to the second quarter of 2001, the Company also designed
and had manufactured under the label of Aved Display Technologies, a division of
the Company, certain board-level products including flat panel display driver
boards. As a result of adverse industry conditions and other factors, management
decided to discontinue its Aved Display Technologies division during the second
quarter of 2001. See "Products."
While the Company reincorporated in Delaware in 1987, it and its predecessors
have operated since 1964. The Company was recognized by industry trade
publications as the 6th largest distributor of semiconductors and the 12th
largest electronic components distributor overall in the United States, out of
an industry group that numbers more than 1,000 distributors.
The Company's principal executive office is located at 16115 N.W. 52nd Avenue,
Miami, Florida 33014. Our headquarters for sales and marketing functions and the
office of our President and Chief Executive Officer are located at 230 Devcon
Drive, San Jose, California 95112. Our telephone number in Florida is (305)
621-8282.
THIS REPORT (PARTICULARLY "ITEM 1. BUSINESS" AND "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS")
CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SEE "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - FORWARD-LOOKING
STATEMENTS; BUSINESS RISKS."
The Electronics and Electronics Distribution Industries
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The electronics industry is one of the largest industries in the United States.
Prior to 2001, it was also one of the fastest growing industries. During 2001,
the electronics and the electronics distribution industries suffered one of the
most severe downturns in the industries' history with global sales of
semiconductors declining by over 30%. Industry associations project that
electronic component revenue and total U.S. factory sales of electronic products
will resume growth in the future. Historically, the growth of these industries
has been driven by increased demand for new products incorporating sophisticated
electronic components, such as laptop computers, home office and portable
equipment, networking, satellite, wireless and other communications products,
infrastructure equipment and appliances for the Internet, voting and gaming
machines, point-of-sale equipment and multimedia products; as well as the
increased utilization of electronic components in a wide range of industrial,
automotive, consumer and military
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products. Worldwide consumption of semiconductor products grew from $126 billion
in 1998 to over $200 billion in 2000. Industry associations estimated that
worldwide consumption of semiconductors declined to $139 billion in 2001.
Analysts project that consumption of semiconductor products will reach $218
billion in 2004.
The three product groups included in the electronic components subsegment of the
electronics industry are semiconductors, passive/electromechanical components,
and systems and computer products (such as disk drives, terminals and computer
peripherals). The Company believes that semiconductors and
passive/electromechanical products currently account for approximately
two-thirds of the electronic components distribution marketplace, while systems
and computer products account for the remainder. The Company only participates
in the distribution of semiconductors and passive/electromechanical products
which account for two of the three industry product groups.
Distributors are an integral part of the electronics industry. During 2001, an
estimated $25 billion of electronic components were sold through distribution in
North America, up from $10 billion in 1992. Over the years there has been a
growing trend for distribution to play an increasing role in the electronics
industry. Original equipment manufacturers and contract electronics
manufacturers which utilize electronic components are increasingly looking to
outsource their procurement, inventory and materials management processes to
third parties in order to concentrate their resources (including management
talent, personnel costs and capital investment) on their core competencies,
which include product development, sales and marketing. Large distribution
companies not only fill these procurement and materials management roles, but
further serve as a single supply source for original equipment manufacturers and
contract electronics manufacturers, offering a much broader line of products,
incremental quality control measures and more support services than individual
electronic component manufacturers. Management believes that original equipment
manufacturers and contract electronics manufacturers will continue to increase
their service and quality requirements, and that this trend will result in
original equipment manufacturers, contract electronics manufacturers and
electronic component manufacturers continuing to be dependent on distributors in
the future.
Electronic component manufacturers are under similar pressure to allocate a
larger share of their resources to research, product development and
manufacturing capacity as technological advances continue to shorten product
lifecycles. Electronic component manufacturers sell directly to only a small
number of their potential customers. This small segment of their customer base
accounts for a large portion of the total available revenues. It is not
economical for component manufacturers to provide a broad range of sales support
services to handle the large amount of customers that account for the balance of
available revenues. With their expanded technology and service capabilities,
large distributors have now become a reliable means for component manufacturers
to outsource their sales, marketing, customer service and distribution
functions. This trend particularly benefits larger distributors with nationwide
distribution capabilities such as the Company, as manufacturers continue to
allocate a larger amount of their customer base to a more limited number of full
service distribution companies.
As a result of the trends discussed above, management believes that distribution
will continue to be involved in an increasing portion of the electronics
industry.
Another prevalent trend in the electronics distribution industry has been the
consolidation of distribution companies. This trend has accelerated, especially
in terms of magnitude, in recent years. The Company believes that this
consolidation has to date created, and will continue in the future to create,
growth opportunities for the Company. The Company believes that consolidation
trends have caused customers to lose as many as three of their approved
distributors. As a result, the Company believes that the Company has increasing
opportunities to add customers and/or do more business with existing customers
as consolidation has required the customers to consider realigning their
distribution networks. Similarly, as a result of consolidation, many suppliers
have either lost a distributor or become a much less significant supplier to the
consolidated distribution company. As a result of this impact from
consolidation, the Company believes that suppliers have recently added, and will
continue in the future to add, new distributors to their distribution networks.
Management believes that the Company has benefited from, and will continue to
benefit in the future from, the consolidation trend.
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Business Strategy
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The Company's strategy is to achieve growth and to gain market share by: (i)
taking advantage of consolidation trends, (ii) increasing the number of
customers it sells to through a combination of expanding existing sales offices,
opening new sales offices and making selective acquisitions; (iii) increasing
sales to existing customers by continuing to add new suppliers and expand its
product offerings and service capabilities; and (iv) increasing its
participation in e-commerce.
In an effort to accelerate internal growth, during 1999 the Company was
enhancing its management team in many areas and reformulating and implementing
strategies for expansion. The first half of 1999 was marked with continued
pressure on profitability throughout the industry as well as turmoil resulting
from accelerated consolidation trends. During the second half of 1999 market
conditions began to change as the excessive supply environment reversed, product
lead times began to stretch and some product groups went on allocation. As a
result, gross profit margins began to increase slightly. This reversal of market
conditions, combined with the expansion and other strategic decisions
implemented by management, enabled the Company to achieve improved results and
greater market penetration during the second half of 1999 which improvements
accelerated during 2000 resulting in the highest sales and profitability levels
in the Company's history. Even though 2000 was a record year, during the fourth
quarter the industry experienced a dramatic slowdown which progressively and
significantly worsened throughout 2001. While management believes that it may be
able to increase market share and return to profitability in the future, there
can be no assurance that these goals will be achieved, particularly since their
achievement depends to a large extent on market conditions outside the Company's
control.
Expansion
Prior to 2001 the Company drove significant expansion including opening new
offices, relocating and expanding existing offices and acquiring other
companies, all in order to increase its sales volume, expand its geographic
coverage and become recognized as a national distributor. See "Sales and
Marketing-Sales Office Locations." As a result of the implementation of the
Company's business strategy, the Company experienced significant growth in 1999
and 2000. In order to effectively drive and manage its expansion, in 1999 and
2000 the Company: (i) restructured, enhanced and expanded its sales staff and
sales management and marketing teams; (ii) expanded its quality control
programs; (iii) expanded its corporate operations department; (iv) enhanced its
state-of-the-art distribution technology; and (v) enhanced its asset management
capabilities through new computer and telecommunications equipment and, during
2000, through the opening of a west coast asset management group. To keep up
with industry trends the Company made significant investments in its web site
and Internet capabilities as well as other forms of e-commerce; and in that
regard during 1999 created its own web development group. The Company also
expanded its investment in its Field Application Engineer Program. In addition
to adding field application engineers to the program, in 2000 the Company
created the All American Technical Sales Program and opened the All American
Technical Center. Additionally, the Company continued to increase its investment
in its materials management solutions capabilities which is now referred to as
Supply Chain Management. As the Company developed a greater visibility at the
industry's top tier customer base, the Company created an Executive Accounts
Program. To better service the large customer base in the western part of the
United States and to enhance relationships with a supplier base that is
predominantly based in California, the Company dramatically expanded its west
coast corporate offices and relocated the President and Chief Executive Officer
of the Company to San Jose to be based where sales and marketing functions are
headquartered. The Company also expanded the operations of its west coast
programming and distribution center.
As a result of a severe industry downturn that began with a dramatic slowdown
during the fourth quarter of 2000, the Company progressively reduced its
workforce and discontinued certain of its non-core operations. See "Employees"
and "Products-Flat Panel Display Products" and Note 7 to Notes to Consolidated
Financial Statements. As market conditions improve, the Company expects to
resume its growth strategy.
3
Increasing Product Offerings
The Company intends to continue its efforts to increase the number and breadth
of its product offerings, thereby allowing it to attract new customers and to
represent a larger percentage of the purchases being made by its existing
customers. As part of its efforts to attract new suppliers and expand its
product offerings, prior to 2001 the Company had expanded its service
capabilities and opened new sales offices (see "Expansion").
During recent years, the Company added many new suppliers and expects to add
additional suppliers in the future. These new suppliers are intended to offer
larger growth opportunities than some of the smaller suppliers that the Company
has done business with in the past. New supplier relationships generally require
up-front investments that could take substantial time to provide a return.
Service Capabilities
During the past several years, customers have been reducing their approved
vendor base in an effort to place a greater percentage of their purchases with
fewer, more capable distributors. As part of its overall strategy to increase
market penetration, the Company has endeavored to develop state-of-the-art
service capabilities. The Company refers to these service capabilities as
"distribution technology." The Company believes that it has developed service
capabilities comparable to some of the largest distributors in the industry,
which service capabilities the Company believes are not yet readily available at
many distributors of comparable size to the Company. The Company further
believes that these capabilities are not generally made available by the largest
distributors to middle market customers, which represent the vast majority of
the Company's customer base. See "Competition." Management believes that smaller
distributors generally do not have the ability to offer as broad an array of
services as the Company. The Company differentiates itself from its competition
by making state-of-the-art distribution technology available to both large and
middle market customers. Although the Company believes that this differentiation
will assist the Company's growth as and when market conditions improve, there
can be no assurance that such differentiation exists to the extent that the
Company currently believes or that it will continue in the future.
The Company's distribution technology incorporates nationwide access to
real-time inventory and pricing information, electronic order entry and rapid
order processing. Over the years, the Company expanded its service capabilities
for just-in-time deliveries, bar coding, bonded inventory programs, kitting and
turnkey services, in-plant stores, in-plant terminals, electronic data
interchange programs, automatic inventory replenishment programs and complete
supply chain management solutions.
In order to further enhance its service capabilities, the Company also expanded
its Field Application Engineer Program. In 2000, the Company augmented its Field
Application Engineer Program by starting the All American Technical Sales
Program. The All American Technical Sales Program is intended to create another
level of salespeople who are certified as technically competent to assist
customers in the design process and in design decisions without actually being
at the engineering level of a field application engineer. Additionally, the
Company opened the All American Technical Center, which is staffed with design
specialists that can assist our sales force, our All American Technical Sales
people and our field application engineers when a higher level of expertise is
needed. The All American Technical Center staff also works on creating reference
designs and design tools to assist customers and suppliers. These programs are
intended to generate sales by providing customers with engineering support and
increased service at the design and development stages. These programs are also
intended to enhance the technical capabilities of the Company's entire sales
force through regular training sessions. Management believes that this
capability is helpful in attracting new suppliers.
Another important segment of electronics distribution is the sale of
programmable semiconductor products. Programmable semiconductors enable
customers to reduce the number of components they use by highly customizing one
semiconductor to perform a function that otherwise would require several
components to accomplish. This saves space and enables customers to reduce the
size and cost of their products. In order to effectively sell programmable
products, most major distributors have established
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their own semiconductor programming centers. To participate in this segment of
the industry, the Company has a 20,000 square foot facility in Fremont,
California (near San Jose) which incorporates a programming and a distribution
center. In order to service the then growing customer demand as well as changing
technologies, the Company increased its investments in its programming
capabilities during 1999 by purchasing additional programming equipment and
increasing its programming staff. In addition to enabling the Company to address
the market for programmable products, the Company expects that this capability
will allow the Company to attract new product lines that require programming
capabilities.
The Company believes that in the upcoming years an increasing amount of
transactions in its industry will be processed over the Internet. In this
regard, the Company designed and developed its own web site. In order to further
expand its utilization of and functionality on the Internet, the Company created
its own web development team in 1999. Additionally, to further its e-commerce
strategies the Company engaged with multiple third party Internet/e-commerce
companies to expand the visibility of the Company and the ways in which
customers can conduct commerce with the Company.
The Company also provides value-added services relating to its
passive/electromechanical business.
Quality Controls and ISO Certification
The Company has a total quality management program. The expansion in capacity
and service capabilities discussed above were done within the confines of
increasing strictness in quality control programs and traceability procedures.
As a result, the Company's Miami and Fremont distribution centers and its
Fremont programming center have all successfully completed a procedure and
quality audit that resulted in their certification under the international
quality standard of ISO 9002. This quality standard was established by the
International Standards Organization, or ISO, created by the European Economic
Community, or EEC. The ISO created uniform standards of measuring a company's
processes, traceability procedures and quality control in order to assist and
facilitate business among the EEC.
Products
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Active and Passive Components
The Company markets both semiconductors and passive products. Semiconductors,
which are active components, respond to or activate upon receipt of electronic
current. Active products include transistors, diodes, memory devices,
microprocessors, microcontrollers and other integrated circuits. Passive
components, on the other hand, are designed to facilitate completion of
electronic functions. Passive products include capacitors, resistors, inductors
and electromechanical products such as cable, switches, connectors, filters and
sockets. Virtually all of the Company's customers purchase both active and
passive products.
The Company does not offer express warranties with respect to any of its
component products, instead passing on only those warranties, if any, granted by
its suppliers.
Flat Panel Display Products
The Company believes that one of the faster growing segments of the electronics
industry will result from the expanded utilization of flat panel displays. Flat
panel displays are commonly used in laptop computers and are currently replacing
standard cathode ray tubes in a variety of applications, including medical,
industrial and commercial equipment, as well as personal computers, televisions,
automated teller machines, gaming machines and video monitors. In addition to
replacing cathode ray tubes in traditional applications, as a result of the
lower power requirements and reduced space needs of flat panel displays, the
advent of flat panels is enabling the implementation of display applications
that were not achievable with cathode ray tubes, such as laptop and palmtop
computers, handheld and portable products, voting machines, point-of-sale
equipment and advertising displays.
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In order to properly function in any application, flat panel displays need
certain electronic impulses. One solution for generating these electronic
impulses is the use of board level products that control and regulate the
electronic input that drives the flat panel display. These products are commonly
referred to as driver boards. In addition to the driver board, flat panel
displays require a back-light inverter to run the back-light, and cable
assemblies to connect the display, inverter and the driver board to each other
and to the equipment of which it is a part.
The Company has addressed the flat panel display market in several ways. First,
the Company has assembled a comprehensive offering of flat panel display
products, including products from manufacturers of flat panel displays, as well
as manufacturers of the necessary support products such as back-light inverters,
driver boards, cabling and touch-screen filaments. The second aspect in
addressing the flat panel display market is to develop the technical support
necessary to assist customers with integrating flat panel display applications.
In this regard the Company's Field Application Engineer Program and marketing
department have been developing expertise in flat panel display applications and
integration. Additionally, the Company has added flat panel display specialists
to its sales and marketing groups. In response to the growing need for support
of flat panel display business, during 1999 the Company formed its Display
Solutions Group to be a separate group within the Company dedicated entirely to
the support of flat panel display opportunities. Through its Display Solutions
Group, the Company has expanded its internal staff as well as developed
relationships with independent subcontractors, referred to as integrators, in
many different geographic locations. This strategy enables the Company to offer
a broad selection of products, services and solutions needed to service the
varying levels of support required by the customer base.
Another part of the Company's approach to the flat panel display marketplace was
with the creation of Aved Display Technologies. Aved Display Technologies, which
was a separate division, designed, developed and had manufactured under its own
label several proprietary driver board products for flat panel display
applications. Another aspect of the Company's approach to the flat panel display
marketplace was the creation of Integrated Display Technologies in the fourth
quarter of 2000. Integrated Display Technologies, which was run as a separate
division, was dedicated to addressing customer needs for design and integration
solutions for specialized applications. Due to the overall weakness in the
economy, the negative impact of the severe broad-based industry downturn and
other factors, Aved Display Technologies and Integrated Display Technologies
were discontinued during 2001. See Note 7 to Notes to Consolidated Financial
Statements.
Memory Modules
The Company also designs, has manufactured and sells memory modules under the
Aved Memory Products label. Memory products, which include the memory module
subsegment, represent one of the largest product sectors of semiconductor
revenues. Memory modules facilitate the incorporation of expanded memory in
limited space. In addition to Aved Memory Products, the Company has other
suppliers of memory module products.
With respect to products manufactured or assembled for Aved Memory Products, the
Company offers a warranty for a period of one year against defects in
workmanship and materials under normal use and service, in their original
unmodified condition and in compliance with the Company's terms and conditions.
Customers
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The Company markets its products primarily to original equipment manufacturers
in a diverse and growing range of industries. The Company's customer base
includes 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 providers, who manufacture
products for companies in all electronics industry segments. The Company's
customer list includes approximately
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12,000 accounts. During 2001, no customer accounted for more than 5% of the
Company's sales and the Company does not believe that the loss of any one
customer would have a material adverse impact on its business.
Sales and Marketing
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Overall Strategy
The Company differentiates itself from its competitors in the marketplace by the
combination of products and services that it can provide to its customers. The
Company is a broad-line distributor offering over 60,000 different products
representing approximately 75 different component manufacturers. In addition,
the Company employs a decentralized management philosophy whereby branch
managers are given latitude to run their operations based on their experience
within their particular regions and the needs of their particular customer base.
This decentralization results in greater flexibility and a higher level of
customer service. Thus, the Company believes it can provide the broad product
offering and competitive pricing normally associated with the largest national
distributors, while still providing the personalized service levels usually
associated only with regional or local distributors. As a result of its size and
capabilities, the Company brings to the middle market customers a level of
service capabilities that the smaller distributor cannot provide.
The Company's marketing strategy is to be a preferred and expanding source of
supply for all middle market customers. The Company is achieving this by
providing a broader range of products and services than is available from
smaller and comparably sized distributors, and a higher level of attention than
these customers receive from the larger distributors. In addition, the Company
continues its efforts to become a more significant supplier for the top tier
customers by focusing on a niche of products not emphasized by the larger
distributors while providing the high level of quality, service and technical
capabilities required to do business with these accounts.
The Company's marketing strategy also includes its e-commerce capabilities
through its web site functionality and the development of its portal
capabilities to enable its customers to utilize the services available from the
Company's strategically selected e-commerce partners.
Marketing Techniques
As part of the Company's marketing strategy, the marketing department is based
in Silicon Valley near the headquarters of the vast majority of the supplier
base. The Company uses various techniques in marketing its products which
include: (i) direct marketing through personal visits to customers by
management, field salespeople and sales representatives, supported by a staff of
inside sales personnel who handle the quoting, accepting, processing and
administration of sales orders; (ii) ongoing advertising in various national
industry publications and trade journals; (iii) general advertising, sales
referrals and marketing support from component manufacturers; (iv) the Company's
telemarketing efforts; and (v) a web site and portals on the Internet. The
Company also uses its expanded service capabilities, its Field Application
Engineer Program, Display Solutions Group, Supply Chain Management capabilities
and its status as an authorized distributor as marketing tools. See "Business
Strategy-Service Capabilities" and "Suppliers."
Sales Personnel
As a result of the severe industry downturn the Company went through a
significant reduction in its workforce during 2001. As of March 1, 2002, the
Company employed 319 people in sales on a full-time basis (as compared to 413
people as of March 1, 2001), of which 130 are field salespeople (of which over 7
are a part of our All American Technical Sales Program), 123 are inside
salespeople, 35 are in management, 20 are in administration and 11 are engineers
in the Field Application Engineer Program. The Company also had 11 sales
representatives covering various territories where the Company does not have
sales offices. Salespeople are generally compensated by a combination of salary
and commissions based upon the gross profits obtained on their sales. Each
branch is run by a general manager who
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reports to a regional manager, who in turn reports to an area manager. All area
managers report to the Company's Senior Vice President of Sales. Area, regional
and general managers are compensated by a combination of salary and incentives
based on achieving gross profit goals.
Sales Office Locations
The Company currently operates 33 sales offices in 21 states, Canada and Mexico.
The locations of the sales offices are in each of the following geographic
markets: Huntsville, Alabama; Phoenix, Arizona; Orange County, Sacramento, San
Diego, San Fernando Valley, San Jose and Tustin, California; Toronto, Canada;
Denver, Colorado; Fort Lauderdale, Miami, Orlando and Tampa, Florida; Atlanta,
Georgia; Chicago, Illinois; Kansas City, Kansas; Baltimore, Maryland; Boston,
Massachusetts; Guadalajara, Mexico; Detroit, Michigan; Minneapolis, Minnesota;
Long Island and Rochester, New York; Raleigh, North Carolina; Cleveland, Ohio;
Portland, Oregon; Philadelphia, Pennsylvania; Austin and Dallas, Texas; Salt
Lake City, Utah; Seattle, Washington and Milwaukee, Wisconsin.
The Company also retains field sales representatives to market other territories
throughout the United States, Canada, Puerto Rico and Mexico. The Company may
consider opening branches in these other territories if the representatives
located there achieve certain sales levels.
Transportation
All of the Company's products are shipped through third party carriers. Incoming
freight charges are generally paid by the Company, while outgoing freight
charges are typically paid by the customer.
Seasonality and Cyclicality
The Company's sales have not historically been materially greater in any
particular season or part of the year, however, there is some seasonality to our
industry. The electronic components and the electronics distribution industries
have historically been cyclical with significant volatility in the cycles.
Management believes that this cyclicality and volatility will continue in the
future. During the second half of 1999, the industry began entering an up-cycle
which continued throughout most of 2000 and was one of the industry's most
rapidly growing and strongest up-cycles. In the fourth quarter of 2000 the
up-cycle ended and the industry entered another down-cycle which accelerated and
continued throughout 2001 and was one of the most rapid and severe down-cycles
in the industry's history. Since the Company has experienced improved revenues
during the first quarter of 2002 as compared with the fourth quarter of 2001,
management believes that the bottom of the down-cycle may have been reached.
There can be no assurance, however, that an up-cycle will start soon nor that
business will not decline again and not decline further than it did in the
fourth quarter of 2001.
Foreign Sales
Sales to foreign countries aggregated approximately $19.8 million, $31.6 million
and $24.1 million for 2001, 2000 and 1999, respectively.
Backlog
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As is typical of distributors, the Company has a backlog of customer orders.
These orders are generally cancelable by the customer. At December 31, 2001, the
Company had a backlog in excess of $55 million, compared to a backlog in excess
of $158 million at December 31, 2000 and $80 million at December 31, 1999.
During 1998 and the first half of 1999 there was an excess availability of
product throughout the industry. As a result, customers kept much lower levels
of product on order as delivery times were short and prices were often
declining. During the second half of 1999 these conditions changed, lead times
began to stretch and certain product groups were being allocated by suppliers.
As a result, customers began increasing the amount of their scheduled orders.
Conditions of tight supply often result in customers placing scheduled orders
for more product than they actually need (referred to in the industry as double
booking). When product availability improves, customers begin to have more
inventory than
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they require and the industry typically experiences backlog cancellations and
inventory corrections. While lead times and product availability began to
improve toward the end of 2000 the severe product shortages earlier in the year,
combined with expectations that the market would continue to expand in 2001,
resulted in inflated customer backlogs at the end of 2000. The combination of
improved product availability, a slowing economy and other factors resulted in
customers beginning to cancel their backlog in the first quarter of 2001. As
market conditions worsened, customer backlog deteriorated even further. The
Company's backlog of $158 million at December 31, 2000 declined to $116 million
at the end of the first quarter of 2001, to $77 million at the end of the second
quarter of 2001 and to $59 million at the end of the third quarter of 2001.
While it dropped even further to $55 million at December 31, 2001, it increased
to $60 million by February 28, 2002.
The Company believes that a substantial portion of its backlog represents
products due to be delivered within the next three months. Historically,
approximately 30% of the backlog relates to purchase orders which call for
scheduled shipments of inventory over a period of time, with the balance
representing products that are on back-order with suppliers. The scheduled
shipments enable the Company to plan purchases of inventory over extended time
periods to satisfy such requirements. At this point in time, the correlation of
backlog to future sales is less of an indicator than historically. In addition,
the Company has increased its practices of electronic data interchange
transactions where the Company purchases inventory based on electronically
transmitted customer forecasts that may not become an order until the date of
shipment and, therefore, may not be reflected in the Company's backlog.
Suppliers
---------
The Company generally purchases products from component manufacturers pursuant
to non-exclusive distribution agreements. Such suppliers generally limit the
number of distributors they will authorize in a given territory in order to
heighten the distributor's focus on their products as well as to prevent
over-distribution. Suppliers also limit the number of distributors in order to
reduce the costs associated with managing multiple distributors. As a factory
authorized distributor, the Company obtains sales referrals, as well as sales,
marketing and engineering support, from component manufacturers. This support
assists the Company in closing sales and obtaining new customers. The Company's
status as an authorized distributor is a valuable marketing tool as customers
recognize that when dealing with an authorized distributor they receive greater
support from the component manufacturers.
The Company believes that an important factor which suppliers consider in
determining whether to grant or to continue to provide distribution rights to a
certain distributor is that distributor's geographic coverage. In meeting its
goal of being recognized as a national distributor, the Company has opened and
acquired sales offices in a number of markets throughout the United States and
has advertised in national industry publications to demonstrate its distribution
capabilities to current and potential suppliers. Another important factor that
suppliers consider is whether the distributor has in place an engineering staff
capable of assisting customers in designing-in the suppliers' products at the
customer base. To address this requirement, the Company has a Field Application
Engineer Program which is currently staffed with 11 engineers. The Company's
Field Application Engineer Program is augmented by the All American Technical
Sales Program started in 2000. During the last three years, the Company has been
successful in adding new suppliers.
Almost all distribution agreements are cancelable by either party, typically
upon 30 to 90 days notice. For the year ended December 31, 2001, the Company's
three largest suppliers accounted for 22%, 6% and 6% of consolidated purchases,
respectively. See Note 14 to Notes to Consolidated Financial Statements. While
most of the products that the Company sells are available from other sources,
the Company's future success will depend in large part on maintaining
relationships with existing suppliers and developing relationships with new
ones. While the Company believes that the loss of a key supplier could have an
adverse impact on its business in the short term, the Company would attempt to
replace the products offered by that supplier with the products of other
suppliers. If the Company were to lose its rights to distribute the products of
any particular supplier, there can be no assurance that the Company would be
able to replace the products which were available from that particular supplier.
The loss of, or significant disruption in relationships with, any of the
Company's largest suppliers or a significant number of other
9
suppliers in a short period of time could have a material adverse effect on the
Company and its operating results. The Company, from time to time, alters its
list of authorized suppliers in an attempt to provide its customers with a
better product mix.
The Company believes that it benefits from technological change within the
electronics industry as new product introductions accelerate industry growth and
provide the Company with additional sales opportunities. The Company believes
its inventory risk due to technological obsolescence is significantly reduced by
certain provisions typically found in its distribution agreements addressing
price protection, stock rotation privileges, obsolescence credits and return
privileges. Price protection is typically provided in the form of a credit to
the Company for any inventory the Company has of products for which the
manufacturer reduces its prices. Stock rotation privileges typically allow the
Company to exchange inventory in an amount up to 5% of a prior period's
purchases. Obsolescence credits allow the Company to return products which a
manufacturer discontinues. Upon termination of a distribution agreement, the
return privileges generally require the manufacturer to repurchase the Company's
inventory at the Company's average purchase price, however, if the Company
terminates the distribution agreement, there is generally a 10% to 15%
restocking charge.
The vast majority of the Company's inventory is purchased pursuant to its
distribution agreements. The Company does not generally purchase product for
inventory unless it is a commonly sold product, there is an outstanding customer
order to be filled, a special purchase is available or unless it is an initial
stocking package in connection with a new line of products. As a result of the
Company's strategy in how it has positioned itself in a rapidly consolidating
industry, the Company has been successful in attracting many new suppliers in
recent periods. As a result, the Company has added many new stocking packages to
its inventory. These new stocking packages typically take time to become
productive. While management believes that these new product lines and the
resulting stocking packages should provide growth opportunities in the future as
and when market conditions improve, there can be no assurance that this strategy
will be successful.
Facilities and Systems
----------------------
Facilities
The Company's corporate headquarters and main distribution center are located in
a 110,800 square foot facility in Miami, Florida. The Company occupies this
facility through a lease which expires in 2014, subject to the Company's right
to terminate at any time upon twenty-four months prior written notice and the
payment of all outstanding debt owed to the landlord. The lease for this
facility contains three six-year options to renew at the then fair market value
rental rates.
The Company also leases approximately 20,000 square feet of space for its west
coast distribution and semiconductor programming center located in Fremont,
California (near San Jose). In Denver, Colorado the Company leases a 7,100
square foot facility which is dedicated to certain value-added services and a
regional distribution center.
In Tustin, California the Company leases a 13,900 square foot facility for its
Aved Memory Products division. See "Products." In December 2000, the Company
leased 26,700 square feet of space in Irvine, California which housed the
operations of the Company's newly created Integrated Display Technologies
division. As a result of operations of this division being discontinued during
2001, the Company is attempting to reduce its commitment associated with this
space in Irvine, California.
During 1998, the Company entered into a lease for approximately 20,000 square
feet of space in San Jose, California to house its expanded west coast corporate
offices and the headquarters of the Company's sales and marketing functions, as
well as its northern California sales operation. Approximately 8,000 square feet
of the space is being used for corporate offices including the office of the
President and Chief Executive Officer of the Company and 8,000 square feet of
the space is being utilized for the sales operation. The remaining area of
approximately 4,000 square feet, which had been sublet, is presently vacant.
10
In addition, the Company leases space for its other sales offices, which offices
range in size from approximately 1,000 square feet to 10,000 square feet. See
"Sales and Marketing-Sales Office Locations."
Due to the severe industry downturn during 2001, the Company currently has
excess space in its sales offices and excess capacity in its distribution
centers. To the extent that the Company increases sales in future periods,
management expects to realize improved operating efficiencies and economies of
scale as a result of its present excess capacity. There can be no assurance,
however, that any sales growth will be obtained.
Systems
The Company's systems and operations are designed to facilitate centralized
warehousing which allows salespeople across the country to have real-time access
to inventory and pricing information and allows a salesperson in any office to
enter orders electronically, which instantaneously print in the appropriate
distribution facility for shipping and invoicing. The combination of the
centralized distribution centers and the electronic order entry enable the
Company to provide rapid order processing at low costs. The system also provides
for automatic credit checks, which prohibit any product from being shipped until
the customer's credit has been approved. Additionally, the systems allow the
Company to participate with customers and suppliers in electronic data
interchange and to expand customer services, including just-in-time deliveries,
kitting programs, bar coding, automatic inventory replenishment programs, bonded
inventory programs, in-plant stores and in-plant terminals and complete supply
chain management solutions.
As a result of rapidly increasing advances in technology, the Company has
recognized that its computer and communications systems will be subject to
continual enhancements. In order to meet the increasing demands of customers and
suppliers, to maintain state-of-the-art capabilities and to participate in
e-commerce, the Company has continually been expanding, and in the future will
continue to develop and expand, its systems capabilities, including hardware and
software upgrades to meet its computer and communications needs. As and when
market conditions improve, the Company believes that these systems enhancements
should assist the Company in increasing sales, improving efficiencies and
providing the potential for profitability in future periods through increased
employee productivity, enhanced asset management, improved quality control
capabilities and expanded customer service capabilities. See "Business
Strategy-Service Capabilities." There can be no assurance, however, that these
benefits will be achieved.
Foreign Manufacturing and Trade Regulation
------------------------------------------
A significant number of the components sold by the Company are manufactured by
foreign companies and purchased by the Company from United States subsidiaries
or affiliates of those foreign manufacturers. As a result, the Company and its
ability to sell at competitive prices could be adversely affected by increases
in tariffs or duties, changes in trade treaties, currency fluctuations, economic
or financial turbulence abroad, strikes or delays in air or sea transportation,
and possible future United States legislation with respect to pricing and import
quotas on products from foreign countries. The Company's ability to be
competitive in or with the sales of imported components could also be affected
by other governmental actions and policy changes related to, among other things,
anti-dumping and other international anti-trust legislation and currency
fluctuations. The Company believes that these factors may have had an adverse
impact on its business during past years, and there can be no assurance that
such factors will not have a more significant adverse effect on the Company in
the future. Since all of the Company's purchases from foreign companies are
transacted with United States subsidiaries or affiliates of these foreign
manufacturers, the Company's purchases are paid for in U.S. dollars.
Employees
---------
As a result of the severe industry downturn, the Company went through a
significant reduction in its workforce during 2001. As of March 1, 2002, the
Company employed 573 persons (as compared to 777
11
persons as of March 1, 2001), of which 319 are involved in sales and sales
management; 86 are involved in marketing; 61 are involved in the distribution
centers; 36 are involved in operations; 13 are involved in management; 36 are
involved in bookkeeping and clerical; and 22 are involved in information
technology. None of the Company's employees are covered by collective bargaining
agreements. The Company believes that management's relations with its employees
are good.
Competition
-----------
The Company believes that there are over 1,000 electronic components
distributors throughout the United States, ranging in size from less than $1
million in revenues to companies with annual sales that have exceeded $13
billion worldwide. These distributors can generally be divided into global
distributors who have operations around the world, national distributors who
have offices throughout the United States, regional distributors with offices in
multiple cities within the United States and local distributors with just one
location. With sales offices in 31 cities in 21 states, the Company competes as
a national distributor. Additionally, the Company is one of the few national
distributors which has offices in Canada and Mexico. The Company, which was
recognized by industry sources as the 6th largest distributor of semiconductors
and the 12th largest electronic components distributor overall in the United
States, believes its primary competition comes from the top 50 distributors in
the industry. Recently, there has been an emergence of additional competition
from the advent of third party logistics and fulfillment companies, businesses
commonly referred to as e-brokers and e-exchanges and several other forms of
e-commerce companies which have grown with the expanded use of the Internet.
While the Company is implementing its own e-commerce strategies, including its
web site and multiple portal development, there can be no assurance that the
Company will be able to defend its market share against the emergence of these
or other new business models.
The Company competes with many companies that distribute electronic components
and, to a lesser extent, companies that manufacture such products and sell them
directly. Some of these companies have greater name recognition and assets and
possess greater financial, personnel and other resources than does the Company.
The competition in the electronics distribution industry can be segregated by
target customers: major (or top tier) accounts; middle market accounts; small
accounts; and emerging growth accounts. Competition to be the primary supplier
for the major customers is dominated by the top tier distributors as a result of
the product offerings, pricing and distribution technology offered by these
distributors. The Company competes for a portion of the available business at
these major industry customers by seeking to provide the very best service and
quality and by focusing on products that are not emphasized by the top tier
distributors, or are fill-in or niche products. With its expanded product
offering and service capabilities and its quality assurance procedures in place,
the Company believes that it can compete for a bigger portion of the business at
the top tier customer base, although there can be no assurance that the Company
will be successful in doing so. The Company believes competition from the top
tier distributors for the middle and emerging market customer base is not as
strong since the largest distributors focus their efforts and resources on the
major account base. For this reason, the Company has focused strong efforts on
servicing this middle and emerging market customer base. The Company competes
for this business by seeking to offer a broader product base, better pricing and
more sophisticated distribution technology than the regional or local
distributors; by seeking to offer a broader product base and more sophisticated
distribution technology than comparably-sized distributors and by seeking to
offer to middle and emerging market companies a greater level of service than is
offered to them by the major national and global distributors. The Company
believes that today the top tier distributors continue their efforts to
penetrate the middle market customer base more than they have in the past.
ITEM 2. Properties
------- ----------
See "Item 1. Business-Facilities and Systems" and "Sales and Marketing-Sales
Office Locations" and Note 12 to Notes to Consolidated Financial Statements.
12
ITEM 3. Legal Proceedings
------- -----------------
The Company is from time to time involved in litigation relating to claims
arising out of its operations in the ordinary course of business. Many of such
claims are covered by insurance or, if they relate to products manufactured by
others for which it distributes, the Company would expect that the manufacturers
of such products would indemnify the Company, as well as defend such claims on
the Company's behalf, although no assurance can be given that any manufacturer
would do so. The Company believes that none of these claims should have a
material adverse impact on its financial condition or results of operations.
There has been a recent trend throughout the United States of increased
grievances over various employee matters. While the Company is presently not
involved in any material litigation relating to such matters, the Company
believes that costs associated with such matters may increase in the future.
ITEM 4. Submission of Matters to a Vote of Security-Holders
------- ---------------------------------------------------
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of 2001.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
------- -----------------------------------------------------------------
Matters
-------
Sales Prices of Common Stock
----------------------------
The Company's common stock trades on The Nasdaq Stock Market (Nasdaq National
Market) under the symbol SEMI. The following table sets forth the range of high
and low sale prices for the Company's common stock as reported on The Nasdaq
Stock Market during each of the quarters presented:
Quarter of Fiscal Year High Low
---------------------- ------ ------
2000
----
First Quarter $19.00 $ 3.06
Second Quarter 18.94 8.75
Third Quarter 24.44 14.63
Fourth Quarter 21.88 7.78
2001
----
First Quarter 14.50 6.94
Second Quarter 9.30 5.10
Third Quarter 7.40 2.04
Fourth Quarter 4.61 2.00
2002
----
First Quarter (through March 20, 2002) 4.25 3.25
Common Stock Purchase Rights Plan
---------------------------------
In June 2000, the Board of Directors of the Company adopted a Common Stock
Purchase Rights Plan (the "Rights Plan") and authorized and approved a dividend
distribution of one right (each a "Right" and collectively the "Rights") for
each outstanding share of common stock of the Company to shareholders of record
at the close of business on June 23, 2000. Each share of common stock of the
Company that is issued after June 23, 2000 will also include one Right.
Each Right initially entitles the registered holder to purchase from the
Company, but only when exercisable under the Rights Plan, one share of common
stock at a price of $95.00 per share, subject to certain future adjustments. The
Rights will be exercisable only if a person or group acquires 15% or more of the
Company's common stock (or 10% of such stock under certain circumstances) or
announces a tender offer the consummation of which would result in ownership by
a person or group of 15% or more of the
13
common stock (or 10% of such stock under certain circumstances). Upon such
occurrence, each Right (other than Rights owned by such person or group) will
entitle the holder to purchase from the Company the number of shares of the
Company's common stock having a market value equal to twice the exercise price
of the Right.
If the Company is acquired in a merger or other business combination
transaction, or sells more than 50% of its assets or earning power, after a
person or group has acquired 15% or more of the Company's outstanding common
stock (or 10% of such stock under certain circumstances), each Right (other than
Rights owned by such person or group) will entitle its holder to purchase, at
the Right's then-current exercise price, a number of the acquiring company's
common shares having a market value of twice such price.
Following the acquisition by a person or group of 15% or more of the Company's
common stock (or 10% of such stock under certain circumstances) and prior to an
acquisition of 50% or more of the common stock, the Board of Directors may
exchange the Rights (other than Rights owned by such person or group) at an
exchange ratio of one share of common stock per Right.
Prior to the acquisition by a person or group of beneficial ownership of 15% or
more of the Company's common stock (or 10% of such stock under certain
circumstances), the Rights are redeemable for $.001 per Right at the option of
the Board of Directors. The rights will expire on June 8, 2010.
Reverse Stock Split
-------------------
On June 1, 1999, the Company's shareholders approved a one-for-five reverse
stock split (the "Reverse Stock Split") of the Company's outstanding shares of
common stock. The Reverse Stock Split became effective for trading in the
Company's new common stock as of June 2, 1999. Immediately following the Reverse
Stock Split, there were 3,973,431 shares of common stock outstanding. The $.01
par value of the common stock remained the same after the Reverse Stock Split.
All references to shares of common stock, stock options, warrants, exercise
prices per share and per share amounts have been restated to reflect the effect
of the Reverse Stock Split.
As of March 20, 2002, there were approximately 350 holders of record of the
Company's common stock, based on the stockholders list maintained by the
Company's transfer agent. Many of these record holders hold these securities for
the benefit of their customers. The Company believes that, based upon
information provided by its transfer agent, it has over 5,000 beneficial holders
of its common stock.
Dividend Policy
---------------
The Company has never declared or paid cash dividends. Future dividend policy
will depend on the Company's earnings, capital requirements, financial condition
and other relevant factors. It is not anticipated, however, that the Company
will pay cash dividends on its common stock in the foreseeable future, inasmuch
as it expects to employ all available cash in the Company's operations and
future growth of its business. In addition, the Company's revolving line of
credit agreement prohibits the payment of any dividends. See Note 9 to Notes to
Consolidated Financial Statements.
Sales of Unregistered Securities
--------------------------------
The Company has not issued or sold any unregistered securities during the
quarter ended December 31, 2001.
14
ITEM 6. Selected Financial Data
------- -----------------------
The following selected consolidated financial data for the Company for and as of
the years 1997 through 2001 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." All references to
shares of common stock and per share amounts have been restated to reflect the
effect of the Reverse Stock Split. For the Company's unaudited quarterly results
of operations for the eight quarters ended December 31, 2001, see "Quarterly
Results of Operations" in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Statement of Operations Data
Years Ended December 31 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------
Net Sales (1)......................... $ 381,111,000 $ 516,155,000 $ 326,627,000 $ 247,557,000 $ 262,750,000
Cost of Sales (2)..................... (318,363,000) (409,934,000) (263,330,000) (193,354,000) (205,903,000)
------------- ------------- ------------- ------------- -------------
Gross Profit.......................... 62,748,000 106,221,000 63,297,000 54,203,000 56,847,000
Selling, General and
Administrative Expenses (3)......... (74,213,000) (78,368,000) (55,229,000) (45,936,000) (47,186,000)
Impairment of Goodwill................ (895,000) -- -- -- --
Restructuring and Other Nonrecurring
Expenses (4)........................ -- -- -- (2,860,000) --
------------- ------------- ------------- ------------- -------------
Income (Loss) from Continuing
Operations.......................... (12,360,000) 27,853,000 8,068,000 5,407,000 9,661,000
Interest Expense (5).................. (8,657,000) (8,642,000) (4,985,000) (4,313,000) (4,797,000)
------------- ------------- ------------- ------------- -------------
Income (Loss) from Continuing
Operations Before Income Taxes...... (21,017,000) 19,211,000 3,083,000 1,094,000 4,864,000
Income Tax (Provision) Benefit........ 7,424,000 (8,096,000) (1,326,000) (437,000) (1,944,000)
------------- ------------- ------------- ------------- -------------
Income (Loss) from Continuing
Operations Before
Discontinued Operations............. (13,593,000) 11,115,000 1,757,000 657,000 2,920,000
Discontinued Operations:
Income from Operations (6).......... 362,000 84,000 42,000 174,000 330,000
Loss on Disposal (7)................ (9,344,000) -- -- -- --
------------- ------------- ------------- ------------- -------------
Net Income (Loss)..................... $ (22,575,000) $ 11,199,000 $ 1,799,000 $ 831,000 $ 3,250,000
============= ============= ============= ============= =============
Basic Earnings Per Share (8):
Income (Loss) from
Continuing Operations............. $ (3.52) $ 2.90 $ .45 $ .17 $ .74
Discontinued Operations............. (2.33) .02 .01 .04 .09
------------- ------------- ------------- ------------- -------------
Net Income (Loss)................... $ (5.85) $ 2.92 $ .46 $ .21 $ .83
============= ============= ============= ============= =============
Diluted Earnings Per Share (8):
Income (Loss) from
Continuing Operations............. $ (3.52) $ 2.68 $ .45 $ .17 $ .74
Discontinued Operations............. (2.33) .02 .01 .04 .08
------------- ------------- ------------- ------------- -------------
Net Income (Loss)................... $ (5.85) $ 2.70 $ .46 $ .21 $ .82
============= ============= ============= ============= =============
Balance Sheet Data
December 31 2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------
Working Capital....................... $ 86,569,000 $ 159,644,000 $ 91,217,000 $ 68,192,000 $ 63,308,000
Total Assets.......................... 144,122,000 250,219,000 151,501,000 118,957,000 112,286,000
Long-Term Debt, Including
Current Portion..................... 76,075,000 128,124,000 71,867,000 50,978,000 46,900,000
Shareholders' Equity.................. 17,025,000 39,598,000 27,852,000 26,509,000 25,674,000
Book Value Per Common Share........... $ 4.21 $ 9.80 $ 7.01 $ 6.67 $ 6.46
-------------------------
(1) Net sales including sales generated by the Company's Aved Display
Technologies ("ADT") and Integrated Display Technologies ("IDT") divisions
and the related turnkey support business which were discontinued in the
second quarter of 2001 were $388,109,000 for 2001, $522,183,000 for 2000,
$329,563,000 for 1999, $250,044,000 for 1998 and $265,640,000 for 1997.
15
(2) 2001 includes non-cash inventory write-offs of $13,375,000. See Note 8 to
Notes to Consolidated Financial Statements.
(3) 2001 includes non-cash write-offs of accounts receivable of $5,220,000. See
Note 8 to Notes to Consolidated Financial Statements.
(4) Reflects a nonrecurring charge relating to a failed proposed merger. The
nonrecurring charge includes expansion costs incurred in anticipation of
supporting the proposed combined entity, employee-related expenses,
professional fees and other merger-related out of pocket costs.
(5) Interest expense for 2001 includes write-downs of deferred financing fees of
approximately $448,000. See Note 9 to Notes to Consolidated Financial
Statements.
(6) Reflects income from discontinued operations of $362,000 (net of $208,000
income tax provision) for 2001, $84,000 (net of $61,000 income tax
provision) for 2000, $42,000 (net of $32,000 income tax provision) for 1999,
$174,000 (net of $124,000 income tax provision) for 1998, and $330,000 (net
of $220,000 income tax provision) for 1997 relating to management's decision
to discontinue the ADT and IDT divisions as well as the related turnkey
support business. See Note 7 to Notes to Consolidated Financial Statements.
(7) Reflects a loss on disposal of $(9,344,000) (net of $5,367,000 income tax
benefit) primarily made up of the write-offs of $4,488,000 of inventory and
$7,442,000 of accounts receivable. See Note 7 to Notes to Consolidated
Financial Statements.
(8) Weighted average common shares outstanding after reflecting the Reverse
Stock Split for the years ended December 31, 2001, 2000, 1999, 1998 and 1997
were 3,856,813, 3,828,978, 3,921,138, 3,937,021 and 3,934,512, respectively,
for basic earnings per share and were 3,856,813, 4,140,579, 3,924,166,
3,998,802 and 3,956,967, respectively, for diluted earnings per share.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
------- -----------------------------------------------------------------------
of Operations
-------------
This discussion should be read in conjunction with "Item 6. Selected Financial
Data" and Notes to Consolidated Financial Statements contained in this report.
Results of Operations
---------------------
Overview
The following table sets forth for the years ended December 31, 2001, 2000 and
1999, certain items in the Company's Consolidated Statements of Operations
expressed as a percentage of net sales. All percentages are based on net sales.
Items as a Percentage
of Net Sales
--------------------------------
Years Ended
December 31
--------------------------------
2001 2000 1999
------ ------ ------
Net Sales..................................................................... 100.0% 100.0% 100.0%
Gross Profit.................................................................. 16.5 20.6 19.4
Selling, General and Administrative Expenses.................................. (19.5) (15.2) (16.9)
Impairment of Goodwill........................................................ (0.2) -- --
Income (Loss) from Continuing Operations...................................... (3.2) 5.4 2.5
Interest Expense.............................................................. (2.3) (1.7) (1.5)
Income (Loss) from Continuing Operations Before Income Taxes.................. (5.5) 3.7 1.0
Income Tax (Provision) Benefit................................................ 1.9 (1.5) (0.4)
Income (Loss) from Continuing Operations Before Discontinued Operations....... (3.6) 2.2 0.6
Discontinued Operations....................................................... (2.3) * *
Net Income (Loss)............................................................. (5.9) 2.2 0.6
-------------------
* not meaningful
16
Comparison of Years Ended December 31, 2001 and 2000
----------------------------------------------------
Sales
Net sales from continuing operations for the year ended December 31, 2001 were
$381.1 million, representing a 26.2% decrease over record sales from continuing
operations of $516.2 million for 2000. The decrease was primarily attributable
to a severe broad-based industry downturn, weakness in demand for electronic
components as well as the general weakness in the overall economy. While the
timing of an industry turnaround is uncertain, management is optimistic about
the outlook for the electronics industry and the long-term prospects for the
Company.
Gross Profit
Without giving effect to non-cash inventory write-offs during 2001 aggregating
$13.4 million resulting from adverse industry conditions (see Note 8 to Notes to
Consolidated Financial Statements), gross profit was $76.1 million for 2001,
representing a 28.3% decrease from gross profit of $106.2 million for 2000. The
decrease was due to the significant decline in sales as well as the decrease in
gross profit margins as a percentage of net sales. Gross profit margins as a
percentage of net sales, without giving effect to the inventory write-offs, were
20.0% for 2001 compared to 20.6% for 2000. The decline in gross profit margins
reflects the severe industry downturn, weakness in demand for electronic
components and excess product availability. In addition, we continue to develop
long-term strategic relationships with accounts that have required aggressive
pricing programs and we expect a greater number of low margin, large volume
transactions. Management therefore expects the downward pressure on gross profit
margins may continue. After giving effect to the inventory write-offs, gross
profit dollars were $62.7 million and the gross profit margin was 16.5% for
2001.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A"), without giving effect to
$5.2 million of write-offs of accounts receivable resulting from the adverse
economic and industry conditions, was $69.0 million for 2001 compared to $78.4
million for 2000. The improvement in SG&A reflects the implementation of certain
expense reduction programs, including workforce and salary reductions which
began during the first half of 2001. The improvement also reflects a reduction
in variable expenses associated with the decline in sales and gross profit
dollars. After giving effect to the accounts receivable write-offs, SG&A was
$74.2 million for 2001.
Without giving effect to the write-offs of accounts receivable, SG&A as a
percentage of net sales was 18.1% for the year ended December 31, 2001 compared
to 15.2% for the 2000 period. The increase in SG&A as a percentage of net sales
reflects the significant decline in sales, slightly offset by the improvement in
SG&A discussed above. After taking into account the write-offs of accounts
receivable during the year, SG&A as a percentage of net sales was 19.5% for
2001. See Note 8 to Notes to Consolidated Financial Statements.
Income (Loss) from Continuing Operations
Excluding the non-cash charges during 2001 for inventory and accounts receivable
write-offs discussed above and also excluding an $895,000 non-cash write-off of
goodwill (see Note 6 to Notes to Consolidated Financial Statements), income from
continuing operations was $7.1 million for 2001, compared to income from
continuing operations of $27.9 million for 2000. The decrease in income from
continuing operations (excluding the non-cash charges) was primarily
attributable to decreases in sales and gross profit dollars resulting from the
severe industry downturn, which decreases were partially offset by the
improvement in SG&A described above. See Note 8 to Notes to Consolidated
Financial Statements. After giving effect to the previously mentioned non-cash
charges the Company had a loss from continuing operations of $12.4 million for
2001.
17
Interest Expense
Interest expense, without giving effect to $448,000 of a non-cash write-off of
deferred financing fees in connection with changes in the Company's credit
facility during 2001, was $8.2 million for 2001 compared to $8.6 million for
2000. The decrease in interest expense resulted from a decrease in overall
interest rates as well as from a significant decline in our average borrowings
during 2001. The significant decline in our borrowings during 2001 was primarily
attributable to the decreases in inventory and accounts receivable during the
second half of the year. These factors more than offset the impact from an
increase in our interest rate margins during 2001 under the Company's line of
credit agreement. See "Liquidity and Capital Resources" and Note 9 to Notes to
Consolidated Financial Statements.
Discontinued Operations
Due to the overall weakness in the economy, the negative impact of the severe
broad-based industry downturn and other factors, Aved Display Technologies
("ADT") and Integrated Display Technologies ("IDT") did not generate the cash
flows anticipated. As a result, during 2001, management decided to discontinue
these divisions. Accordingly, these divisions are accounted for as discontinued
operations in the accompanying Consolidated Financial Statements. The loss on
disposal of $14.7 million on a pretax basis ($9.3 million after tax) includes
the estimated costs and expenses associated with the disposal of $14.6 million
primarily made up of the write-off of $4.5 million of inventory and $7.4 million
of accounts receivable. In addition, the loss on disposal includes a provision
of $112,000 on a pretax basis for operating losses during the phase-out period
which continued for approximately two months. See Note 7 to Notes to
Consolidated Financial Statements.
Net Income (Loss)
After giving effect to the non-cash charges and the loss from discontinued
operations, all as discussed above, the Company had a net loss of $22.6 million,
or $(5.85) per share (diluted), for the year ended December 31, 2001, compared
to a record net income of $11.2 million, or $2.70 per share (diluted), for 2000.
Comparison of Years Ended December 31, 2000 and 1999
----------------------------------------------------
Sales
Including sales from discontinued operations, the Company had record sales of
$522.2 million for 2000, a $192.6 million or 58.4% increase over net sales of
$329.6 million for 1999. Excluding sales from discontinued operations, the
Company had net sales of $516.2 million for the year ended December 31, 2000
compared to $326.6 million for 1999. The dramatic increase in net sales was
attributable to very positive industry conditions and the benefits of the
strategies that we had implemented over the past several years. The increase
also reflected contributions from new sales offices and increased market share
in most territories. Although sales for the year were strong, sales began to
taper off in the fourth quarter of 2000 due to a general industry slowdown and
inventory corrections at the customer base.
Gross Profit
Including gross profit from discontinued operations, gross profit was $107.9
million for 2000 compared to $64.5 million for 1999, representing a 67.3%
increase. Excluding gross profit from discontinued operations, gross profit was
$106.2 million for 2000 compared to $63.3 million for 1999, representing a 67.8%
increase. The substantial increase in gross profit was due to the increase in
sales as well as an improvement in gross profit margins as a percentage of net
sales. Gross profit margins as a percentage of net sales (excluding gross profit
from discontinued operations) were 20.6% for 2000, compared to 19.4% for 1999.
While the gross profit for the entire year of 2000 was higher than 1999, the
gross profit margins declined toward the end of 2000, which reflected a general
industry slowdown and greater availability of product. In addition, we continued
to develop long-term strategic relationships with accounts that required
aggressive pricing programs.
18
Selling, General and Administrative Expenses
SG&A, including expenses related to discontinued operations, was $79.9 million
for 2000, compared to $56.4 million for 1999. After adjusting for expenses
related to discontinued operations, SG&A was $78.4 million for 2000 compared to
$55.2 million for 1999. The increase was primarily attributable to an increase
in variable expenses associated with the increases in sales and gross profit as
well as an increase in our infrastructure to support the changing needs and
additional requirements of our customers. Furthermore, in an effort to drive
expansion and internal growth, we increased and enhanced our management team and
expanded our sales force in almost every location.
SG&A as a percentage of net sales (excluding expenses related to discontinued
operations) improved to 15.2% for the year ended December 31, 2000, from 16.9%
for the 1999 period. The improvement reflected the significant increase in sales
which more than offset the increase in SG&A in absolute dollars.
Income from Continuing Operations
Income from continuing operations, excluding the slight income from discontinued
operations, was $27.9 million for 2000, a 245.2% increase over income from
continuing operations of $8.1 million for 1999. The significant increase in
income from continuing operations was due to the increase in net sales and the
increase in gross profit margins which more than offset the increase in SG&A.
Interest Expense
Interest expense was $8.6 million for the year ended December 31, 2000, compared
to $5.0 million for 1999. The increase in interest expense resulted primarily
from an increase in average borrowings during 2000 to support the growth in
sales and the expanded infrastructure, as well as increases in inventory
purchases associated with initial stocking packages from new suppliers. Interest
expense for 2000 also reflected an increase in interest rates.
Net Income
Net income increased dramatically to a record $11.2 million, or $2.70 per share
(diluted), for the year ended December 31, 2000, a 522.5% increase over net
income of $1.8 million, or $.46 per share (diluted), for 1999. The increase in
net income reflected the increase in gross profit as well as the improvement in
SG&A as a percentage of net sales, all of which was partially offset by the
increase in interest expense.
Quarterly Results of Operations
-------------------------------
The following table presents unaudited quarterly results of operations for the
eight quarters ended December 31, 2001. We believe that all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly such quarterly information.
(In thousands, except per share data)
2001 2000
----------------------------------------------- ---------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
--------- --------- --------- --------- --------- --------- --------- ---------
Net Sales ............. $ 125,917 $ 100,062 $ 88,767 $ 66,365 $ 106,226 $ 124,479 $ 151,758 $ 133,692
Gross Profit .......... 25,012 13,140 17,857 6,739 21,113 25,926 31,678 27,504
Income (Loss) from
Continuing Operations 3,765 (6,862) 1,189 (10,452) 3,710 6,849 10,625 6,669
Net Income (Loss) ..... 671 (13,982) (381) (8,883) 1,210 2,949 4,741 2,299
Diluted Earnings (Loss)
Per Share ........... $ .17 $ (3.63) $ (.10) $ (2.30) $ .30 $ .71 $ 1.10 $ .55
19
Liquidity and Capital Resources
-------------------------------
Working capital at December 31, 2001 decreased to $86.6 million from working
capital of $159.6 million at December 31, 2000. The current ratio was 2.69:1 at
December 31, 2001 compared to 2.93:1 at December 31, 2000. The decrease in
working capital was primarily due to decreases in accounts receivable and
inventory which were partially offset by an income tax receivable and a decrease
in accounts payable. Accounts receivable at December 31, 2001 was $41.2 million
compared to accounts receivable of $86.7 million at December 31, 2000. The
decrease in accounts receivable was due to the significant reduction in sales in
the fourth quarter of 2001 compared to the latter part of 2000, as well as to
the non-cash write-offs of accounts receivable discussed previously. The average
number of days that accounts receivables were outstanding increased to 64 days
as of December 31, 2001 compared to 51 days as of December 31, 2000 reflecting
the weakened economic environment and adverse industry conditions. Inventory
levels were $81.0 million at December 31, 2001, down from $144.5 million at
December 31, 2000. The substantial decrease in inventory reflects our sustained
efforts to bring inventory positions in line with the reduced level of sales.
The decline in inventory also reflects the non-cash inventory write-offs
discussed previously. Accounts payable and accrued expenses decreased to $50.8
million at December 31, 2001 from $81.2 million at December 31, 2000 as a result
of reduced purchases, the delay or cancellation of purchase orders and the
return of inventory to the Company's suppliers, all done in an effort to bring
inventory levels in line with the reduced level of sales.
Outstanding borrowings under the Company's line of credit facility aggregated
$68.7 million at December 31, 2001 compared to $120.5 million at December 31,
2000. As of March 22, 2002 the balance has further declined to $49.3 million.
The dramatic decline in outstanding borrowings reflects the decrease in working
capital discussed previously. The Company's agreement with its consortium of
banks was amended subsequent to but effective as of the balance sheet date. As
part of the amendment, the line of credit facility was reduced from $100 million
to $85 million to better match the Company's present borrowing requirements. The
credit facility was previously amended during 2001 to reduce the line of credit
from $150 million to $100 million. The reductions in the credit facility benefit
the Company by decreasing the amount of the fee charged on the unused portion of
the credit facility. In addition, during 2001 the interest rate margins on the
Company's credit facility were increased. Effective December 31, 2001, the
interest rate margins were, at the Company's option, 1.0% for the prime rate
portion, up from .25% as of December 31, 2000, or 3.25% through March 30, 2002
and 4.25% effective March 31, 2002 for the LIBOR portion, up from 2.25% as of
December 31, 2000. In connection with the changes to the credit facility,
$448,000 of deferred financing fees were written off to interest expense during
2001. As part of the amendments to the Company's credit facility, certain
financial covenants were modified. Under the 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. The
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. Borrowings under
the credit facility, which are based on eligible accounts receivable and
inventories as defined in the agreement, are secured by all of the Company's
assets including accounts receivable, inventories and equipment. See Note 9 to
Notes to Consolidated Financial Statements.
The Company has operating leases for office space and equipment that have
initial or remaining noncancelable lease terms in excess of one year as of
December 31, 2001. The amount of the Company's obligations in 2002 with respect
to such operating leases is approximately $4.4 million. See Note 12 to Notes to
Consolidated Financial Statements.
The Company currently expects that its cash flows from operations and additional
borrowings available under its credit facility will be sufficient to meet the
Company's current financial requirements over the next twelve months.
20
Inflation and Currency Fluctuations
-----------------------------------
The Company does not believe that inflation significantly impacted its business
during 2001; however, inflation has had significant effects on the economy in
the past and could adversely impact the Company's results in the future. The
Company believes that currency fluctuations could have adverse effects on its
business if they make components manufactured abroad too expensive, cause
limitations in customer productions due to unfavorable export conditions or
cause the Company's offshore suppliers to limit exports to the United States. In
certain prior years, the Company believes that currency fluctuations have had
such adverse effects.
Forward-Looking Statements; Business Risks
------------------------------------------
This report contains statements that are forward-looking within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. When used in this report, the words "believes," "estimates,"
"plans," "expects," "intends," "anticipates," "contemplates," "may," "will,"
"shall," "assuming," "prospect," "should," "could," "looking forward" and
similar expressions, to the extent used, are intended to identify the
forward-looking statements. All forward-looking statements are based on current
expectations and beliefs concerning future events that are subject to risks and
uncertainties. Actual results may differ materially from the results suggested
in this report. In many cases, we cannot predict the risks or uncertainties that
could cause actual results to differ materially from those indicated in the
forward-looking statements. Factors that may cause or contribute to such
differences, and our business risks generally, include, but are not limited to,
the items described below, as well as in other sections of this report and in
other of our public filings and in our press releases.
Our industry is cyclical, which causes our operating results to fluctuate
significantly.
In the fall of 1999, our industry emerged from a four-year period of excess
supply. During the fourth quarter of 2000, a combination of improved product
availability, a slowing economy and other factors caused a sudden adverse change
in market conditions in our industry, which continued to deteriorate during 2001
resulting in a broad-based industry slowdown, excess customer inventory and a
severe decline in demand for electronic components. We cannot predict the timing
or the severity of the cycles within our industry. In particular and as of this
time, it is difficult to predict how long and to what levels any industry
slowdown or downturn and/or general economic weakness will last. The electronic
components distribution industry has historically been affected by general
economic downturns, which have often had an adverse economic effect upon
manufacturers, end-users of electronic components and electronic components
distributors, which occurred in 2001. In addition, our industry directly depends
on the continued growth of the electronic components industry and indirectly on
the level of end-user demand for our customers' products. Due to changing
conditions (such as in late 2000 and all of 2001), our customer base has
experienced in 2001 and may in the future continue to experience periods of
inventory corrections which could materially adversely impact our results.
Furthermore, the timing of new product developments, the life-cycle of existing
electronic products, and the level of acceptance and growth of new products can
affect demand for electronic components. In that regard, the Company has
supported in the past and expects in the future to support new technologies and
emerging markets, the failure of which to be accepted or grow (as was the
situation during 2001) could have a material adverse effect on our operating
results. These market changes and factors have caused in the past (including in
2001), and will likely cause in the future, our operating results to
significantly fluctuate.
We are dependent on a limited number of suppliers. If one or more of our largest
suppliers chooses not to sell products to us, our operating results could
suffer.
We rely on a limited number of suppliers for products which generate a
significant portion of our sales. Substantially all of our inventory has and
will be purchased from suppliers with which we have entered into non-exclusive
distributor agreements which are typically cancelable on short notice (generally
30 to 90 days). Products purchased from our three largest suppliers accounted
for approximately 34% of our consolidated purchases during the calendar year
ended December 31, 2001. No other supplier accounted
21
for more than five percent of our consolidated purchases during this period.
While most of the products that we sell are available from other sources, our
future success will depend in large part on maintaining relationships with
existing suppliers and developing relationships with new ones. We believe that
the loss of a key supplier could have an adverse impact on our business in the
short term as we attempt to replace the products offered by that supplier with
the products of other suppliers. If we were to lose our right to distribute the
products of any particular supplier, there can be no assurance that we would be
able to replace the products which were available from that particular supplier.
The loss of, or significant disruptions in relationships with, any of our
largest suppliers or a significant number of other suppliers in a short period
of time, could have a material adverse effect on our operating results.
We do not have long-term contracts with our customers and, as a result, our
customers may be able to cancel, reduce or delay their orders without penalty.
We typically do not obtain long-term purchase orders or commitments but instead
work with our customers to develop nonbinding forecasts of future orders. Based
on such nonbinding forecasts, we make commitments regarding the level of
business that we will seek and accept, and the levels and utilization of
personnel and other resources. A variety of conditions, both specific to each
individual customer and generally affecting each customer's industry, may cause
our customers to cancel, reduce or delay orders that were either previously made
or anticipated or attempt to return inventory. Generally, our customers may
cancel, reduce or delay purchase orders and commitments without penalty or other
charges associated with such cancellation, reduction or delay. Significant or
numerous cancellations, reductions or delays in orders by customers have in 2001
had, and could in the future have, a material adverse effect on our operating
results.
We may not be able to sustain or manage growth or achieve satisfactory levels of
profitability.
As and when market conditions improve and if and as we commence our growth and
attempt to return to profitability, we will need to manage our expanding
operations effectively and successfully integrate into our operations any new
businesses or divisions which we may acquire or open. If we are unable to do so,
particularly in instances in which we have made or make significant investments,
our failure could have a material adverse effect on our operating results. We
may be unsuccessful in growing and becoming profitable if we are unable to:
- secure adequate supplies of competitive products on a timely basis and
on commercially reasonable terms, especially in times of product
allocations;
- expand sales to existing customers and increase our customer base;
- turn our inventories and collect our accounts receivable fully (and
consistent with historical bad debt levels prior to 2001) and in a
timely manner, especially with respect to customers in new
technologies or in emerging markets and generally as a result of the
weakened or further weakening financial condition of certain
customers;
- avoid obsolescence of inventory or devaluation of inventory as a
result of continuing adverse market conditions;
- maintain our existing key supplier relationships as well as develop
new relationships with leading suppliers of electronic components;
- hire and retain additional qualified management, marketing and other
personnel to successfully manage our growth, including personnel to
monitor our operations, control costs and maintain effective inventory
and credit controls;
- effectively utilize our level of personnel and facility and
infrastructure overcapacity; and
- invest to maintain and enhance our infrastructure, including
telecommunications and information systems, logistics services and our
service capabilities.
A decline in gross profit margins arising from a change in market conditions or
aggressive pricing programs could adversely affect our operating results.
During certain prior periods, we have experienced an increase in gross profit
margins as a result of favorable market conditions in the electronic components
distribution industry, including limited supply of certain products. However,
there is no assurance that negative changes in the economic environment
22
generally and/or in the electronic components industry in particular will not
occur. In fact, such negative changes in both the economic environment generally
and in the electronic components industry began to occur in the fourth quarter
of 2000 and progressively worsened throughout 2001. Furthermore, we continue to
develop long-term strategic relationships with accounts which have required
aggressive pricing programs. These factors could result in a decline in our
gross profit margins, materially adversely affecting our operating results.
We may not be able to satisfy our funding requirements.
We may need to spend significant amounts of cash to: fund operating losses
and/or increases in expenses; meet our working capital requirements; invest in
capital equipment and infrastructure; upgrade our information and communication
systems; acquire businesses or open divisions; or respond to unanticipated
developments (such as an increase in bad debts as was the case in 2001),
increasing customer demands or competitive pressures. If we do not have enough
cash on hand, cash generated from our operations or cash available under our
credit facility, which in 2001 has been substantially reduced and as to which
additional restrictions have been placed by our lenders with respect to
borrowing thereunder, to meet these cash requirements, we will need to seek
alternative sources of financing to carry out our growth and operating
strategies. We may not be able to raise needed cash on terms acceptable to us,
or at all. Financing may be on terms that are dilutive or potentially dilutive.
If alternative sources of financing are required but are insufficient or
unavailable, we will be required to modify our operating plans to the extent of
available funding, if and assuming such modifications can be made at all.
We are dependent on foreign manufacturers and subject to trade regulations which
expose us to political and economic risk.
A significant number of components sold by us are manufactured by foreign
companies. As a result, our ability to sell certain products at competitive
prices could be adversely affected by any of the following:
- increases in tariffs or duties;
- changes in trade treaties;
- strikes or delays in air or sea transportation;
- future United States legislation with respect to pricing and/or import
quotas on products imported from foreign countries; and
- turbulence in offshore economies or financial markets.
Our ability to be competitive with respect to sales of imported components could
also be affected by other governmental actions and policy changes, including
anti-dumping and other international antitrust legislation. In addition, adverse
currency fluctuations could have the effect of making components manufactured
abroad more expensive, cause limitations in customer productions due to
unfavorable export conditions or cause our offshore suppliers to limit exports
to the United States. Because we purchase products from United States
subsidiaries and affiliates of foreign manufacturers, our purchases are paid for
in U.S. dollars, which usually reduces or eliminates the potential adverse
effects of currency fluctuations. There can be no assurance that such factors
could not have a material adverse effect on our operating results in the future.
Our industry is subject to supply shortages. Any delay or inability to obtain
components may have an adverse effect on our operating results.
At various times prior to 2001 there have been shortages of components in the
electronics industry and the availability of certain components have been
limited by some of our suppliers. Although such shortages and allocations have
not had a material adverse effect on our operating results, there can be no
assurance that any future shortages or allocations would not have such an effect
on us.
The prices of our components are subject to volatility.
A significant portion of the memory products we sell have historically
experienced volatile pricing. If market pricing for these products decreases
significantly, we may experience periods when our
23
investment in inventory exceeds the market price of such products. In addition,
at times there are price increases from our suppliers that we are unable to pass
on to our customers. These market conditions could have a negative impact on our
sales and gross profit margins unless and until our suppliers reduce the cost of
these products to us. Further, in the future aggressive pricing programs that
may be required, an increased number of low-margin, large volume transactions
and/or increased availability of the supply of certain products can further
impact gross profit margins.
Our industry is highly competitive and competition could harm our ability to
sell our products and services and thereby reduce our market share.
The electronic components distribution industry is highly competitive. We
generally compete with local, regional and national distributors. Some of our
competitors have greater name recognition and financial, personnel and other
resources than we do. There can be no assurance that we will continue to compete
successfully with existing or new competitors and failure to do so could have a
material adverse effect on our operating results.
Emergence of new competitive business models could have adverse effects on our
business.
In the last couple of years, additional competition has emerged in the
electronic components distribution industry. This increased competition resulted
from the advent of third party logistics and fulfillment companies, businesses
commonly referred to as e-exchanges and e-brokers and several other forms of
e-commerce companies which have grown with the expanded use of the Internet.
While we have implemented our e-commerce strategies, including our website and
multiple portals, to confront these new competitive business models, there can
be no assurance that we will be able to defend our market share against the
emergence of these or other new business models.
A reversal of the trend for distribution to play an increasing role in the
electronic components industry could affect our business.
In recent years, there has been a growing trend for original equipment
manufacturers and contract electronics manufacturers to outsource their
procurement, inventory and materials management processes to third parties,
particularly electronic component distributors. Although we do not currently
foresee this trend reversing, if it did, our business would be materially
adversely affected.
We are exposed to interest rate changes which could adversely affect our
operating results.
We are exposed to interest rate changes with respect to our credit facility,
which currently is based upon, at our option, the prime rate or LIBOR. In fact,
interest rates are currently at a very low level and no assurance can be given
that interest rates will not begin to rise as the general economy commences its
recovery. Any material increase in the level of interest rates could materially
adversely affect our operating results.
Our operations would be adversely affected if third party carriers were unable
to transport or were materially hindered in transporting our products.
All of our products are shipped through third party carriers, principally one
carrier. If a strike or other event prevented or materially hindered or
disrupted that carrier from transporting our products, there is no assurance
that other carriers would be available or have the capacity to deliver our
products to our customers. If adequate third party sources to ship our products
were not available at any time, our operating results would be materially and
adversely affected.
We depend on the continued services of our executive officers, and their loss
could affect our ability to successfully grow our business.
We are highly dependent upon the services of our President and Chief Executive
Officer. The permanent loss for any reason of our President and Chief Executive
Officer, or any one or more of our other key executives, could have a material
adverse effect upon our operating results. While we believe that we
24
would be able to locate suitable replacements for our executives if their
services were lost, there can be no assurance that we would, in fact, be able to
do so.
We must attract and retain personnel to help support our future growth, and
competition for personnel in our industry is intense.
We require the services of a substantial number of qualified personnel. Our
future success depends to a significant degree upon the continued contributions
of our management, engineering, sales, marketing, information technology,
distribution and finance personnel. Prior to late 2000, the market for such
skilled and experienced personnel was characterized by intense competition and
aggressive recruiting, as well as a high degree of employee mobility. Such a
market, if it was to return, would make it particularly difficult to attract and
retain the qualified personnel we require. The loss of or our inability to
continue to attract and retain these key personnel could harm our business.
Any acquisitions could be difficult to integrate, disrupt our business and
adversely affect our operations.
Our growth in the future may depend, in part, on our ability to acquire
compatible electronic components distributors or other businesses and to
integrate the acquired operations. There can be no assurance that we will be
able to locate additional appropriate acquisition candidates, or that we will be
successful in acquiring any identified candidates. In addition and as we have
experienced in the past, we cannot be certain that the operations of any
acquired companies will be effectively integrated or prove profitable. The
completion of future acquisitions may require the expenditure of sizable amounts
of capital and management effort. Moreover, unexpected problems encountered in
connection with our acquisitions could have a material adverse effect on our
operating results.
Our officers and directors have and will continue to have significant control
over us.
If the Company's Chairman and President and Chief Executive Officer exercised
all of their outstanding stock options, they and their respective spouses and
children and related trusts would own an aggregate of approximately 659,000
shares, representing approximately 16% of the outstanding shares of common
stock. As a result of such stock ownership and their positions as executive
officers, as the members of the executive committee of our Board of Directors
and as two of the eight directors of All American, they are and will continue to
be in a position to control the day-to-day affairs of All American.
We may be exposed to product liability claims.
We are likely to be named as a defendant in any products liability action
brought by an end-user as a result of our value-added services and as a
participant in the distribution chain between the manufacturer and end-user.
Although to date there have been no material claims asserted against us for
products liability, there can be no assurance that such claims will not arise in
the future. In the event that any products liability claim is not covered by
insurance or we are not indemnified by or cannot recover damages from our
supplier of the product or another third party in the chain of distribution, we
may be required to fund some or all of a product liability claim, which could
have a material adverse effect on us.
Our shareholder rights plan, preferred stock and governing documents may
discourage potential acquisitions of our business.
We have a shareholders rights plan and have authorized preferred stock which is
available to be issued with such rights, preferences, privileges and limitations
as are determined by the Board of Directors. In addition, our Certificate of
Incorporation includes provisions designed to discourage attempts by others to
acquire control of us without negotiation with our Board of Directors, and to
attempt to ensure that such transactions are on terms favorable to all of our
shareholders. These provisions provide, among other things:
- that meetings of our shareholders may only be called by the Board of
Directors;
- that an affirmative vote of two-thirds of our outstanding shares of
common stock is required to approve certain business combinations
unless 65% of our Board approves such transaction;
- for three classes of directors with each class elected for a three
year staggered term;
25
- that our Board in evaluating a tender offer or certain business
combinations is authorized to give due consideration to all relevant
factors; and
- that actions of shareholders may not be taken by written consent of
shareholders in lieu of a meeting.
For various reasons, however, these provisions may not always be in the best
interest of our shareholders. These reasons include the fact that the provisions
of our Certificate of Incorporation (i) make it difficult to remove directors
even if removal would be in the best interest of our shareholders; (ii) make it
difficult for our shareholders to approve certain transactions that are not
approved by at least 65% of our Board, even if the transactions would be
beneficial to our shareholders; and (iii) eliminate the ability of our
shareholders to act without a meeting. Our shareholder rights plan, our
blank-check preferred stock and our governing documents may have the effect of
delaying, deterring or preventing a change in control of All American, could
discourage potential investors from bidding for our common stock at a premium
over the market price of the common stock and could adversely affect the market
price and the voting rights of the holders of the common stock.
ITEM 7A. 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. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
ITEM 8. Financial Statements and Supplementary Data
------- -------------------------------------------
The Consolidated Financial Statements of the Company and its subsidiaries and
supplementary data required by this item are included in Item 14(a)(1) and (2)
of this report.
In addition, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations-Quarterly Results of Operations" for
presentation of unaudited quarterly results of operations for the eight quarters
ended December 31, 2001.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
------- ---------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
ITEMS 10, 11, 12 and 13. Directors and Executive Officers of the Registrant;
----------------------------------------------------------------------------
Executive Compensation; Security Ownership of Certain Beneficial Owners and
---------------------------------------------------------------------------
Management; and Certain Relationships and Related Transactions.
---------------------------------------------------------------
The response to these items will be included in a definitive proxy statement
filed within 120 days after the end of the Registrant's fiscal year, which
definitive proxy statement is incorporated herein by this reference.
26
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
-------- ---------------------------------------------------------------
(a) List of documents filed as part of this report Page
---------------------------------------------- ----
1. Financial Statements
--------------------
Management's Responsibility for Financial Reporting............ F-1
Independent Auditors' Report................................... F-1
Consolidated Balance Sheets.................................... F-2
Consolidated Statements of Operations.......................... F-3
Consolidated Statements of Changes in Shareholders' Equity..... F-4
Consolidated Statements of Cash Flows.......................... F-5
Notes to Consolidated Financial Statements..................... F-6
2. Financial Statement Schedule
----------------------------
Schedule II - Valuation and Qualifying Accounts................ S-1
3. Exhibits
--------
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibits 3.1 to the Company's Registration Statement
on Form S-1, File No. 33-15345-A, and to the Company's Form 10-K
for the fiscal year ended December 31, 1991), as further amended
by (i) Certificate of Amendment of Certificate of Incorporation
dated August 21, 1995 of the Company (incorporated by reference
to Exhibit 3.1 to the Company's Form 10-K for the year ended
December 31, 1995) and (ii) Certificate of Amendment of
Certificate of Incorporation dated June 1, 1999 of the Company
(incorporated by reference to Exhibit 3.1 to the Company's Form
10-Q for the quarter ended June 30, 1999).
3.2 By-Laws, as amended July 29, 1994 (incorporated by reference to
Exhibit 3.1 to the Company's Form 10-Q for the quarter ended June
30, 1994).
4.1 Specimen Certificate of Common Stock (incorporated by reference
to Exhibit 4.1 to the Company's Form 10-Q for the quarter ended
June 30, 1999).
4.2 Fiscal Agency Agreement, dated as of June 8, 1994, between the
Company and American Stock Transfer & Trust Co., as fiscal agent,
paying agent and securities registrar (incorporated by reference
to Exhibit 4.1 to the Company's Form 8-K dated June 14, 1994 and
filed with the Securities and Exchange Commission on June 15,
1994).
4.3 2000 Common Stock Purchase Rights Agreement, dated as of June 9,
2000, between the Company and American Stock Transfer & Trust
Company (incorporated by reference to Exhibit number 4.1 to the
Company's Registration Statement on Form 8-A, filed with the
Securities and Exchange Commission on June 13, 2000).
9.1 Form of Voting Trust Agreement attached as Exhibit "E" to
Purchase Agreement (incorporated by reference to Exhibit 9.1 to
the Company's Registration Statement on Form S-4, File No.
033-64019).
10.1 Form of Indemnification Contracts with Directors and Executive
Officers (incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-2, File No. 33-47512).
10.2 Lease Agreement for Headquarters dated May 1, 1994 between Sam
Berman d/b/a Drake Enterprises ("Drake") and the Company
(incorporated by reference to Exhibit 10.1 to the Company's Form
10-Q for the quarter ended March 31, 1994).
10.3 Lease Agreement for west coast corporate office and northern
California sales office in San Jose, California dated October 1,
1998 between San Jose Technology Properties, LLC and the Company
(incorporated by reference to Exhibit 10.3 to the Company's Form
10-K for the year ended December 31, 1998).
10.4 Promissory Notes, all dated May 1, 1994 payable to Drake, the
Company's landlord in the amounts of $865,000 and $32,718
(incorporated by reference to Exhibit 10.2 to the Company's Form
10-Q for the quarter ended March 31, 1994).
27
10.5 Promissory Note, dated May 1, 1995, payable to Drake, the
Company's landlord, in the amount of $90,300 (incorporated by
reference to Exhibit 10.35 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, File No. 33-58661).
10.6 Agreement between Drake and the Company dated May 1, 1994
(incorporated by reference to Exhibit 10.5 to the Company's Form
10-K for the year ended December 31, 1994).
10.7 Amended and Restated All American Semiconductor, Inc. Employees',
Officers', Directors' Stock Option Plan, as amended through
August 22, 2001.* **
10.8 All American Semiconductor, Inc. Amended and Restated 2000
Nonemployee Director Stock Option Plan, as amended and restated
through August 22, 2001.* **
10.9 Deferred Compensation Plan (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-2, File
No. 33-47512).**
10.10 Master Lease Agreement dated March 21, 1994, together with lease
schedules for computer and other equipment (incorporated by
reference to Exhibit 10.9 to the Company's Form 10-K for the year
ended December 31, 1994).
10.11 Employment Agreement dated as of May 24, 1995, between the
Company and Paul Goldberg (incorporated by reference to Exhibit
10.22 to Amendment No. 1 to the Company's Registration Statement
on Form S-1, File No. 33-58661), as amended by First Amendment to
Employment Agreement dated as of December 31, 1996, between the
Company and Paul Goldberg (incorporated by reference to Exhibit
10.9 to the Company's Form 10-K for the year ended December 31,
1996), as amended by Second Amendment to Employment Agreement
dated as of August 21, 1998, between the Company and Paul
Goldberg (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended September 30, 1998), as
amended by Third Amendment to Employment Agreement effective as
of January 1, 2000 and dated as of April 27, 2000, between the
Company and Paul Goldberg (incorporated by reference to Exhibit
10.1 to the Company's Form 10-Q for the quarter ended March 31,
2000).**
10.12 Employment Agreement dated as of May 24, 1995, between the
Company and Bruce M. Goldberg (incorporated by reference to
Exhibit 10.24 to Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 33-58661), as amended by First
Amendment to Employment Agreement dated as of August 21, 1998,
between the Company and Bruce M. Goldberg (incorporated by
reference to Exhibit 10.2 to the Company's Form 10-Q for the
quarter ended September 30, 1998), as amended by Second Amendment
to Employment Agreement effective as of January 1, 2000 and dated
as of April 27, 2000, between the Company and Bruce M. Goldberg
(incorporated by reference to Exhibit 10.2 to the Company's Form
10-Q for the quarter ended March 31, 2000).**
10.13 Merger Purchase Agreement dated as of October 31, 1995, among the
Company, All American Added Value, Inc., All American A.V.E.D.,
Inc. and the Added Value Companies (incorporated by reference to
Appendix A to the Proxy Statement/Prospectus included in and to
Exhibit 2.1 to the Company's Registration Statement on Form S-4,
File No. 033-64019).
10.14 Loan and Security Agreement (without exhibits or schedules) among
Harris Trust and Savings Bank, as a lender and administrative
agent, American National Bank and Trust Company of Chicago, as a
lender and collateral agent, and the Other Lenders Party thereto
and the Company, as borrower (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-Q for the quarter ended
March 31, 1996).
10.15 Amendment No. 1 to Loan and Security Agreement dated August 2,
1996 (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended June 30, 1996).
10.16 Amendment No. 2 to Loan and Security Agreement dated November 14,
1996 (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended September 30, 1996).
10.17 Amendment No. 3 to Loan and Security Agreement dated July 31,
1998 (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended June 30, 1998).
10.18 Amendment No. 4 to Loan and Security Agreement dated March 23,
1999 (incorporated by reference to Exhibit 10.18 to the Company's
Form 10-K for the year ended December 31, 1998).
10.19 Amendment No. 5 to Loan and Security Agreement dated August 8,
2000 (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended June 30, 2000).
28
10.20 Amendment No. 6 to Loan and Security Agreement dated September
29, 2000 (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended September 30, 2000).
10.21 Amendment No. 7 to Loan and Security Agreement dated May 14, 2001
(incorporated by reference to Exhibit 10.1 to the Company's Form
10-Q for the quarter ended March 31, 2001).
10.22 Amendment No. 8 to Loan and Security Agreement dated May 14, 2001
(incorporated by reference to Exhibit 10.2 to the Company's Form
10-Q for the quarter ended March 31, 2001).
10.23 Amendment No. 9 to Loan and Security Agreement dated August 14,
2001 (incorporated by reference to Exhibit 10.1 to the Company's
Form 10-Q for the quarter ended June 30, 2001).
10.24 Amendment No. 10 to Loan and Security Agreement dated November
14, 2001 (incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended September 30, 2001).
10.25 Amendment No. 11 to Loan and Security Agreement dated March 29,
2002.*
10.26 All American Semiconductor, Inc. 401(k) Profit Sharing Plan
(incorporated by reference to Exhibit 10.25 to the Company's Form
10-K for the year ended December 31, 1994).**
10.27 Settlement Agreement dated December 17, 1996, by and among the
Company, certain of its subsidiaries and certain selling
stockholders of the Added Value Companies (incorporated by
reference to Exhibit 10.35 to the Company's Form 10-K for the
year ended December 31, 1996).
10.28 Settlement Agreement dated January 22, 1997, by and among the
Company, certain of its subsidiaries and Thomas Broesamle
(incorporated by reference to Exhibit 10.36 to the Company's Form
10-K for the year ended December 31, 1996).
10.29 Form of Salary Continuation Plan (incorporated by reference to
Exhibit 10.37 to the Company's Form 10-K for the year ended
December 31, 1996).**
10.30 Promissory Note, dated October 1, 1996, payable to Sam Berman,
d/b/a Drake Enterprises, in the amount of $161,500 (incorporated
by reference to Exhibit 10.38 to the Company's Form 10-K for the
year ended December 31, 1996).
10.31 Note dated August 21, 1998, by Bruce Mitchell Goldberg and Jayne
Ellen Goldberg in favor of the Company in the principal amount of
$125,000 (incorporated by reference to Exhibit 10.5 to the
Company's Form 10-Q for the quarter ended September 30, 1998).
10.32 Employment Agreement effective as of January 1, 2000 and dated as
of April 27, 2000, between the Company and Howard L. Flanders
(incorporated by reference to Exhibit 10.3 to the Company's Form
10-Q for the quarter ended March 31, 2000).**
10.33 Employment Agreement effective as of January 1, 2000 and dated as
of April 27, 2000, between the Company and Rick Gordon
(incorporated by reference to Exhibit 10.4 to the Company's Form
10-Q for the quarter ended March 31, 2000).**
10.34 Lease Agreement for Integrated Display Technologies and Aved
Display Technologies divisions in Irvine, California dated
December 1, 2000 between Buckhead Industrial Properties, Inc. and
the Company (incorporated by reference to Exhibit 10.29 to the
Company's Form 10-K for the year ended December 31, 2000).
11.1 Statement Re: Computation of Per Share Earnings.*
21.1 List of subsidiaries of the Registrant.*
23.1 Consent of Lazar Levine & Felix LLP, independent certified public
accountants.*
------------------
* Filed herewith
** Management contract or compensation plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
-------------------
No reports were filed during the fourth quarter of 2001.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
ALL AMERICAN SEMICONDUCTOR, INC.
(Registrant)
By: /s/ PAUL GOLDBERG
----------------------------------------
Paul Goldberg, Chairman of the Board
Dated: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 29, 2002.
/s/ PAUL GOLDBERG Chairman of the Board, Director
---------------------------
Paul Goldberg
/s/ BRUCE M. GOLDBERG President and Chief Executive Officer, Director
--------------------------- (Principal Executive Officer)
Bruce M. Goldberg
/s/ HOWARD L. FLANDERS Executive Vice President and Chief Financial
--------------------------- Officer, Director
Howard L. Flanders (Principal Financial and Accounting Officer)
/s/ RICK GORDON Senior Vice President of Sales, Director
---------------------------
Rick Gordon
/s/ ROBIN L. CRANDELL Director
---------------------------
Robin L. Crandell
/s/ LEWIS B. FREEMAN Director
---------------------------
Lewis B. Freeman
/s/ DANIEL M. ROBBIN Director
---------------------------
Daniel M. Robbin
/s/ RICHARD E. SIEGEL Director
---------------------------
Richard E. Siegel
30
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The Company's management is responsible for the preparation of the Consolidated
Financial Statements in accordance with generally accepted accounting principles
and for the integrity of all the financial data included in this Form 10-K. In
preparing the Consolidated Financial Statements, management makes informed
judgements and estimates of the expected effects of events and transactions that
are currently being reported.
Management maintains a system of internal controls that is designed to provide
reasonable assurance that assets are safeguarded and that transactions are
executed and recorded in accordance with management's policies for conducting
its business. This system includes policies which require adherence to ethical
business standards and compliance with all laws to which the Company is subject.
The internal controls process is continuously monitored by direct management
review.
The Board of Directors, through its Audit Committee, is responsible for
determining that management fulfils its responsibility with respect to the
Company's Consolidated Financial Statements and the system of internal controls.
The Audit Committee, comprised solely of directors who are not officers or
employees of the Company, meets quarterly with representatives of management and
the Company's independent accountants to review and monitor the financial,
accounting, and auditing procedures of the Company in addition to reviewing the
Company's financial reports. The Company's independent accountants have full and
free access to the Audit Committee.
/s/ BRUCE M. GOLDBERG /s/ HOWARD L. FLANDERS
------------------------------- -------------------------------
Bruce M. Goldberg Howard L. Flanders
President, Executive Vice President,
Chief Executive Officer Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
All American Semiconductor, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of All American
Semiconductor, Inc. and subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed in Part IV, Item
14(a) of this Form 10-K. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of All
American Semiconductor, Inc. and subsidiaries at December 31, 2001 and 2000 and
the results of their operations and their cash flows for the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ LAZAR LEVINE & FELIX LLP
----------------------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
February 15, 2002, except as to Note 11, the date of which is
March 4, 2002, and Note 9, the date of which is March 29, 2002
F-1
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS December 31 2001 2000
----------------------------------------------------------------------------------------------
Current assets:
Cash ...................................................... $ 636,000 $ 335,000
Accounts receivable, less allowances for doubtful
accounts of $1,845,000 and $3,283,000 ................... 41,217,000 86,716,000
Inventories ............................................... 81,032,000 144,523,000
Other current assets, including income taxes receivable ... 14,904,000 3,739,000
Net assets of discontinued operations ..................... 36,000 7,068,000
------------- -------------
Total current assets .................................... 137,825,000 242,381,000
Property, plant and equipment - net ......................... 3,476,000 4,224,000
Deposits and other assets ................................... 2,821,000 2,664,000
Excess of cost over fair value of net assets acquired - net.. -- 950,000
------------- -------------
$ 144,122,000 $ 250,219,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt ......................... $ 234,000 $ 240,000
Accounts payable and accrued expenses ..................... 50,848,000 81,234,000
Income taxes payable ...................................... -- 968,000
Other current liabilities ................................. 174,000 295,000
------------- -------------
Total current liabilities ............................... 51,256,000 82,737,000
Long-term debt:
Notes payable ............................................. 68,662,000 120,643,000
Subordinated debt ......................................... 5,999,000 6,043,000
Other long-term debt ...................................... 1,180,000 1,198,000
------------- -------------
127,097,000 210,621,000
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued ................................. -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 4,040,150 and 4,039,620 shares issued
and outstanding ......................................... 40,000 40,000
Capital in excess of par value ............................ 26,328,000 26,326,000
Retained earnings (deficit) ............................... (8,408,000) 14,167,000
Treasury stock, at cost, 183,246 shares ................... (935,000) (935,000)
------------- -------------
17,025,000 39,598,000
------------- -------------
$ 144,122,000 $ 250,219,000
============= =============
See notes to consolidated financial statements
F-2
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31 2001 2000 1999
--------------------------------------------------------------------------------------------
NET SALES ................................ $ 381,111,000 $ 516,155,000 $ 326,627,000
Cost of sales ............................ (318,363,000) (409,934,000) (263,330,000)
------------- ------------- -------------
Gross profit ............................. 62,748,000 106,221,000 63,297,000
Selling, general and
administrative expenses ................ (74,213,000) (78,368,000) (55,229,000)
Impairment of goodwill ................... (895,000) -- --
------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ............................. (12,360,000) 27,853,000 8,068,000
Interest expense ......................... (8,657,000) (8,642,000) (4,985,000)
------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES ......... (21,017,000) 19,211,000 3,083,000
Income tax (provision) benefit ........... 7,424,000 (8,096,000) (1,326,000)
------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE
DISCONTINUED OPERATIONS ................ (13,593,000) 11,115,000 1,757,000
Discontinued operations:
Income from operations (net of
$(208,000); $(61,000) and $(32,000)
income tax provision) .................. 362,000 84,000 42,000
Loss on disposal (net of $5,367,000
income tax benefit) .................... (9,344,000) -- --
------------- ------------- -------------
NET INCOME (LOSS) ........................ $ (22,575,000) $ 11,199,000 $ 1,799,000
============= ============= =============
BASIC EARNINGS PER SHARE:
Income (loss) from continuing operations.. $(3.52) $ 2.90 $ .45
Discontinued operations .................. (2.33) .02 .01
------ ------ -----
Net income (loss) ........................ $(5.85) $ 2.92 $ .46
====== ====== =====
DILUTED EARNINGS PER SHARE:
Income (loss) from continuing operations.. $(3.52) $ 2.68 $ .45
Discontinued operations .................. (2.33) .02 .01
------ ------ -----
Net income (loss) ........................ $(5.85) $ 2.70 $ .46
====== ====== =====
See notes to consolidated financial statements
F-3
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Capital in Retained Total
Common Excess of Earnings Treasury Shareholders'
Shares Stock Par Value (Deficit) Stock Equity
-------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 .. 3,973,431 $ 40,000 $ 25,751,000 $ 1,169,000 $ (451,000) $ 26,509,000
Purchase of treasury shares.. -- -- -- -- (456,000) (456,000)
Net income .................. -- -- -- 1,799,000 -- 1,799,000
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 .. 3,973,431 40,000 25,751,000 2,968,000 (907,000) 27,852,000
Exercise of stock options ... 66,189 -- 394,000 -- -- 394,000
Income tax benefit from
stock options exercised ..... -- -- 181,000 -- -- 181,000
Purchase of treasury shares.. -- -- -- -- (28,000) (28,000)
Net income .................. -- -- -- 11,199,000 -- 11,199,000
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 .. 4,039,620 40,000 26,326,000 14,167,000 (935,000) 39,598,000
Exercise of stock options ... 530 -- 2,000 -- -- 2,000
Net loss .................... -- -- -- (22,575,000) -- (22,575,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 2001 .. 4,040,150 $ 40,000 $ 26,328,000 $ (8,408,000) $ (935,000) $ 17,025,000
============ ============ ============ ============ ============ ============
See notes to consolidated financial statements
F-4
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31 2001 2000 1999
-----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................ $(22,575,000) $ 11,199,000 $ 1,799,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization .......................... 1,129,000 1,354,000 1,230,000
Loss on disposal of assets ............................. 40,000 78,000 --
Non-cash interest expense .............................. 657,000 381,000 294,000
Inventory write-offs ................................... 13,375,000 -- --
Accounts receivable write-offs ......................... 5,220,000 -- --
Impairment of goodwill ................................. 895,000 -- --
Changes in assets and liabilities of
continuing operations:
Decrease (increase) in accounts receivable ............. 40,279,000 (33,915,000) (15,490,000)
Decrease (increase) in inventories ..................... 50,116,000 (60,796,000) (15,222,000)
Decrease (increase) in other current assets ............ (11,165,000) 892,000 (2,033,000)
Increase (decrease) in accounts payable and
accrued expenses ..................................... (30,386,000) 29,690,000 10,383,000
Increase (decrease) in other current liabilities ....... (1,089,000) 1,069,000 (40,000)
Decrease (increase) in net assets
of discontinued operations ........................... 7,032,000 (5,078,000) (899,000)
------------ ------------ ------------
Net cash provided by (used for) operating activities 53,528,000 (55,126,000) (19,978,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment .................... (367,000) (1,058,000) (582,000)
Decrease (increase) in other assets ...................... (795,000) (442,000) 299,000
------------ ------------ ------------
Net cash used for investing activities ............. (1,162,000) (1,500,000) (283,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of
credit agreement ....................................... (51,827,000) 56,515,000 20,711,000
Repayments of notes payable .............................. (240,000) (274,000) (294,000)
Purchase of treasury shares .............................. -- (28,000) (456,000)
Net proceeds from issuance of equity securities .......... 2,000 575,000 --
------------ ------------ ------------
Net cash provided by (used for) financing activities (52,065,000) 56,788,000 19,961,000
------------ ------------ ------------
Increase (decrease) in cash .............................. 301,000 162,000 (300,000)
Cash, beginning of year .................................. 335,000 173,000 473,000
------------ ------------ ------------
Cash, end of year ........................................ $ 636,000 $ 335,000 $ 173,000
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ............................................ $ 8,542,000 $ 7,810,000 $ 4,410,000
============ ============ ============
Income taxes paid ........................................ $ 456,000 $ 7,369,000 $ 1,399,000
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1999 the Company entered into a capital lease in the amount of $495,000
for certain programming and telecommunications equipment.
See notes to consolidated financial statements
F-5
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
The Company is a national distributor of electronic components manufactured by
others. The Company distributes a full range of semiconductors (active
components), including transistors, diodes, memory devices, microprocessors,
microcontrollers and other integrated circuits, as well as passive components,
such as capacitors, resistors, inductors and electromechanical products,
including cable, switches, connectors, filters and sockets. The Company's
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 providers who manufacture products for companies in all electronics
industry segments. The Company also designs and has manufactured certain memory
modules which are sold to original equipment manufacturers.
The Company's financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") in the United States of America. Those
principles considered particularly significant are detailed below. GAAP requires
management to make estimates and assumptions affecting the reported amounts of
assets, liabilities, revenues and expenses. While actual results may differ from
these estimates, management does not expect the variances, if any, to have a
material effect on the Consolidated Financial Statements.
Basis of Consolidation and Presentation
---------------------------------------
The Consolidated Financial Statements of the Company include the accounts of all
subsidiaries, all of which are wholly-owned. All material intercompany balances
and transactions have been eliminated in consolidation. The Company has Canadian
and Mexican subsidiaries which conduct substantially all of their business in
U.S. dollars.
All references to shares of common stock, $.01 par value, stock options,
warrants, exercise prices per share and per share amounts have been restated to
reflect the effect of the Reverse Stock Split (as hereinafter defined). See Note
4 to Notes to Consolidated Financial Statements.
Prior years' financial statements have been reclassified to conform with the
current year's presentation.
Concentration of Credit Risk/Fair Values
----------------------------------------
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and accounts receivable. The Company,
from time to time, maintains cash balances which exceed the federal depository
insurance coverage limit. The Company performs periodic reviews of the relative
credit rating of its bank to lower its risk. The Company believes that
concentration with regards to accounts receivable is limited due to its large
customer base. Fair values of cash, accounts receivable, accounts payable and
long-term debt reflected in the December 31, 2001 and 2000 Consolidated Balance
Sheets approximate carrying value at these dates.
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.
F-6
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Inventories
-----------
Inventories are stated at the lower of cost (determined on an average cost
basis) or market.
Fixed Assets
------------
Fixed assets are reflected at cost. Depreciation of office furniture and
equipment and computer equipment is provided on straight-line and accelerated
methods over the estimated useful lives of the respective assets. Amortization
of leasehold improvements is provided using the straight-line method over the
term of the related lease or the life of the respective asset, whichever is
shorter. Maintenance and repairs are charged to expense as incurred; major
renewals and betterments are capitalized.
Revenue Recognition
-------------------
The Company recognizes revenues at the point of passage of title, which is
generally at the time of shipment.
Income Taxes
------------
The Company has elected to file a consolidated federal income tax return with
its subsidiaries. Deferred income taxes are provided on transactions which are
reported in the financial statements in different periods than for income tax
purposes. Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
difference is expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. See Note 10 to Notes to Consolidated Financial
Statements.
Earnings Per Share
------------------
Earnings per common share is computed by dividing net income by the weighted
average, during each period, of the number of common shares outstanding and for
diluted earnings per share also common equivalent shares outstanding.
The following average shares were used for the computation of basic and diluted
earnings per share:
Years Ended December 31 2001 2000 1999
--------------------------------------------------------------------------------
Basic............................... 3,856,813 3,828,978 3,921,138
Diluted............................. 3,856,813 4,140,579 3,924,166
Statements of Cash Flows
------------------------
For purposes of the statements of cash flows, the Company considers all
investments purchased with an original maturity of three months or less to be
cash.
Excess of Cost Over Fair Value of Net Assets Acquired (Goodwill)
----------------------------------------------------------------
The Company periodically reviewed the value of its goodwill to determine if an
impairment had occurred. As part of this review, the Company measured the
estimated future operating cash flows of acquired businesses and compared that
with the carrying value of its goodwill. As a result of its review, the
Company's goodwill was fully written-off as of December 31, 2001. See Note 6 to
Notes to Consolidated Financial Statements. Prior to the write-off, goodwill was
amortized over periods ranging from 15 years to 40 years using the straight-line
method.
F-7
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
New Accounting Pronouncements
-----------------------------
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets", effective for fiscal years beginning
after December 15, 2001. Under the new rules, the pooling of interests method of
accounting is no longer allowed for business combinations and goodwill will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over
their useful lives. The Company adopted Financial Accounting Standards Board
Statements Nos. 141 and 142 as of January 1, 2002. The effect of the adoption of
these statements was not material.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), effective for fiscal years
beginning after December 15, 2001. SFAS 144 supersedes Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), and portions
of Accounting Principles Board Opinion 30, "Reporting the Results of Operations"
and provides a single accounting model for long-lived assets to be disposed of
and significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. SFAS 144 also requires expected future operating losses
from discontinued operations to be displayed in the periods in which the losses
are incurred, rather than as of the measurement date as presently required. The
Company adopted SFAS 144 as of January 1, 2002. The effect of the adoption of
this statement was not material.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------
December 31 2001 2000
-------------------------------------------------------------------------------
Office furniture and equipment ............... $ 3,497,000 $ 3,345,000
Computer equipment ........................... 4,334,000 4,321,000
Leasehold improvements ....................... 2,344,000 2,236,000
------------ ------------
10,175,000 9,902,000
Accumulated depreciation and amortization .... (6,699,000) (5,678,000)
------------ ------------
$ 3,476,000 $ 4,224,000
============ ============
NOTE 3 - STOCK REPURCHASE PROGRAM
---------------------------------
During 1999, the Company's Board of Directors authorized the repurchase of up to
$2 million in purchase price of the Company's common stock. The stock
repurchases may, at the discretion of the Company's management, be made from
time to time at prevailing prices in the open market or through privately
negotiated transactions. The Company's management will base its decision on
market conditions, the price of the common stock and other factors. Any shares
of common stock repurchased will be available for reissuance in connection with
the Employees', Officers', Directors' Stock Option Plan, as previously amended
and restated (the "Option Plan"), or for other corporate purposes. There were no
repurchases for the year ended December 31, 2001. For the year ended December
31, 2000, the Company repurchased 8,600 shares of its common stock at an average
price of $3.18 per share. The aggregate cost of the repurchased shares is
reflected as treasury stock on the Consolidated Balance Sheets. The Company
presently does not intend to make further stock repurchases.
NOTE 4 - REVERSE STOCK SPLIT
----------------------------
On June 1, 1999, the Company's shareholders approved a one-for-five reverse
stock split (the "Reverse Stock Split") of the Company's outstanding shares of
common stock. The Reverse Stock Split became effective for trading in the
Company's new common stock as of June 2, 1999. Immediately following the Reverse
Stock Split, there were 3,973,431 shares of common stock outstanding. The $.01
par value of the common stock remained the same after the Reverse Stock Split.
All references to shares of common
F-8
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
stock, stock options, warrants, exercise prices per share and per share amounts
have been restated to reflect the effect of the Reverse Stock Split.
NOTE 5 - STOCK PURCHASE RIGHTS
------------------------------
In June 2000, the Board of Directors of the Company adopted a Common Stock
Purchase Rights Plan (the "Rights Plan") and authorized and approved a dividend
distribution of one right (each a "Right" and collectively the "Rights") for
each outstanding share of common stock of the Company to shareholders of record
at the close of business on June 23, 2000. Each share of common stock of the
Company that is issued after June 23, 2000 will also include one Right.
Each Right initially entitles the registered holder to purchase from the
Company, but only when exercisable under the Rights Plan, one share of common
stock at a price of $95.00 per share, subject to certain future adjustments. The
Rights will be exercisable only if a person or group acquires 15% or more of the
Company's common stock (or 10% of such stock under certain circumstances) or
announces a tender offer the consummation of which would result in ownership by
a person or group of 15% or more of the common stock (or 10% of such stock under
certain circumstances). Upon such occurrence, each Right (other than Rights
owned by such person or group) will entitle the holder to purchase from the
Company the number of shares of the Company's common stock having a market value
equal to twice the exercise price of the Right.
If the Company is acquired in a merger or other business combination
transaction, or sells more than 50% of its assets or earning power, after a
person or group has acquired 15% or more of the Company's outstanding common
stock (or 10% of such stock under certain circumstances), each Right (other than
Rights owned by such person or group) will entitle its holder to purchase, at
the Right's then-current exercise price, a number of the acquiring company's
common shares having a market value of twice such price.
Following the acquisition by a person or group of 15% or more of the Company's
common stock (or 10% of such stock under certain circumstances) and prior to an
acquisition of 50% or more of the common stock, the Board of Directors may
exchange the Rights (other than Rights owned by such person or group) at an
exchange ratio of one share of common stock per Right.
Prior to the acquisition by a person or group of beneficial ownership of 15% or
more of the Company's common stock (or 10% of such stock under certain
circumstances), the Rights are redeemable for $.001 per Right at the option of
the Board of Directors. The Rights will expire on June 8, 2010.
NOTE 6 - IMPAIRMENT OF GOODWILL
-------------------------------
The Company periodically reviewed the value of its goodwill in accordance with
SFAS 121 to determine if an impairment had occurred. As part of this review, the
Company measured the estimated future operating cash flows of acquired
businesses and compared that with the carrying value of its goodwill. As a
result of its review, the Company determined that impairments had occurred, and,
accordingly, write-downs aggregating $895,000 were recorded during 2001. As a
result of these write-downs, goodwill was fully written-off as of December 31,
2001.
NOTE 7 - DISCONTINUED OPERATIONS
--------------------------------
As a result of an acquisition in 1995, the Company created Aved Display
Technologies ("ADT"), a separate division engaged in the design, development and
manufacture of several proprietary driver board products for flat panel display
applications. In the fourth quarter of 2000, the Company created a division
which operated under the name Integrated Display Technologies ("IDT"). This
division was intended to address customer needs for design, integration and
turnkey support for display solutions and specialized display applications. Due
to the overall weakness in the economy, the negative impact of the severe
F-9
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
broad-based industry downturn and other factors, ADT and IDT did not generate
cash flows as anticipated. As a result, management decided to discontinue these
divisions. The Company finalized its plan of disposal during the second quarter
of 2001. Accordingly, these divisions are accounted for as discontinued
operations and the results of operations for all periods shown are segregated in
the accompanying Consolidated Statements of Operations. The loss on disposal of
$14,711,000 on a pretax basis includes the estimated costs and expenses
associated with the disposal of $14,599,000 primarily made up of the write-off
of $4,488,000 of inventory and $7,442,000 of accounts receivable. The inventory
that was written off has been scrapped and removed from stock. In addition, the
loss on disposal includes a provision of $112,000 on a pretax basis for
operating losses during the phase-out period, which continued for approximately
two months.
Sales from these divisions, including the related turnkey support business, were
$6,998,000, $6,028,000 and $2,936,000 for 2001, 2000 and 1999, respectively. The
net assets of discontinued operations, after reflecting certain non-cash
write-offs included in the accompanying Consolidated Balance Sheets at December
31, 2001 and 2000, are summarized as follows:
December 31 2001 2000
-------------------------------------------------------------------------------
Accounts receivable - net .................. $ -- $ 5,096,000
Inventories ................................ -- 1,921,000
Other current assets ....................... 26,000 6,000
Property, plant and equipment - net ........ 18,000 31,000
Deposits and other assets .................. -- 23,000
Current liabilities ........................ (8,000) (9,000)
----------- -----------
Net assets ................................. $ 36,000 $ 7,068,000
=========== ===========
NOTE 8 - SPECIAL CHARGES
------------------------
As a result of a slowing economy and a severe widespread industry downturn, the
Company was forced to write off certain accounts receivable during 2001
aggregating $5,220,000 which is reflected in "Selling, general and
administrative expenses" in the accompanying Consolidated Statements of
Operations.
During 2000, the Company's inventory levels increased substantially to support
higher levels of sales based on customer orders and forecasts. Inventory also
increased during 2000 as a result of the addition of major new suppliers and the
anticipated sales growth related thereto. During the fourth quarter of 2000, a
combination of excess product availability, a slowing economy and other factors
caused the industry to begin slowing down. As a result of this change, the
customer base had a significant amount of excess inventory. In an effort to
correct their inventory positions, customers began rescheduling and canceling
their orders and returned significant amounts of inventory. This accelerated
during the first half of 2001. Accordingly, the Company attempted to delay or
cancel purchase orders with its supplier base and to utilize its inventory
return privileges wherever possible. These efforts were made in an attempt to
achieve inventory levels which more closely support the Company's reduced
backlog from its customers as well as to improve the Company's product mix. Even
after taking these measures, as adverse industry conditions accelerated and got
progressively worse, the prospect of customers taking inventory that was
returned to the Company or subject to rescheduled orders became more and more
remote. As a result of this and the severe industry downturn, the Company wrote
off unusable inventory during 2001 aggregating $13,375,000. The inventory that
was written off has been or will be scrapped and removed from stock. There can
be no assurance that adverse market conditions will not continue or worsen and
that further corrections may not be necessary in the future.
F-10
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 9 - LONG-TERM DEBT
-----------------------
Line of Credit
--------------
The Company's agreement with its consortium of banks was amended subsequent to
but effective as of the balance sheet date. As part of the amendment, the line
of credit facility was reduced from $100 million to $85 million to better match
the Company's present borrowing requirements. The credit facility was previously
amended during 2001 to reduce the line of credit from $150 million to $100
million. The reductions in the credit facility benefit the Company by decreasing
the amount of the fee charged on the unused portion of the credit facility. In
addition, during 2001 the interest rate margins on the Company's credit facility
were increased. Effective December 31, 2001, the interest rate margins were, at
the Company's option, 1.0% for the prime rate portion, up from .25% as of
December 31, 2000, or 3.25% through March 30, 2002 and 4.25% effective March 31,
2002 for the LIBOR portion, up from 2.25% as of December 31, 2000. In connection
with the changes to the credit facility, $448,000 of deferred financing fees
were written off to interest expense during 2001. As part of the amendments to
the Company's credit facility, certain financial covenants were modified.
Borrowings under the credit facility, which are based on eligible accounts
receivable and inventories as defined in the agreement, are secured by all of
the Company's assets including accounts receivable, inventories and equipment.
Outstanding borrowings under the Company's credit facility aggregated
$68,662,000 at December 31, 2001 compared to $120,489,000 at December 31, 2000.
Under the 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. The 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.
Subordinated Debt
-----------------
In June 1994, the Company completed a private placement (the "1994 Private
Placement") of 51.5 units, with each unit consisting of a 9% non-convertible
subordinated debenture due 2004 in the principal amount of $100,000 issuable at
par, together with 1,500 common stock purchase warrants exercisable at $15.75
per share. The 51.5 units issued represent debentures aggregating $5,150,000
together with an aggregate of 77,250 warrants. The debentures are payable in
semi-annual installments of interest only commencing December 1, 1994, with the
principal amount maturing in full on June 13, 2004. The Company is not required
to make any mandatory redemptions or sinking fund payments. The debentures are
subordinated to the Company's senior indebtedness including the Company's credit
facility and notes issued to the Company's landlord. The 77,250 warrants were
valued at $2.50 per warrant as of the date of the 1994 Private Placement and,
accordingly, the Company recorded the discount in the aggregate amount of
$193,125 as additional paid-in capital. This discount is being amortized over
the ten-year term of the debentures and approximately $19,000 was expensed in
2001, 2000 and 1999. All of these warrants expired during 1999.
In May 1994, the Company executed a twenty-year promissory note in the amount of
$865,000 in favor of the Company's landlord to finance substantially all of the
tenant improvements necessary for the Company's Miami facility. This $865,000
note, which is subordinate to the Company's credit facility, has a repayment
schedule with varying monthly payments of principal after the second year and
bears interest at 8% per annum. Certain additional improvements to the Company's
Miami corporate facility aggregating approximately $90,300 were financed as of
May 1, 1995 by the landlord. This $90,300 obligation is evidenced by a
promissory note payable in 240 consecutive, equal self-amortizing monthly
installments of principal and interest. This note, which is also subordinate to
the Company's credit facility, accrues interest at a fixed rate of 8% per annum.
In October 1996, the
F-11
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Company executed a promissory note in the amount of $161,500 with the Company's
landlord to finance certain additional improvements to the Company's Miami
corporate facility. This note, which is also subordinate to the credit facility,
is payable monthly with interest at 8.5% per annum and matures in October 2011.
Obligations under Capital Leases
--------------------------------
The Company is the lessee of programming and telecommunications equipment under
a capital lease expiring in 2002. The assets, aggregating $495,000, and
liability under this capital lease are recorded at the lower of the present
value of the minimum lease payments or the fair value of the assets. The assets
are depreciated over their estimated productive lives. As of December 31, 2001,
accumulated depreciation of these assets aggregated approximately $177,000. The
depreciation of assets under this capital lease is included in depreciation
expense.
Minimum future lease payments under this capital lease as of December 31, 2001
for the remaining year are as follows:
Total minimum lease payments during 2002 .................... $ 156,000
Less amount representing interest ........................... (6,000)
---------
Total obligations under this capital lease .................. 150,000
Current portion ............................................. (150,000)
---------
$ --
=========
The interest rate on this capital lease is 8.5% per annum and is imputed based
on the lower of the Company's incremental borrowing rate at the inception of the
lease or the lessor's implicit rate of return. This capital lease provides for a
bargain purchase option.
NOTE 10 - INCOME TAXES
----------------------
The tax effects of the temporary differences that give rise to the deferred tax
assets and liabilities as of December 31, 2001 and 2000 are as follows:
Deferred tax assets: 2001 2000
---------- ----------
Accounts receivable .................... $ 708,000 $1,332,000
Inventory .............................. 2,924,000 638,000
Accrued expenses ....................... 825,000 887,000
Postretirement benefits ................ 572,000 600,000
Discontinued operations ................ 526,000 --
Net operating loss ..................... 355,000 --
Other .................................. 361,000 486,000
---------- ----------
6,271,000 3,943,000
Deferred tax liabilities:
Fixed assets ........................... 280,000 388,000
---------- ----------
Net deferred tax asset ................... $5,991,000 $3,555,000
========== ==========
At December 31, 2001, $4,452,000 of the net deferred tax asset was included in
"Other current assets" and $1,539,000 was included in "Deposits and other
assets" in the accompanying Consolidated Balance Sheet.
F-12
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The components of income tax expense (benefit) are as follows:
Years Ended December 31 2001 2000 1999
--------------------------------------------------------------------------------
Current
-------
Federal ............. $ (9,238,000) $ 7,425,000 $ 466,000
State ............... (909,000) 1,869,000 90,000
------------ ------------ ------------
(10,147,000) 9,294,000 556,000
------------ ------------ ------------
Deferred
--------
Federal ............. (1,913,000) (697,000) 698,000
State ............... (523,000) (440,000) 104,000
------------ ------------ ------------
(2,436,000) (1,137,000) 802,000
------------ ------------ ------------
$(12,583,000) $ 8,157,000 $ 1,358,000
============ ============ ============
A reconciliation of the difference between the expected income tax rate using
the statutory federal tax rate and the Company's effective tax rate is as
follows:
Years Ended December 31 2001 2000 1999
-------------------------------------------------------------------------------------------
U.S. Federal income tax statutory rate................. 35.0% 35.0% 34.0%
State income tax, net of federal income tax benefit.... 3.3 5.9 3.3
Goodwill amortization and other - including
non-deductible items................................. (2.5) 1.2 5.7
------ ------ -----
Effective tax rate..................................... 35.8% 42.1% 43.0%
====== ====== =====
The tax benefit associated with the disqualifying disposition of stock acquired
with incentive stock options under the Option Plan reduced taxes payable by
$181,000 as of December 31, 2000 and is reflected as a credit to capital in
excess of par value in the accompanying Consolidated Balance Sheet.
NOTE 11 - CAPITAL STOCK, OPTIONS AND WARRANTS
---------------------------------------------
In December 1995, in connection with certain acquisitions, the Company issued an
aggregate of 434,821 shares of common stock, including 32,141 shares, valued at
approximately $391,000, which were issued to the Company's wholly-owned
subsidiary. In addition, in connection with such acquisitions, certain selling
stockholders were granted an aggregate of 10,000 stock options (6,000 stock
options of which have since been canceled) to acquire the Company's common stock
at an exercise price of $11.565 per share exercisable, subject to a six-year
vesting period, through December 29, 2002. In connection with the Company
entering into a settlement agreement with certain of the selling stockholders in
December 1996, an aggregate of 19,000 shares of the Company's common stock was
canceled and certain selling stockholders were granted stock options to purchase
an aggregate of 10,000 shares of the Company's common stock at an exercise price
of $7.50 per share and were exercisable through December 30, 2001. At December
31, 2001, 2,500 of these options were exercised and the balance either expired
or were canceled.
In connection with employment agreements between the Company and each of its
four executive officers entered into in May 1995, an aggregate of 200,000 stock
options were granted on June 8, 1995 to such four executive officers pursuant to
the Option Plan. These options, which became fully vested during 2000, have an
exercise price of $9.375 per share and are exercisable through June 7, 2005. At
December 31, 2001 these options remained unexercised.
In June 2000, the Company established the 2000 Nonemployee Director Stock Option
Plan. The 2000 Nonemployee Director Stock Option Plan provides for awards of
options to purchase shares of common stock, $.01 par value per share, of the
Company to nonemployee directors of the Company. An aggregate of 75,000 shares
of the Company's common stock has been reserved for issuance under the 2000
Nonemployee Director Stock Option Plan. At the Company's 2001 annual meeting of
shareholders which was held on August 22, 2001 (the "Annual Meeting"), the
shareholders of the Company approved an amendment to the 2000 Nonemployee
Director Stock Option Plan to increase the number of nonqualified stock options
to purchase shares of common stock automatically awarded to each nonemployee
director
F-13
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
on the date of each annual meeting of the shareholders of the Company to 1,000
shares. Pursuant to the 2000 Nonemployee Director Stock Option Plan, the Company
granted an aggregate of 4,500 stock options to four individuals during 2001 and
an aggregate of 4,500 stock options to three individuals during 2000. The
options granted during 2001 have exercise prices ranging from $5.35 to $7.15 per
share and the options granted in 2000 have an exercise price of $10.53 per share
(all based on fair market value at date of grant) and all vest over a two-year
period and are exercisable over a ten-year period.
At the Annual Meeting, the shareholders of the Company also approved an
amendment to the Option Plan increasing the number of shares of Common Stock
reserved for issuance under the Option Plan to 1,100,000 shares.
In connection with the cancellation in June 2001 of 88,900 stock options
previously granted pursuant to the Option Plan, the Company agreed with each of
the Company's employees electing such cancellation ("electing employees") to
issue no earlier than six months but no later than nine months from the date of
cancellation an equal number of options at the then fair market value of the
Company's common stock. The canceled options had exercise prices ranging from
$13.02 to $16.71 per share. Accordingly, in March 2002, the Company granted
81,000 options at an exercise price of $3.45 per share to the electing employees
who were still employed by the Company. These 81,000 options vest over two years
and are exercisable through March 3, 2005.
A summary of options granted under the option plans and related information for
the years ended December 31, 1999, 2000 and 2001 follows:
Weighted Average
Options Exercise Price
---------- ----------------
Outstanding, December 31, 1998 566,311 7.30
Granted 204,400 3.52
Exercised -- --
Canceled (55,863) 6.61
----------
Outstanding, December 31, 1999 714,848 6.29
Weighted average fair value of options granted during 1999 1.15
Granted 137,000 13.00
Exercised (66,189) 5.96
Canceled (35,625) 5.77
----------
Outstanding, December 31, 2000 750,034 7.57
Weighted average fair value of options granted during 2000 4.36
Granted 12,250 5.75
Exercised (530) 4.19
Canceled (126,120) 11.47
----------
Outstanding, December 31, 2001 635,634 6.75
==========
Weighted average fair value of options granted during 2001 3.88
Options exercisable:
December 31, 1999 184,416 5.96
December 31, 2000 386,939 7.51
December 31, 2001 454,958 7.22
Exercise prices for options outstanding as of December 31, 2001 ranged from
$3.27 to $14.32. The weighted-average remaining contractual life of these
options is approximately 3 years. Outstanding options at December 31, 2001 were
held by 100 individuals.
The Company applies APB 25 and related Interpretations in accounting for the
option plans. 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 Financial Accounting Standards
F-14
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Board Statement 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:
Years Ended December 31 2001 2000 1999
--------------------------------------------------------------------------------------
Net earnings (loss):
As reported $(22,575,000) $11,199,000 $1,799,000
Pro forma (22,606,000) 10,853,000 1,665,000
Basic earnings (loss) per share:
As reported $(5.85) $2.92 $.46
Pro forma (5.86) 2.83 .42
Diluted earnings (loss) per share:
As reported $(5.85) $2.70 $.46
Pro forma (5.86) 2.62 .42
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 2001, 2000 and 1999, respectively: expected volatility of 105%,
47% and 40%; risk-free interest rate of 4.4%, 6.3% and 5.9%; and expected lives
of 2 to 8 years.
The effects of applying SFAS 123 in the above pro forma disclosures are not
indicative of future amounts as they do not include the effects of awards
granted prior to 1995. Additionally, future amounts are likely to be affected by
the number of grants awarded since additional awards are generally expected to
be made at varying amounts.
NOTE 12 - COMMITMENTS/RELATED PARTY TRANSACTIONS
------------------------------------------------
In May 1994, the Company entered into a new lease with its then existing
landlord to lease a 110,800 square foot facility for its corporate headquarters
and Miami distribution center. The lease has a term expiring in 2014 (subject to
the Company's right to terminate at any time after the fifth year of the term
upon twenty-four months prior written notice and the payment of all outstanding
debt owed to the landlord). The lease gives the Company three six-year options
to renew at the fair market value rental rates. The lease is currently in its
eighth year and provides for annual fixed rental payments totaling approximately
$320,100 in year eight; and in each year thereafter during the term, the rent
shall increase once per year in an amount equal to the annual percentage
increase in the consumer price index not to exceed 4% in any one year.
The Company also leases approximately 20,000 square feet of space for its west
coast distribution and semiconductor programming center located in Fremont,
California (near San Jose). In Denver, Colorado the Company leases a 7,100
square foot facility which is dedicated to certain value-added services and a
regional distribution center.
In Tustin, California the Company leases a 13,900 square foot facility for its
Aved Memory Products division. In December 2000, the Company leased 26,700
square feet of space in Irvine, California which housed the operations of the
Company's newly created Integrated Display Technologies division. As a result of
operations of this division being discontinued during 2001, the Company is
attempting to reduce its commitment associated with this space in Irvine,
California.
During 1998, the Company entered into a lease for approximately 20,000 square
feet of space in San Jose, California to house its expanded west coast corporate
offices and the headquarters of the Company's sales and marketing functions, as
well as its northern California sales operation. Approximately 8,000 square feet
of the space is being used for corporate offices including the office of the
President and Chief Executive Officer of the Company and 8,000 square feet of
the space is being utilized
F-15
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
for the sales operation. The remaining area of approximately 4,000 square feet,
which had been sublet, is presently vacant.
The Company leases space for its other sales offices, which range in size from
approximately 1,000 square feet to 10,000 square feet. The leases for these
offices expire at various dates and include various escalation clauses and
renewal options.
Approximate minimum future lease payments required under operating leases for
office leases as well as equipment leases that have initial or remaining
noncancelable lease terms in excess of one year as of December 31, 2001, are as
follows:
YEAR ENDING DECEMBER 31
-----------------------
2002.......................................................... $4,400,000
2003.......................................................... 3,400,000
2004.......................................................... 2,800,000
2005.......................................................... 2,200,000
2006.......................................................... 1,400,000
Thereafter.................................................... 4,100,000
Total rent expense for office leases, including real estate taxes and net of
sublease income, amounted to approximately $3,600,000, $2,703,000, and
$2,451,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
In 1998, the Board of Directors approved a loan to the President and Chief
Executive Officer of the Company in the amount of $125,000 in connection with
his relocation to Silicon Valley. This loan, which was evidenced by a promissory
note and bore interest at 5% per annum, was forgiven effective December 31,
2000.
Effective January 1, 1988, the Company established a deferred compensation plan
(the "1988 Deferred Compensation Plan") for executive officers and key employees
of the Company. The employees eligible to participate in the 1988 Deferred
Compensation Plan (the "Participants") are chosen at the sole discretion of the
Board of Directors upon a recommendation from the Board of Directors'
Compensation Committee. Pursuant to the 1988 Deferred Compensation Plan,
commencing on a Participant's retirement date, he or she will receive an annuity
for ten years. The amount of the annuity shall be computed at 30% of the
Participant's Salary, as defined. Any Participant with less than ten years of
service to the Company as of his or her retirement date will only receive a pro
rata portion of the annuity. Retirement benefits paid under the 1988 Deferred
Compensation Plan will be distributed monthly. The Company paid benefits under
this plan of approximately $15,600 during each of 2001, 2000 and 1999, none of
which was paid to any executive officer. The maximum benefit payable to a
Participant (including each of the executive officers) under the 1988 Deferred
Compensation Plan is presently $30,000 per annum. At December 31, 2001, the cash
surrender values of insurance policies owned by the Company under the 1988
Deferred Compensation Plan, which provide for the accrued deferred compensation
benefits, aggregated approximately $191,000.
During 1996, the Company established a second deferred compensation plan (the
"Salary Continuation Plan") for executives of the Company. The executives
eligible to participate in the Salary Continuation Plan are chosen at the sole
discretion of the Board of Directors upon a recommendation from the Board of
Directors' Compensation Committee. The Company may make contributions each year
in its sole discretion and is under no obligation to make a contribution in any
given year. For 2001, 2000, and 1999 the Company committed to contribute
$110,000, $235,000, and $115,000 respectively, under this plan. Participants in
the plan will vest in their plan benefits over a ten-year period. If the
participant's employment is terminated due to death, disability or due to a
change in control of management, they will
F-16
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
vest 100% in all benefits under the plan. Retirement benefits will be paid, as
selected by the participant, based on the sum of the net contributions made and
the net investment activity.
During 2000, employment agreements with two of the Company's executive officers
were amended whereby the term, among other things, was extended through December
31, 2005. In addition, during 2000 the Company entered into new agreements that
continue until December 31, 2003 with two other executive officers on similar
terms as were contained in their previous employment agreements with the
Company. At December 31, 2001, in addition to incentive compensation, these
agreements provide for aggregate base salary of approximately $4,180,000 over
the remaining term of the agreements.
In connection with an employment agreement with an executive officer an unfunded
postretirement benefit obligation of $1,171,000 is included in the Consolidated
Balance Sheets at December 31, 2001 and 2000.
The Company maintains a 401(k) plan (the "401(k) Plan"), which is intended to
qualify under Section 401(k) of the Internal Revenue Code. All full-time
employees of the Company over the age of 21 are eligible to participate in the
401(k) Plan after completing 90 days of employment. During 2001, each eligible
employee could elect to contribute to the 401(k) Plan, through payroll
deductions, up to 15% of his or her salary, limited to $10,500 in 2001. The
Company's 401(k) Plan provides for discretionary matching contributions by the
Company. During 2001 and in prior years, the Company's 401(k) Plan provided for
standard matching contributions by the Company in the amount of 25% on the first
6% contributed of each participating employee's salary. The Company expensed
$443,000, $691,000, and $599,000 for matching contributions for the years ended
December 31, 2001, 2000 and 1999, respectively.
The Company entered into a lease for residential space in San Jose, California
with a partnership which includes two of the Company's executive officers. The
lease provides for rental payments of $4,800 per month through January 1, 2006.
In consideration of the impact of the severe industry downturn on the Company,
the partnership reduced the monthly rent to $3,400 in 2001. The Company paid a
total of $54,800 to this partnership during 2001.
NOTE 13 - CONTINGENCIES
-----------------------
From time to time the Company may be named as a defendant in suits for product
defects, breach of warranty, breach of implied warranty of merchantability,
patent infringement or other actions relating to products which it distributes
which are manufactured by others. In those cases, the Company expects that the
manufacturer of such products will indemnify the Company, as well as defend such
actions on the Company's behalf although there is no guarantee that the
manufacturers will do so. In addition, the Company offers a warranty with
respect to products manufactured or assembled for Aved Memory Products for a
period of one year against defects in workmanship and materials under normal use
and service and in their original, unmodified condition.
The Company has guaranteed 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. This guaranty was made when the leases were sold to
this third party who paid to the Company the net present value of the future
payments of the leases. The maximum exposure under this guaranty was
approximately $852,000 at December 31, 2001.
NOTE 14 - ECONOMIC DEPENDENCY
-----------------------------
For each of the years ended December 31, 2001, 2000 and 1999, purchases from one
supplier were in excess of 10% of the Company's total annual purchases and
aggregated approximately $57,980,000, $104,420,000 and $62,950,000,
respectively. The net outstanding accounts payable to this supplier at December
31, 2001, 2000 and 1999 amounted to approximately $1,413,000, $11,286,000 and
$7,545,000, respectively.
F-17
Corporate Information Supplementing Form 10-K
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Additions Additions
Balance at Charged to Charged to
Beginning of Costs and Other Balance at End
Description Period Expenses Accounts Deductions of Period
-------------------- ------------ ----------- ----------- ----------- --------------
Allowance for
Doubtful Accounts
2001 $ 3,283,000 $ 1,335,000 $ -- $(2,773,000) $ 1,845,000
2000 $ 1,987,000 $ 1,899,000 $ -- $ (603,000) $ 3,283,000
1999 $ 1,412,000 $ 824,000 $ -- $ (249,000) $ 1,987,000
S-1