-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JPE5YzROWExcmzhKsb4wN7aah18RbNEWfHpDXpRGVoQtk41DayP4AP1OyZetbXGp 32au5L5Z2YcNK377UuG9zQ== 0001019056-97-000103.txt : 19970603 0001019056-97-000103.hdr.sgml : 19970603 ACCESSION NUMBER: 0001019056-97-000103 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970602 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALL AMERICAN SEMICONDUCTOR INC CENTRAL INDEX KEY: 0000818074 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 592814714 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-16207 FILM NUMBER: 97617512 BUSINESS ADDRESS: STREET 1: 16115 N W 52ND AVENUE CITY: MIAMI STATE: FL ZIP: 33014 BUSINESS PHONE: 3056218282 MAIL ADDRESS: STREET 1: 16115 NW 52ND AVENUE CITY: MIAMI STATE: FL ZIP: 33014 10-K/A 1 FORM 10-K/A-2 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A-2 (AMENDMENT NO. 2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 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 24, 1997, 20,343,894 shares (including 160,703 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 $18,700,000. Documents Incorporated by Reference: None ================================================================================ Item 8 of Part II and Item 14(a)1 of Part IV of the Annual Report on Form 10-K (the "Report") for the fiscal year ended December 31, 1996, of All American Semiconductor, Inc. (the "Company" or the "Registrant") previously filed with the Securities and Exchange Commission ("SEC") are hereby amended to correct the components of the income tax benefit for 1996 disclosed in Note 9 - Income Taxes previously on page F-20. The revisions to this footnote do not result in any changes to the Company's consolidated financial statements for the three years in the period ended December 31, 1996 on pages F-2 through F-5 or the other footnotes previously on pages F-6 through F-29. Accordingly, pages F-1 through F-21 are filed as Exhibit A annexed hereto in replacement of existing pages F-1 through F-29 in the Report. 1 Exhibit A 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, 1996 and 1995 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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, 1996 and 1995 and the results of their operations and their cash flows for the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /S/ LAZAR, LEVINE & COMPANY LLP - ------------------------------- LAZAR, LEVINE & COMPANY LLP New York, New York February 28, 1997 F-1 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS 1996 1995 - ------------------------------------------------------------------------------------------------------------------ Current assets: Cash............................................................... $ 525,000 $ 276,000 Accounts receivable, less allowances for doubtful accounts of $1,200,000 and $921,000.............................. 32,711,000 35,101,000 Inventories........................................................ 64,212,000 67,463,000 Other current assets............................................... 5,113,000 1,959,000 ---------------- ---------------- Total current assets........................................... 102,561,000 104,799,000 Property, plant and equipment - net.................................... 5,454,000 3,882,000 Deposits and other assets.............................................. 3,832,000 2,316,000 Excess of cost over fair value of net assets acquired - net............ 1,074,000 3,477,000 ---------------- ---------------- $ 112,921,000 $ 114,474,000 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------ Current liabilities: Current portion of long-term debt.................................. $ 434,000 $ 844,000 Accounts payable and accrued expenses.............................. 31,808,000 43,451,000 Income taxes payable............................................... - 199,000 Other current liabilities.......................................... 496,000 953,000 ---------------- ---------------- Total current liabilities...................................... 32,738,000 45,447,000 Long-term debt: Notes payable...................................................... 50,012,000 29,900,000 Subordinated debt.................................................. 6,539,000 6,515,000 Other long-term debt............................................... 1,236,000 345,000 ---------------- ---------------- 90,525,000 82,207,000 ---------------- ---------------- 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, 20,323,894 and 19,863,895 shares issued, 19,833,895 and 19,863,895 shares outstanding.................................... 198,000 199,000 Capital in excess of par value..................................... 25,561,000 25,511,000 Retained earnings (deficit)........................................ (2,912,000) 7,008,000 Treasury stock, at cost, 180,295 shares............................ (451,000) (451,000) ---------------- ---------------- 22,396,000 32,267,000 ---------------- ---------------- $ 112,921,000 $ 114,474,000 ================ ================
See notes to consolidated financial statements F-2
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------ NET SALES..................................... $ 237,846,000 $ 177,335,000 $ 101,085,000 Cost of sales................................. (185,367,000) (138,089,000) (74,632,000) ----------------- ----------------- ----------------- Gross profit.................................. 52,479,000 39,246,000 26,453,000 Selling, general and administrative expenses..................... (51,675,000) (32,321,000) (23,374,000) Impairment of goodwill........................ (2,193,000) - - Restructuring and other nonrecurring expenses.................................... (2,749,000) (1,098,000) (548,000) ----------------- ----------------- ----------------- INCOME (LOSS) FROM CONTINUING OPERATIONS.................................. (4,138,000) 5,827,000 2,531,000 Interest expense.............................. (7,025,000) (2,739,000) (1,772,000) ----------------- ----------------- ----------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ............................... (11,163,000) 3,088,000 759,000 Income tax (provision) benefit................ 2,942,000 (1,281,000) (407,000) ----------------- ----------------- ----------------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEMS....................................... (8,221,000) 1,807,000 352,000 Discontinued operations: Gain (loss) from operations (net of $125,000 and $(56,000) income tax benefit (provision)).................... (166,000) 79,000 - Loss on disposal (net of $1,200,000 income tax benefit)......................... (1,591,000) - - ----------------- ----------------- ----------------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS......................... (9,978,000) 1,886,000 352,000 Extraordinary items: Gain from settlement of litigation (net of $205,000 income tax provision).............. 272,000 - - Loss on early retirement of debt (net of $161,000 income tax benefit)................ (214,000) - - ----------------- ----------------- ----------------- NET INCOME (LOSS)............................. $ (9,920,000) $ 1,886,000 $ 352,000 ================= ================= ================= Primary and fully diluted earnings per share: Income (loss) from continuing operations...... $(.40) $.11 $ .03 Discontinued operations....................... (.09) .01 - Extraordinary items........................... - - - ----- ---- ---- Net income (loss)............................. $(.49) $.12 $.03 ===== ==== ====
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, 1993..... 12,017,750 $ 120,000 $ 10,782,000 $ 4,770,000 $ (60,000) $ 15,612,000 Exercise of stock options and warrants.................... 399,041 4,000 545,000 - - 549,000 Issuance of options and warrants.................... - - 437,000 - - 437,000 Net income..................... - - - 352,000 - 352,000 ------------ ------------ ------------ ------------ ----------- ------------- Balance, December 31, 1994..... 12,416,791 124,000 11,764,000 5,122,000 (60,000) 16,950,000 Sale of equity securities...... 5,232,500 53,000 8,447,000 - - 8,500,000 Issuance of equity securities.. 2,174,104 22,000 5,262,000 - (391,000) 4,893,000 Exercise of stock options and warrants.................... 40,500 - 38,000 - - 38,000 Net income..................... - - - 1,886,000 - 1,886,000 ------------ ------------ ------------ ------------ ----------- ------------- Balance, December 31, 1995..... 19,863,895 199,000 25,511,000 7,008,000 (451,000) 32,267,000 EXERCISE OF STOCK OPTIONS...... 5,000 - 9,000 - - 9,000 ISSUANCE OF EQUITY SECURITIES.. 60,000 - 150,000 - - 150,000 REACQUISITION AND CANCELLATION OF EQUITY SECURITIES........ (95,000) (1,000) (109,000) - - (110,000) NET LOSS....................... - - - (9,920,000) - (9,920,000) ------------ ------------ ------------ ------------ ----------- ------------- BALANCE, DECEMBER 31, 1996..... 19,833,895 $ 198,000 $ 25,561,000 $ (2,912,000) $ (451,000) $ 22,396,000 ============ ============ ============ ============ =========== =============
See notes to consolidated financial statements F-4
ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss).................................................... $ (9,920,000) $ 1,886,000 $ 352,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization...................................... 2,757,000 1,038,000 677,000 Non-cash interest expense.......................................... 2,273,000 148,000 47,000 Nonrecurring expenses.............................................. 4,428,000 - 363,000 Changes in assets and liabilities of continuing operations: Decrease (increase) in accounts receivable....................... 1,569,000 (12,324,000) (3,019,000) Decrease (increase) in inventories............................... 1,206,000 (24,495,000) (9,508,000) Increase in other current assets................................. (2,014,000) (248,000) (904,000) Increase (decrease) in accounts payable and accrued expenses..... (14,032,000) 24,972,000 4,702,000 Increase (decrease) in other current liabilities................. (669,000) 809,000 (63,000) Decrease (increase) in net assets of discontinued operations....... 1,796,000 (72,000) - -------------- -------------- -------------- Net cash used for operating activities......................... (12,606,000) (8,286,000) (7,353,000) -------------- ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property and equipment................................ (2,293,000) (1,428,000) (1,618,000) Increase in other assets............................................. (4,438,000) (1,540,000) (712,000) Purchases of net assets of acquired companies........................ - (2,860,000) (1,084,000) Net investing activities of discontinued operations.................. (39,000) (7,000) - -------------- ------------- -------------- Net cash used for investing activities......................... (6,770,000) (5,835,000) (3,414,000) -------------- ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under line of credit agreements....................... 20,290,000 5,910,000 6,076,000 Increase in notes payable............................................ 15,161,000 134,000 6,088,000 Repayments of notes payable.......................................... (15,835,000) (385,000) (2,119,000) Net proceeds from issuance of equity securities...................... 9,000 8,538,000 742,000 -------------- ------------- -------------- Net cash provided by financing activities...................... 19,625,000 14,197,000 10,787,000 -------------- ------------- -------------- Increase in cash..................................................... 249,000 76,000 20,000 Cash, beginning of year.............................................. 276,000 200,000 180,000 -------------- ------------- -------------- Cash, end of year.................................................... $ 525,000 $ 276,000 $ 200,000 ============== ============= ============== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid........................................................ $ 3,839,000 $ 2,581,000 $ 1,604,000 ============== ============= ============== Income taxes paid.................................................... $ 1,108,000 $ 898,000 $ 1,021,000 ============== ============= ==============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital leases aggregating $634,000 for computer equipment became effective during 1994. Effective January 1, 1996, the Company purchased all of the capital stock of Programming Plus Incorporated ("PPI"). The consideration paid by the Company for such capital stock consisted of 549,999 shares of common stock of the Company valued at $1,375,000 (or $2.50 per share); however, only 60,000 shares of common stock (valued at $150,000) were released to the PPI selling shareholders at closing, with the balance retained in escrow subject to certain conditions subsequent. During 1995, the Company purchased all the capital stock of Added Value Electronics Distribution, Inc. and A.V.E.D.-Rocky Mountain, Inc. The Company paid approximately $2,936,000 in cash and 2,013,401 shares of common stock of the Company valued at approximately $4,893,000. During 1994, the Company acquired substantially all of the assets of GCI Corporation. The Company paid $485,000 in cash, with the balance by a combination of a promissory note and stock options. In addition, during 1994, the Company acquired substantially all of the assets of Components Incorporated. The Company paid $599,000 in cash, with the balance in a promissory note. 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 primarily distributes a full range of semiconductors (active components), including transistors, diodes, memory devices and other integrated circuits, as well as passive components, such as capacitors, resistors, inductors and electromechanical products, including cable, switches, connectors, filters and sockets. The Company's products are sold primarily to original equipment manufacturers ("OEMs") in a diverse and growing range of industries, including manufacturers of computers and computer-related products, satellite and communications products, consumer goods, robotics and industrial equipment, defense and aerospace equipment and medical instrumentation. The Company also designs and has manufactured certain board level products including memory modules and flat panel display driver boards, both of which are sold to OEMs. The Company's financial statements are prepared in accordance with generally accepted accounting principles ("GAAP"). 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 a Canadian subsidiary which conducts substantially all of its business in U.S. dollars. Prior years' financial statements have been reclassified to conform with the current year's presentation. CONCENTRATION OF CREDIT RISK - ---------------------------- 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. INVENTORIES - ----------- Inventories are stated at the lower of cost (determined on an average cost basis) or market. DEPRECIATION AND AMORTIZATION - ----------------------------- Fixed assets are reflected at cost. Depreciation of office furniture and equipment, computer equipment and motor vehicles 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. The excess of cost over the fair value of net assets acquired is being amortized over periods ranging from 15 years to 40 years using the straight-line method. The Company periodically reviews the value of its excess of cost over the fair value of net assets acquired to determine if an impairment has occurred. As part of this review the Company measures the estimated future operating cash flows of F-6 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ acquired businesses and compares that with the carrying value of excess of cost over the fair value of net assets. See Note 5 to Notes to Consolidated Financial Statements. 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. The Company utilizes Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, 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. Under SFAS 109, 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 9 to Notes to Consolidated Financial Statements. EARNINGS PER SHARE - ------------------ Primary earnings per share has been computed based upon the weighted average number of common and common equivalent shares outstanding during each period presented. Fully diluted earnings per share has been computed assuming conversion of all dilutive stock options and warrants. The following average shares were used for the computation of primary and fully diluted earnings per share: YEARS ENDED DECEMBER 31 1996 1995 1994 - -------------------------------------------------------------------------------- Primary and fully diluted....... 20,115,843 15,945,696 13,029,714 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. POSTRETIREMENT BENEFITS - ----------------------- In 1993, the Company adopted Financial Accounting Standards Board Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The effect of the adoption of this Statement was not material. STOCK-BASED COMPENSATION - ------------------------ In 1996, the Company adopted Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). See Note 10 to Notes to Consolidated Financial Statements. NOTE 2 - PUBLIC OFFERING - ------------------------ On June 15, 1995, the Company completed a public offering of 4,550,000 shares (exclusive of the over-allotment option) of its common stock at $1.875 per share. On July 13, 1995, the Company issued an additional 682,500 shares of its common stock as a result of the exercise of an over-allotment option. The aggregate net proceeds from this offering, after deducting all associated costs, aggregated approximately $8,500,000. As a result, the Company's common stock and F-7 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ capital in excess of par value increased by $53,000 and $8,447,000, respectively. The net proceeds initially were used to reduce the amount outstanding under the Company's line of credit, pending the use of the line of credit for continued growth and expansion, including opening new sales offices, acquisitions, inventory diversification and general working capital purposes. NOTE 3 - PROPERTY, PLANT AND EQUIPMENT - --------------------------------------
DECEMBER 31 1996 1995 - ----------------------------------------------------------------------------------------------- Office furniture and equipment................. $ 4,018,000 $ 3,283,000 Computer equipment............................. 3,403,000 2,162,000 Leasehold improvements......................... 1,719,000 1,271,000 Motor vehicles................................. - 25,000 --------------- ----------------- 9,140,000 6,741,000 Accumulated depreciation and amortization (3,686,000) (2,859,000) --------------- ----------------- $ 5,454,000 $ 3,882,000 =============== =================
NOTE 4 - ACQUISITIONS - --------------------- Effective January 1, 1996, the Company purchased all of the capital stock of Programming Plus Incorporated ("PPI"), which provides programming and tape and reel services with respect to electronic components. The purchase price for PPI consisted of $1,375,000 of common stock of the Company, valued at $2.50 per share. Only 60,000 shares of the Company's common stock, valued at $150,000, were released to the PPI selling shareholders at closing. The $1,225,000 balance of the consideration ("Additional Consideration"), represented by 489,999 shares of common stock of the Company, was retained in escrow by the Company, as escrow agent. The Additional Consideration will be released to the PPI selling shareholders annually if and based upon certain levels of pre-tax net income being attained by the acquired company for the years ended December 31, 1996 through December 31, 2000. For the year ended December 31, 1996, the acquired company did not attain that certain level of pre-tax net income and, accordingly, none of the Additional Consideration was released. If, as of December 31, 2000, all of the Additional Consideration has not been released, the balance held in escrow will be canceled. The PPI selling shareholders must vote all of the Company's common stock issued to them (whether or not held in escrow) as directed by the Company until the escrow is terminated. In addition, the PPI selling shareholders entered into a four-year consulting obligation with PPI in consideration of certain automobile benefits, and a covenant not to compete with PPI. The total amount paid by PPI for such automobile benefits and covenant was $150,000. The acquisition was accounted for by the purchase method of accounting which resulted in the recognition of approximately $70,000 of excess cost over fair value of net assets acquired. The excess cost over fair value of net assets acquired was subsequently deemed impaired (see Note 5) and, as of September 30, 1996, was written-off. The assets, liabilities and operating results of PPI are included in the consolidated financial statements of the Company from the date of acquisition. On December 29, 1995, the Company purchased through two separate mergers with and into the Company's wholly-owned subsidiaries (the "Added Value Acquisitions") all of the capital stock of Added Value Electronics Distribution, Inc. ("Added Value") and A.V.E.D.-Rocky Mountain, Inc. ("Rocky Mountain," and together with Added Value, collectively the "Added Value Companies"). The purchase price for the Added Value Companies included approximately $2,936,000 in cash and 2,013,401 shares of common stock of the Company valued at approximately $4,893,000 (exclusive of the 160,703 shares of common stock issued in the transaction to a wholly-owned subsidiary of the Company). In addition, the Company paid an aggregate of $1,200,000 in cash to the selling stockholders in exchange for covenants not to compete, and an aggregate of $1,098,000 in cash as front-end incentive employment compensation paid to certain key employees of the Added Value Companies. The Company also assumed substantially all of the seller's disclosed liabilities of approximately $8,017,000, including approximately $3,809,000 in bank notes which have since been repaid. The Company may be obligated to pay to the selling stockholders of the Added Value Companies up to approximately $266,000 of additional consideration ("Additional F-8 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ Consideration") if the aggregate value of the shares of the Company's common stock issued to certain of the selling stockholders has not, by June 30, 1998, appreciated in the aggregate by $266,000. Prior to the Company entering into a settlement agreement with certain of the selling stockholders in December 1996 and with an additional selling stockholder in January 1997 (collectively the "Settlement Agreements") the Additional Consideration could have been as much as $1,900,000. See Note 5 to Notes to Consolidated Financial Statements. The Additional Consideration is payable, subject to certain limitations, at the election of the Company, in cash or the Company's common stock, or a combination of cash and the Company's common stock. The Settlement Agreement entered into in December 1996 also provided, among other things, that certain of the selling stockholders reconvey to the Company an aggregate of 95,000 shares of common stock of the Company which were issued as part of the purchase price for the Added Value Companies and that the Company grant to certain selling stockholders stock options to purchase an aggregate of 50,000 shares of the Company's common stock at an exercise price of $1.50 per share exercisable through December 30, 2001. The acquisitions were accounted for by the purchase method of accounting which resulted in the recognition of approximately $2,937,000 of excess cost over fair value of net assets acquired. As a result of a reduction in the estimated future cash flows from the Added Value Companies, the Company recognized an impairment of goodwill of approximately $2,200,000 in 1996 (see Note 5 to Notes to Consolidated Financial Statements). The assets, liabilities and operating results of the acquired companies are included in the consolidated financial statements of the Company from the date of the acquisitions, December 29, 1995. On September 9, 1994, the Company completed the acquisition of substantially all of the assets of GCI Corp., a Philadelphia-area distributor of electronic components. As consideration for this acquisition, the Company paid $485,000 in cash, issued a promissory note of approximately $306,000 payable interest only for two years and in quarterly installments over the next three years, and issued stock options valued at $144,000 at September 9, 1994. The Company also assumed substantially all of the seller's disclosed liabilities of approximately $1,930,000, including a $1,400,000 bank note payable which has been repaid. See Notes 8 and 10 to Notes to Consolidated Financial Statements. The promissory note is required to be paid down by one-half of the then outstanding principal balance if certain Net Earnings (as defined) are attained for 1995 or 1996. For 1995 and 1996, the level of Net Earnings (as defined) was not met and therefore no principal payments were made on such promissory note. The seller may earn up to an additional $760,000 of contingent purchase price over the three-year period ending December 31, 1997 if certain gross profit targets are met. For 1995 and 1996, the gross profit targets were not met and, therefore, no additional purchase price was earned. The acquisition was accounted for by the purchase method of accounting which resulted in the recognition of approximately $394,000 of excess cost over fair value of net assets acquired. The operating results of the acquired company are included in the consolidated statement of operations from the date of acquisition. The three principal stockholders and key employees of GCI Corp. (the "GCI Principals") each had received an employment agreement expiring on December 31, 1997 providing for base salary of $122,000, $113,000 and $110,000 per annum, respectively. In addition to base salary, each of the GCI Principals could have earned a bonus based upon the percentage of the Net Earnings generated in the sales Territory, as defined. In addition to the net earnings bonus, two of the GCI Principals could have earned an annual bonus based upon the gross profit of the Company with respect to all sales made in Maryland, Virginia and Delaware, but only if certain minimum gross profit levels are obtained. The Company had also agreed to grant to each of the GCI Principals employee incentive stock options at fair market value on the date of grant (10,000 to each by January 30, 1996; 10,000 to each by January 30, 1997; and 10,000 to each by January 30, 1998), but each such grant was conditional upon sales in the sales Territory, as defined, attaining a minimum gross profit for the year most recently ended. As of December 31, 1996, the minimum gross profit margin was not attained and therefore none of the applicable stock options have been granted. Two of the GCI principals' employment agreements have been terminated. One other key employee of GCI Corp. accepted employment with the Company and was granted 10,000 employee incentive stock options at an exercise price of $2.63 per share, the ability to receive up to 15,000 additional employee incentive stock options (5,000 per year in respect of 1995, 1996 and 1997) if certain minimum gross F-9 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ profit for sales in the sales Territory, as defined, are attained during each such year, and will be issued 1,000 shares of Common Stock as a result of completing 18 months of service. None of the 15,000 additional stock options have been granted as the minimum gross profit was not attained during 1995 and 1996. On January 24, 1994, the Company completed the acquisition of substantially all of the assets of Components Incorporated, a Chicago-based distributor of electronic components ("Components"). As consideration for this acquisition, the Company paid $599,000 in cash and issued a promissory note of approximately $399,000 due two years from closing, which has since been repaid. The Company also assumed substantially all of the seller's disclosed liabilities of approximately $700,000, including a $400,000 bank note payable which has been repaid. See Note 8 to Notes to Consolidated Financial Statements. The Components principal received $350,000 of consideration for a covenant not to compete that restricts any competition with the Company through April 30, 1999, representing a three-year period following the Components principal's termination as an employee which was April 30, 1996. The $350,000 consideration was in the form of a grant of stock options valued at $100,000 as of January 24, 1994 and the delivery to the Components principal of a promissory note in the principal amount of $250,000. See Notes 8 and 10 to Notes to Consolidated Financial Statements. The Company has also granted to the Components principal employee incentive stock options at fair market value on the date of grant (5,000 on January 24, 1995 and 10,000 on January 24, 1996). These options are no longer outstanding as 5,000 were exercised and the balance were canceled in connection with the termination of the Components principal as an employee. The acquisition was accounted for by the purchase method of accounting. The operating results of the acquired company are included in the consolidated statement of operations from the date of acquisition. The following unaudited pro forma consolidated income statement data presents the consolidated results of operations of the Company as if the acquisitions of PPI, the Added Value Companies, GCI Corp. and Components had occurred at the beginning of the years presented: YEARS ENDED DECEMBER 31 1995 1994 - -------------------------------------------------------------------------------- Net sales......................................... $217,247,000 $145,942,000 Net income........................................ 2,822,000 1,809,000 Primary and fully diluted earnings per share...... $.16 $.12 The above pro forma information does not purport to be indicative of what would have occurred had the acquisitions been made as of such date or of the results which may occur in the future. NOTE 5 - IMPAIRMENT OF GOODWILL - ------------------------------- In connection with the Company's acquisitions of the Added Value Companies and PPI, at September 30, 1996, the Company recognized an impairment of goodwill. This non-cash charge is primarily related to the Added Value Companies and has no associated tax benefit. A variety of factors contributed to the impairment of the goodwill relating to the Added Value Companies. These factors include a significant reduction in the revenues and operating results generated by the Added Value Companies` customer base acquired by the Company, a restructuring of the Added Value Companies' kitting and turnkey operations due to the Company determining that it was not economically feasible to continue and expand such division as originally planned, as well as the termination of certain principals and senior management of the Added Value Companies who became employees of the Company at the time of the closing of the acquisitions. See Note 6 to Notes to Consolidated Financial Statements. These factors have greatly reduced the estimated future cash flows from the Added Value Companies. In determining the amount of the impairment charge, the Company developed its best estimate of projected operating cash flows over the remaining period of expected benefit. Projected future cash flows were discounted and compared to the carrying value of the related goodwill and as a result a write-down of approximately $2,400,000 with respect to the Added Value Companies was recorded as of September 30, 1996. F-10 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ In December 1996 and January 1997, as part of the Settlement Agreements (see Note 4 to Notes to Consolidated Financial Statements), the Company reacquired and canceled 95,000 shares of the Company's common stock valued at approximately $110,000. In addition, the Company established a receivable for $125,000 related to excess distributions made to certain principals of the Added Value Companies in connection with the acquisitions which, together with the benefit associated with the Settlement Agreements, reduced the impairment of goodwill to $2,193,000. NOTE 6 - RESTRUCTURING AND OTHER NONRECURRING EXPENSES - ------------------------------------------------------ During 1996, the Company recorded a pretax charge of $1,092,000 associated primarily with the restructuring of its kitting and turnkey operations. The kitting department was created toward the end of 1994 and, at the time of the December 1995 Added Value Acquisitions, the Company intended to utilize the extensive kitting capabilities acquired and expand such service nationwide. In addition, the acquisitions provided the Company with capabilities in turnkey manufacturing services. After evaluating, with the assistance of consultants, the Company's cost structure and service capabilities, the Company's management determined that it was not economically feasible to continue its current level of investment in such services, especially in light of the adverse market conditions within the industry at that time. As a result, the Company adopted a plan to restructure its kitting and turnkey operations. In connection with this plan, the Company reduced the related workforce and accrued for employee severance and related benefits and wrote down various related assets. The portion of the restructuring charge which represented severance and related benefits aggregated approximately $625,000. The workforce reductions primarily affected approximately 90 employees of the Company's sales, management and operations departments. As of December 31, 1996, approximately $194,000 of termination benefits were applied to the restructuring accrual. The Company expects to pay the balance of the accrued liability during 1997. After the completion of the restructuring, the Company should have reduced overhead and enhanced operational efficiency. In addition, during 1996, the Company wrote-off $2,000,000 of inventory associated primarily with the restructuring of the kitting and turnkey operations which is reflected in cost of sales in the accompanying Consolidated Statements of Operations. During 1996, the Company terminated certain employment agreements which were entered into in connection with certain acquisitions. As a result, the Company accrued $587,000 of nonrecurring expenses in 1996, representing the aggregate of the payments to be made under such agreements. In May 1996, the Company decided to close its cable assembly division in Lisle, Illinois and to relocate certain of such operations to its Miami distribution facility. Accordingly, the Company accrued $445,000 of nonrecurring expenses in 1996 relating to such decision, including the write-down of certain cable assembly-specific inventory, operating costs through the date of relocation and severance pay. In December 1996, an employment agreement with an executive officer was amended whereby the permitted retirement date was accelerated to December 31, 1996. As a result, the Company accelerated an existing postretirement benefit accrual schedule and recorded an additional non-cash charge of $625,000. See Note 11 to Notes to Consolidated Financial Statements. In 1995 in connection with the Added Value Acquisitions, the Company paid an aggregate of $1,098,000 in cash to certain key employees of the Added Value Companies as front-end incentive employment compensation. NOTE 7 - DISCONTINUED OPERATIONS - -------------------------------- In June 1995, the Company established a computer products division ("CPD") which operates under the name Access Micro Products. This division sold microprocessors, motherboards, computer upgrade kits, keyboards and disk drives F-11 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ primarily to value added resellers, retailers and distributors of computer products. During the first quarter of 1996 this division was profitable and growing. As a result of this growth and at the request of the division's primary supplier, the Company expanded its staffing and infrastructure to support the expected continued growth. During the second quarter of 1996, the Company was notified by the division's primary supplier that it had discontinued the production of certain products that were the mainstay of the Company's computer products division. Although the Company obtained additional product offerings, revenues of Access Micro Products were severely impacted without these mainstay products and, as a result, management decided to discontinue CPD. The Company finalized its plan of disposal during the third quarter of 1996. Accordingly, this division is accounted for as discontinued operations and the results of operations for all periods shown are segregated in the accompanying Consolidated Statements of Operations. Net sales, cost of sales, operating expenses and income taxes for the prior periods have been reclassified for amounts associated with the discontinued division. The loss on disposal of $2,791,000, on a pretax basis, includes the estimated costs and expenses associated with the disposal of $2,326,000 as well as a provision of $465,000 for operating losses during the phase-out period, which is expected to continue through March 31, 1997. Sales from this division were $6,822,000 and $3,459,000 for 1996 and 1995, respectively. The net assets of discontinued operations, after reflecting certain non-cash write-offs of inventory and receivables, included in the accompanying Consolidated Balance Sheet at December 31, 1996, are summarized as follows: Current assets.................................... $ 788,000 Property, plant and equipment - net............... 42,000 ---------- Net assets........................................ $ 830,000 ========== NOTE 8 - LONG-TERM DEBT - ----------------------- LINE OF CREDIT - -------------- In May 1996, the Company entered into a new $100 million line of credit facility with a group of banks (the "New Credit Facility") which expires May 3, 2001. At the time of entering into such facility, borrowings under the New Credit Facility bore interest, at the Company's option, at either prime plus one-quarter of one percent (.25%) or LIBOR plus two and one-quarter percent (2.25%). Outstanding borrowings under the New Credit Facility, which are secured by all of the Company's assets including accounts receivable, inventories and equipment, amounted to $50,000,000 at December 31, 1996. The amounts that the Company may borrow under the New Credit Facility are based upon specified percentages of the Company's eligible accounts receivable and inventories (as defined). Under the New Credit Facility, the Company is required to comply with certain affirmative and negative covenants as well as to comply with certain financial ratios. These covenants, among other things, place limitations and restrictions on the Company's borrowings, investments and transactions with affiliates and prohibit dividends and stock redemptions. Furthermore, the New Credit Facility requires the Company to maintain certain minimum levels of tangible net worth throughout the term of the agreement and a minimum debt service coverage ratio which is tested on a quarterly basis. In connection with obtaining the New Credit Facility the Company paid financing fees which aggregated $3,326,000. During 1996, the Company's New Credit Facility was amended whereby certain financial covenants were modified and the Company's borrowing rate was increased by one-quarter of one percent (.25%). As a result of a projected decrease in the Company's future anticipated utilization of the New Credit Facility based on projected cash flows as well as certain changes to the terms of the initial agreement, $1,704,000 of the deferred financing fees was written off to interest expense in 1996, since it was deemed to have no future economic benefit. In connection with the New Credit Facility, in May 1996, the Company repaid all outstanding borrowings under the Company's previous $45 million line of credit facility which was to expire in May 1997 and bore interest, at the Company's option, either at one-quarter of one percent (.25%) below prime or two percent (2%) above certain LIBOR rates and repaid the Company's $15 million senior subordinated promissory note (the "Subordinated Note"). The Subordinated Note F-12 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ had been issued in March 1996 and was scheduled to mature on July 31, 1997. As a result of the early extinguishment of the Subordinated Note, the Company recognized an extraordinary after-tax expense of $214,000, net of a related income tax benefit of $161,000, in 1996. Outstanding borrowings at December 31, 1995 under the Company's then $45 million facility amounted to $25,900,000. NOTES PAYABLE - BANKS - --------------------- In connection with the acquisitions of the Added Value Companies, the Company assumed two notes payable to banks of approximately $3,809,000 which were subsequently repaid in January 1996. These notes are included in long-term debt as of December 31, 1995. SUBORDINATED DEBT - ----------------- In September 1994, in connection with the acquisition of GCI Corp., the Company issued a promissory note to the seller bearing interest at 7% per annum in the approximate amount of $306,000 due in 1999. The promissory note, which is subordinate to the Company's line of credit, is payable interest only on a quarterly basis for the first two years with the principal amount, together with accrued interest thereon, payable in equal quarterly installments over the next three years. One-half of the then outstanding principal balance of the promissory note was required to be paid if certain Net Earnings (as defined) were attained for 1995 or 1996. For 1995 and 1996, the level of Net Earnings (as defined) was not met. In addition, in connection with bonuses earned pursuant to employment agreements the Company executed two promissory notes in 1996 to two of the former principal stockholders of GCI Corp., each in the approximate amount of $10,100. These notes, which are subordinate to the Company's institutional lenders, mature in 2001 and bear interest at 7% per annum, payable quarterly. Furthermore, the Company executed a promissory note in the approximate amount of $37,300 payable to GCI Corp. in connection with the earn-out provision contained in the asset purchase agreement. This note bears interest at 7% per annum, payable quarterly. The note, which is subordinate to the Company's institutional lenders, matures in 2001. 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 7,500 common stock purchase warrants exercisable at $3.15 per share. The 51.5 units issued represent debentures aggregating $5,150,000 together with an aggregate of 386,250 warrants. See Note 10 to Notes to Consolidated Financial Statements. 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 its line of credit facility and notes issued to the Company's landlord. The 386,250 warrants were valued at $.50 per warrant as of the date of the 1994 Private Placement and, accordingly, the Company has 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 1996 and 1995. In May 1994, the Company executed a 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 requires no payments in the first year (interest accrues and is added to the principal balance), is payable interest only in the second year and has a repayment schedule with varying monthly payments over the remaining 18 years. At the same time, the Company entered into another promissory note with the Company's landlord for $150,000 to finance certain personal property for the facility. This $150,000 note is payable interest only for six months and thereafter in 60 equal self-amortizing monthly payments of principal and interest. These notes, which are subordinate to the Company's line of credit, bear interest at 8% per annum and are payable monthly. In May 1994, the Company executed another promissory note in the approximate amount of $33,000 with the F-13 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ Company's landlord. This note is payable monthly with interest at 9.5% per annum and matures in April 1997. 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 is evidenced by a promissory note payable in 240 consecutive, equal self-amortizing monthly installments of principal and interest. This note, which is subordinate to the Company's line of credit, accrues interest at a fixed rate of 8% per annum. In October 1996, the 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 subordinate to the Company's line of credit, is payable monthly with interest at 8.5% per annum and matures in October 2011. In January 1994, in connection with the acquisition of Components, the Company issued a promissory note to the seller bearing interest at 8% per annum in the approximate amount of $399,000, payable in quarterly installments of interest only for a term of two years. The entire principal amount was repaid in January 1996. In addition, as part of the consideration for a covenant not to compete, the Company issued a promissory note to the principal of the seller in the amount of $250,000 (the "Non-Compete Note"). The Non-Compete Note bears interest at 8% per annum, payable quarterly, with $100,000 of principal due March 10, 1995, $50,000 of principal due April 24, 1996, and the remaining $100,000 payable in eight quarterly principal installments each in the amount of $12,500 payable over the fourth and fifth years of such note. One-half of the then outstanding principal balance of the Non-Compete Note is required to be paid if certain Net Earnings (as defined) are attained in any fiscal year, with the entire then outstanding principal balance of the Non-Compete Note required to be paid if at least the same level of Net Earnings (as defined) are attained in a subsequent fiscal year. For 1996 and 1995, the level of Net Earnings (as defined) was not attained. These notes are subordinate to the Company's line of credit. Long-term debt of the Company as of December 31, 1996, other than the line of credit, matures as follows: 1997.......................................................... $ 258,000 1998.......................................................... 315,000 1999.......................................................... 225,000 2000.......................................................... 78,000 2001.......................................................... 58,000 Thereafter.................................................... 7,111,000 ---------------- $ 8,045,000 ================ OBLIGATIONS UNDER CAPITAL LEASES - -------------------------------- The Company is the lessee of computer and office equipment under a capital lease expiring in 1997. The assets, aggregating $634,000, and liabilities under the 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, 1996, accumulated depreciation of these assets aggregated approximately $228,000. Depreciation of assets under this capital lease is included in depreciation expense. Future minimum lease payments under such capital lease as of December 31, 1996 were $190,000. This obligation, which is payable in full in 1997, includes interest of approximately $14,000. The net amount of $176,000 represents the present value of the minimum lease payments. The interest rate on this capital lease is 11.7% 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. The capital lease provides for a purchase option. F-14 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE 9 - INCOME TAXES - --------------------- The tax effects of the temporary differences that give rise to the deferred tax assets and liabilities as of December 31, 1996 and 1995 are as follows:
Deferred tax assets: 1996 1995 ---------------- ------------- Accounts receivable...................................................... $ 448,000 $ 336,000 Inventory................................................................ 297,000 354,000 Postretirement benefits.................................................. 482,000 - Reserves for restructuring and discontinued operations................... 866,000 - Other.................................................................... 734,000 145,000 ---------------- ------------- 2,827,000 835,000 Deferred tax liabilities: Fixed assets............................................................. 345,000 270,000 ---------------- ------------- Net deferred tax asset..................................................... $ 2,482,000 $ 565,000 ================ =============
The components of income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 are as follows:
CURRENT DEFERRED TOTAL - ------------------------------------------------------------------------------------------------------------------ 1996 - ---- FEDERAL........................................... $ (2,018,000) $ (1,657,000) $ (3,675,000) STATE............................................. (262,000) (286,000) (548,000) ---------------- ---------------- ---------------- $ (2,280,000) $ (1,943,000) $ (4,223,000) ================ ================ ================ 1995 - ---- Federal........................................... $ 1,450,000 $ (292,000) $ 1,158,000 State............................................. 225,000 (46,000) 179,000 ---------------- ---------------- ---------------- $ 1,675,000 $ (338,000) $ 1,337,000 ================ ================ ================ 1994 - ---- Federal........................................... $ 385,000 $ (3,000) $ 382,000 State............................................. 26,000 (1,000) 25,000 ---------------- ---------------- ---------------- $ 411,000 $ (4,000) $ 407,000 ================ ================ ================
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 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------ U.S. Federal income tax statutory rate............................ (34.0)% 34.0% 34.0% State income tax, net of federal income tax benefit............................................. (2.6) 3.7 4.6 Goodwill amortization............................................. 16.6 - - Other - including non-deductible items............................ (9.9) 3.8 15.0 ------ ----- ------ Effective tax rate................................................ (29.9)% 41.5% 53.6% ====== ===== ======
The high effective tax rate for 1994 was primarily due to non-deductible entertainment expenses. NOTE 10 - CAPITAL STOCK, OPTIONS AND WARRANTS - --------------------------------------------- Effective January 1996, in connection with the acquisition of PPI, the Company issued an aggregate of 549,999 shares of its common stock, valued at $2.50 per F-15 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ share. Only 60,000 shares of the Company's common stock, valued at $150,000, were released to the PPI selling shareholders at closing. The remaining 489,999 shares of common stock was retained in escrow by the Company, as escrow agent, and will be released to the PPI selling shareholders annually if and based upon certain levels of pre-tax net income being attained by PPI for the years ended December 31, 1996 through December 31, 2000. For the year ended December 31, 1996, PPI did not attain that certain level of pre-tax net income and, accordingly, no additional shares of common stock of the Company were released. In December 1995, in connection with the acquisition of the Added Value Companies, the Company issued an aggregate of 2,174,104 shares of common stock. As a result of Added Value previously owning approximately 37% of Rocky Mountain, 160,703 shares, valued at approximately $391,000, issued as part of the Rocky Mountain merger were acquired by the Company's wholly-owned subsidiary. In addition, in connection with such acquisitions, certain selling stockholders were granted an aggregate of 50,000 stock options to acquire the Company's common stock at an exercise price of $2.313 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 95,000 shares of the Company's common stock was canceled and the Company granted to certain selling shareholders (who are employees of the Company) stock options to purchase an aggregate of 50,000 shares of the Company's common stock at an exercise price of $1.50 per share exercisable through December 30, 2001. In July 1995, the Company issued to a consulting firm a warrant to acquire 45,000 shares of the Company's common stock at an exercise price of $2.50 per share exercisable through July 20, 2000. The warrant was issued in consideration of such consulting firm entering into a new one-year consulting agreement with the Company covering financial public relations/investor relations services. At December 31, 1996, these warrants remained unexercised. The same consulting firm had previously been issued warrants to acquire an aggregate of 180,000 shares in September 1987 and May 1993 in connection with prior consulting agreements as discussed below. In connection with new employment agreements between the Company and each of its four executive officers entered into in May 1995, an aggregate of 1,000,000 stock options were granted on June 8, 1995 to such four executive officers pursuant to the Employees', Officers', Directors' Stock Option Plan, as previously amended and restated (the "Option Plan"). These options have an exercise price of $1.875 per share and are exercisable through June 7, 2005, subject to a vesting schedule. In connection with the public offering (see Note 2 to Notes to Consolidated Financial Statements), the Company issued to the underwriter common stock purchase warrants covering an aggregate of 523,250 shares of common stock (including warrants issued in connection with the underwriter's exercise of the over-allotment option). These warrants are exercisable at a price of $2.625 per share for a period of four years commencing one year from June 8, 1995. In June 1994, the Company issued an aggregate of 386,250 common stock purchase warrants in connection with a private placement of subordinated debentures (see Note 8 to Notes to Consolidated Financial Statements). The warrants are exercisable at any time between December 14, 1994 and June 13, 1999 at an exercise price of $3.15 per share. In connection with this private placement, the placement agent received warrants to purchase 38,625 shares of the Company's common stock. The placement agent's warrants are exercisable for a four-year period commencing June 14, 1995 at an exercise price of $3.78 per share. At December 31, 1996, these warrants had not been exercised. During 1992, the Company sold units, each unit consisting of two shares of common stock and two warrants. In addition, the underwriters of this offering were issued warrants to purchase 175,000 units at $3.30 per unit. The underwriters' warrants are exercisable for a four-year period which commenced in June 1993. During 1993, the Company redeemed its then outstanding warrants. In addition, during 1993, 78,750 of the underwriters' warrants were exercised. As a F-16 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ result of these transactions, the Company received aggregate net proceeds of approximately $5,393,000 in 1993. During 1994, an additional 78,750 of the underwriters' warrants were exercised, leaving a balance of 17,500 warrants. The Company received aggregate net proceeds of approximately $465,000 in 1994. At December 31, 1996, the 17,500 warrants remained unexercised. In September 1987, the Company issued a warrant to acquire 90,000 shares of its common stock at $1.60 per share (after the 1989 stock split) relating to a since expired consulting agreement. In connection with the public offering completed in June 1992, the Company extended the exercise period of this warrant to June 1994. In May 1993, in connection with a new consulting agreement with the same party, the Company further extended the exercise period to June 1997 and issued additional warrants to acquire 90,000 shares of its common stock at $1.35 per share. At December 31, 1996, none of the warrants relating to these consulting agreements had been exercised. In June 1987, the Company reserved 375,000 shares of common stock for issuance under the then Option Plan. In 1992, the number of shares of common stock reserved for issuance was increased to 750,000 shares, in 1993 the number of shares of common stock reserved for issuance was increased to 1,750,000 shares, in 1994 the number of shares of common stock reserved for issuance was increased to 2,250,000 shares, and in 1995 the number of shares of common stock reserved for issuance was increased to 3,250,000 shares. A summary of options granted and related information for the years ended December 31, 1994, 1995 and 1996 under the Option Plan follows:
Weighted Average Options Exercise Price ------- -------------- Outstanding, December 31, 1994 1,165,563 $ 1.47 Granted 1,055,000 1.90 Exercised (10,500) .84 Canceled - - ----------- Outstanding, December 31, 1995 2,210,063 1.65 Weighted average fair value of options granted during the year .45 Granted 276,500 2.16 Exercised (5,000) 1.84 Canceled (106,750) 2.20 ----------- Outstanding, December 31, 1996 2,374,813 1.77 =========== Weighted average fair value of options granted during the year .24 Options exercisable: December 31, 1994 526,912 1.19 December 31, 1995 689,640 1.33 December 31, 1996 860,495 1.43
Exercise prices for options outstanding as of December 31, 1996 ranged from $.75 to $2.63. The weighted-average remaining contractual life of these options is approximately 5 years. Outstanding options at December 31, 1996 were held by 64 individuals. F-17 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ The Company applies APB 25 and related Interpretations in accounting for the Option Plan. Accordingly, no compensation cost has been recognized for the Option Plan. Had compensation cost for the Option Plan been determined using the fair value based method, as defined in SFAS 123, the Company's net earnings (loss) and earnings (loss) per share would have been adjusted to the pro forma amounts indicated below:
YEARS ENDED DECEMBER 31 1996 1995 - ----------------------------------------------------------------------------------------- Net earnings (loss): As reported $(9,920,000) $1,886,000 Pro forma (9,967,000) 1,616,000 Primary and fully diluted earnings (loss) per share: As reported $(.49) $.12 Pro forma (.50) .10
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 1996 and 1995, respectively: expected volatility of 43.4% and 42.3%; risk-free interest rate of 6.5%; and expected lives of 5 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. In connection with the acquisition of the assets of Components (see Note 4 to Notes to Consolidated Financial Statements), the Company issued 98,160 unqualified stock options exercisable through January 1999 at an exercise price of $1.65 per share. In connection with the acquisition of the assets of GCI Corp. (see Note 4 to Notes to Consolidated Financial Statements), the Company issued 117,551 unqualified stock options exercisable from September 1995 through September 1999 at an exercise price of $1.65 per share. In addition, the Company is obligated to issue 1,000 shares of its common stock and, under certain circumstances, the Company may be obligated to issue 15,000 incentive stock options. See Note 4 to Notes to Consolidated Financial Statements. NOTE 11 - COMMITMENTS/RELATED PARTY TRANSACTIONS - ------------------------------------------------ Included in the Company's results of operations for 1995 is approximately $875,000 of sales, at cost, to the Added Value Companies, prior to the acquisitions. See Note 4 to Notes to Consolidated Financial Statements. In December 1991, the Company relocated its corporate offices and Miami warehouse to a 37,000 sq. ft. facility. In addition, a warehouse in New York was consolidated into this new Miami warehouse. In connection with the relocation and consolidation, the Company entered into a new lease with an unrelated third party which was to expire in December 1997. Annual rent payments under this lease totaled $57,000 in 1994. In May 1994, the Company terminated its lease covering the 37,000 sq. ft. facility and entered into a new lease with its then existing landlord to lease a new 110,800 sq. ft. facility for its corporate headquarters and Miami distribution center. During 1995, the Company was utilizing approximately 75% of this new facility, the balance of which the Company was subleasing to an unrelated third party for a term of three years ending on July 14, 1997. This F-18 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ sublease has no renewal options and the Company has the right to recapture a portion of the sublet space from the tenant after the eighteenth month of the three-year term. During 1996 the Company reclaimed 11,300 square feet pursuant to the sublease agreement, which brought the total amount of the building occupied by the Company to 84%. The sublease provides for base rent of $5,000 per month increasing 5% per year and additional rent representing the subtenant's pro rata share of landlord pass-through expenses and other expenses pertaining to the sublet premises. 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 provides for annual fixed rental payments totaling approximately $264,000 in the first year, $267,000 in the second year, $279,000 in each of the third, fourth and fifth years, $300,600 in the sixth year, $307,800 in the seventh year 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. As a result of the Added Value Acquisitions, the Company leases a 13,900 square foot facility in Tustin, California and a 7,600 square foot facility in Denver, Colorado. The Tustin facility contains a distribution center as well as the staff supporting the Company's kitting and turnkey operations and the separate divisions created for flat panel displays and memory module operations. The Denver facility contains a regional distribution center and sales office. In October 1995, the Company entered into a lease for a new west coast distribution and semiconductor programming center located in Fremont, California (near San Jose). The Company moved into such facility in January 1996. The Company will use this space to expand its semiconductor programming and distribution capabilities and improve quality control and service capabilities for its west coast customers. The Company leases space for 29 sales offices, including non-cancelable leases assumed in connection with the acquisitions of the Added Value Companies, which expire at various dates and include various escalation clauses and renewal options. Approximate minimum future rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1996, are as follows for the next five years: YEAR ENDING DECEMBER 31 1997.......................................................... $2,728,000 1998.......................................................... 2,251,000 1999.......................................................... 1,696,000 2000.......................................................... 1,260,000 2001.......................................................... 807,000 Total rent expense, including real estate taxes and net of sublease income, amounted to approximately $1,772,000, $1,345,000 and $753,000 for the years ended December 31, 1996, 1995 and 1994, respectively. In May 1995, the Company entered into new employment agreements with each of the four executive officers of the Company (collectively, the "1995 Agreements"). These agreements provide for an aggregate of $845,500 in base salary per annum effective beginning either March or June 1995 and are subject to an annual increase commencing as of January 1, 1996 equal to the greater of 4% per annum as to two agreements and 5% per annum as to the other two agreements or the increase in the cost of living. The 1995 Agreements provide that the executive officers as a group are entitled to receive an annual cash bonus, subject to certain caps, equal to an aggregate of 10% of the Company's pre-tax income, before nonrecurring and extraordinary charges, in excess of $1,000,000 in any calendar year. Excluding certain one-time bonuses for 1995 aggregating $55,000, the total amount of bonuses earned for 1995 was approximately $370,000. No F-19 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ bonuses were earned for 1996. The 1995 Agreements also provide for certain additional benefits, including participation in the Company's benefit plans, disability benefits and various life insurance policies. The 1995 Agreements also contain change-in-control provisions that may result in certain lump sum severance payments based on a multiple (two or three years) of all annual compensation and benefits being payable to them. One agreement contains a retirement benefits package including $100,000 per annum from date of retirement until the later of the death of such executive officer or his spouse. In connection with an amendment to this agreement entered into in December 1996, the permitted retirement date to receive such benefits was accelerated from January 1, 1999 to December 31, 1996. As consideration for this amendment, such executive officer agreed to a salary reduction of $25,000 per annum commencing with 1997 and to the elimination of certain insurance obligations of the Company. As a result of this amendment, the Company accelerated an existing postretirement benefit accrual schedule and recorded an additional non-cash charge of $625,000 in 1996. For 1995, a postretirement benefit cost of $264,000 was recorded. Retirement benefits under this agreement are presently unfunded. Postretirement benefit obligations of $1,171,000 and $264,000 are included in the consolidated balance sheets at December 31, 1996 and 1995. In connection with the acquisitions of the Added Value Companies, the Company entered into employment agreements with a total of 17 employees, including five key employees. The two-year employment agreements for the five key employees provide for annual salaries aggregating $695,000, excluding certain front-end incentive employment compensation aggregating $765,000. The remaining 12 employment agreements provide for annual compensation at rates comparable to what was previously paid to such employees and in certain agreements provide front-end incentive employment compensation (aggregating $333,000) and additional employment compensation aggregating $214,500 payable ratably over their two-year employment periods. During 1996, the Company terminated certain of these employment agreements, resulting in nonrecurring expenses aggregating $485,000. See Note 6 to Notes to Consolidated Financial Statements. 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 1996 and 1995 and $52,000 in 1994, 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 $22,500 per annum. At December 31, 1996 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 $91,000. During 1996, the Company established a second deferred compensation plan (the "1996 Deferred Compensation Plan") for executives of the Company. The executives eligible to participate in the 1996 Deferred Compensation 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 1996 the Company committed to contribute $63,000 under this plan. Participants in the plan will vest in their plan benefits over a ten-year period commencing January 1, 1996. If the participant terminates due to death, disability or due to a change in control of management they will vest 100% in all benefits under the plan. Retirement benefits will be paid, as selected by the participant, based on the sum of the contributions made and any additions based on investment gains. F-20 ALL AMERICAN SEMICONDUCTOR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 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. Each eligible employee may elect to contribute to the 401(k) Plan, through payroll deductions, up to 15% of his or her salary, limited to $9,500 in 1996. The Company makes matching contributions and in 1996 its contributions were in the amount of 25% on the first 6% contributed of each participating employee's salary. NOTE 12 - SETTLEMENT OF LITIGATION - ---------------------------------- In June 1996, the Company settled a civil action in connection with the Company's prior acquisition of certain computer equipment. In connection with the settlement agreement, the Company recognized an extraordinary after-tax gain of $272,000, net of related expenses, which is reflected in the Consolidated Statements of Operations for the year ended December 31, 1996. 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, as a result of the acquisitions of the Added Value Companies, the Company offers a warranty with respect to its manufactured products for a period of one year against defects in workmanship and materials under normal use and service and in the original, unmodified condition. NOTE 14 - ECONOMIC DEPENDENCY - ----------------------------- For the year ended December 31, 1996, purchases from one supplier were in excess of 10% of the Company's total purchases and aggregated approximately $35,579,000. The net outstanding accounts payable to this supplier at December 31, 1996 amounted to approximately $2,285,000. For the year ended December 31, 1995, purchases from one supplier were in excess of 10% of the Company's total purchases and aggregated approximately $26,528,000. The net outstanding accounts payable to this supplier at December 31, 1995 amounted to approximately $838,000. For the year ended December 31, 1994, purchases from one supplier were in excess of 10% of the Company's total purchases and aggregated approximately $12,200,000. The net outstanding accounts payable to this supplier at December 31, 1994 amounted to approximately $246,000. F-21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. ALL AMERICAN SEMICONDUCTOR, INC. (Registrant) By: /s/ Bruce M. Goldberg ------------------------------------ Bruce M. Goldberg, President, Chief Operating Officer and Director (Duly Authorized Officer) By: /s/ Howard L. Flanders ------------------------------------ Howard L. Flanders, Vice President, Chief Financial Officer and Director (Principal Financial and Accounting Officer) Dated: May 30, 1997 -----END PRIVACY-ENHANCED MESSAGE-----