SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-16345
SOUTHERN ELECTRONICS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 22-2715444
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4916 North Royal Atlanta Drive, Tucker, Georgia 30085
(Address of principal executive offices) (Zip code)
(404) 491-8962
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all
reports requiredto 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
At April 21, 1995, there were 6,962,902 shares of Common Stock, $.01
par value, outstanding.
SOUTHERN ELECTRONICS CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Statements of
Stockholders' Equity 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Default Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of Security
Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
ITEM 1: FINANCIAL STATEMENTS
SOUTHERN ELECTRONICS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
ASSETS 1995 1994
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,005,000 $ 741,000
Trade accounts receivable, net 25,301,000 19,893,000
Inventories 34,418,000 29,172,000
Deferred income taxes 1,402,000 1,402,000
Prepaid income taxes 542,000
Other current assets 424,000 163,000
TOTAL CURRENT ASSETS 63,550,000 51,913,000
PROPERTY AND EQUIPMENT, net 4,256,000 3,521,000
INTANGIBLES 329,000 338,000
$ 68,135,000 $55,772,000
March 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
(Unaudited)
CURRENT LIABILITIES:
Revolving bank debt $ 8,940,000 $ -
Trade accounts payable 21,721,000 23,640,000
Accrued liabilities 3,757,000 2,784,000
Income taxes payable 473,000 -
TOTAL CURRENT LIABILITIES 34,891,000 26,424,000
STOCKHOLDERS' EQUITY:
Preferred Stock
129,500 shares authorized,
none issued Common stock,
$.01 par value; 10,000,000 shares
authorized and 7,063,947 shares
issued 71,000 71,000
Additional paid-in capital 10,256,000 10,127,000
Retained earnings 24,425,000 20,418,000
Treasury stock, at cost, 125,590 and
105,304 shares (1,390,000) (1,268,000)
Prepaid compensation - stock awards (118,000) -
33,244,000 29,348,000
$68,135,000 $55,772,000
<TABLE>
SOUTHERN ELECTRONICS
CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS
OF EARNINGS
(Unaudited)
Three Months
Ended Nine Months Ended
March 31,
March 31,
1995
1994 1995 1994
<S> <C> <C>
<C> <C>
NET SALES $101,132,000
$75,776,000 292,557,000 $225,965,000
COST OF SALES, Including buying
and occupancy expenses 94,169,000
69,593,000 271,635,000 207,239,000
6,963,000
6,183,000 20,922,000 18,726,000
OTHER COSTS AND EXPENSES (INCOME):
Selling, general, and administrative 4,546,000
3,681,000 14,072,000 10,392,000
Interest expense 133,000
37,000 397,000 199,000
Interest income
(9,000) (9,000)
4,679,000
3,709,000 14,469,000 10,582,000
EARNINGS BEFORE INCOME TAXES 2,284,000
2,474,000 6,453,000 8,144,000
INCOME TAXES 866,000
938,000 2,446,000 3,101,000
NET EARNINGS $ 1,418,000 $
1,536,000 $ 4,007,000 5,043,000
NET EARNINGS PER COMMON SHARE $ .20 $
.21 $ .57 $ .68
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,053,000
7,325,000 7,074,000 7,417,000
</TABLE>
<TABLE>
SOUTHERN ELECTRONICS
CORPORATION
AND
SUBSIDIARY
CONDENSED
CONSOLIDATED STATEMENTS
OF
STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock
Additional Prepaid
Par
Paid-In Retained Treasury Stock Compensation
Shares Value
Capital Earnings Shares At Cost Stock Awards
<S> <C> <C> <C>
<C> <C> <C> <C>
BALANCE, June 30, 1994 7,063,947 $71,000
$10,127,000 $20,418,000 105,304 $(1,268,000) $ -
Stock awards issued 24,500
129,000 (129,000)
Stock options exercised 45
Treasury stock purchased
20,286 (122,000)
Amortization of stock awards
11,000
Net earnings
4,007,000
BALANCE, March 31, 1995 7,088,492 $71,000
$10,256,000 $24,425,000 125,590 $(1,390,000) $(118,000)
</TABLE>
See notes to condensed consolidated financial statements.
<TABLE>
SOUTHERN ELECTRONICS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1995 1994
<S> <C>
<C>
OPERATING ACTIVITIES:
Net earnings $
4,007,000 $ 5,043,000
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation and amortization
413,000 359,000
Compensation - stock awards
11,000 34,000
Changes in assets and liabilities
(10,846,000) 8,465,000
Net cash provided by (used in)
operating activities
(6,415,000) 13,901,000
INVESTING ACTIVITIES:
Purchases of equipment
(1,139,000) (648,000)
FINANCING ACTIVITIES:
Borrowings (repayments) under line of credit, net
8,940,000 (9,258,000)
Proceeds from issuance of common stock
- 41,000
Purchase of treasury stock
(122,000) (922,000)
Net cash provided by (used in)
financing activities
8,818,000 (10,139,000)
NET INCREASE IN CASH
AND CASH EQUIVALENTS
1,264,000 3,114,000
CASH AND CASH EQUIVALENTS, beginning of period
741,000 1,109,000
CASH AND CASH EQUIVALENTS, end of period $
2,005,000 $ 4,223,000
</TABLE>
SOUTHERN ELECTRONICS CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months
Ended March 31, 1995 and 1994
(Unaudited)
A. Interim Financial Statements:
The accompanying condensed consolidated financial statements of
Southern Electronics Corporation and subsidiary (the "Company")
have been prepared without audit. In the opinion of management,
all adjustments (which include only normal recurring
adjustments) considered necessary for a fair presentation have
been included. The results of operations for the three months
and nine months ended March 31, 1995 are not necessarily
indicative of the operating results for the full year.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these financial statements be read in
conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form
10-K, filed with the Securities and Exchange Commission for the
year ended June 30, 1994.
B. Earnings Per Common Share:
Earnings per common share have been calculated based on the
weighted average number of common shares and common share
equivalents outstanding during each period.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 Compared to Three Months Ended
March 31, 1994
Net sales for the third quarter ended March 31, 1995 increased 33.5%
compared to the third quarter ended March 31, 1994. This growth
resulted primarily from the increase in sales to value-added
resellers (VARS) and dealers served by the Company. Sales of
microcomputers and computer peripheral products represented
approximately 93.1% of the Company's business for the third quarter
ended March 31, 1995 as compared to approximately 91.8% for the third
quarter ended March 31, 1994. Sales of cellular telephone products
accounted for approximately 6.9% of the business for the third
quarter ended March 31, 1995 as compared to 8.2% for the year-earlier
period.
Gross profit as a percentage of net sales was 6.9% for the third
quarter as compared to 8.2% for the same period in the prior year.
This decrease is primarily attributable to more competitive pricing
during the quarter ended March 31, 1995 as compared to the quarter
ended March 31, 1994.
Selling, general, and administrative expenses as a percentage of net
sales decreased to 4.5% for the third quarter ended March 31, 1995
compared with 4.9% for the quarter ended March 31, 1994. This
decrease is due primarily to cost control measures implemented in the
third quarter ended March 31, 1995.
Income tax expense was recorded at an effective annual rate of 37.9%
for the third quarters ended March 31, 1995 and March 31, 1994.
Nine Months Ended March 31, 1995 Compared to Nine Months Ended
March 31, 1994
Net sales for the nine months ended March 31, 1995 increased 29.5%
compared to the nine months ended March 31, 1994. This growth
resulted primarily from the increase in sales to value-added
resellers and dealers served by the Company. Sales of microcomputers
and computer peripherals products represented approximately 90.7% of
the Company's business for the nine months ended March 31, 1995 and
as compared approximately to 90.2% for the nine months ended March
31, 1994. Sales of cellular telephone products accounted for
approximately 9.3% of the business for both the nine months ended
March 31, 1995 as compared to approximately 9.8% for the year-earlier
period.
Gross profit as a percentage of net sales was 7.1% for the nine
months ended March 31, 1995 as compared to 8.3% for the same period
in the prior year. This decease is primarily attributable to more
competitive pricing during the nine months ended March 31, 1995 as
compared to the nine months ended March 31, 1994.
Selling, general, and administrative expenses as a percentage of net
sales increased to 4.8 % for the nine months ended March 31, 1995
compared with 4.6% for the nine months ended March 31, 1994. This
increase, as a percentage of sales, is primarily due to increased
training, selling and marketing expenses.
Income tax expense was recorded in the nine months ended March 31,
1995 at an effective annual rate of 37.9% as compared to 38.1% in the
nine months ended March 31, 1994.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (continued)
Financial Condition, Liquidity, and Capital Resources
The Company and its wholly-owned operating subsidiary, Southern
Electronics Distributors, Inc. ("SED"), are parties to a revolving
credit loan agreement, as amended (the "Revolving Credit Agreement"),
with National City Bank, Columbus, Ohio, which provides for an
unsecured line of credit of $20,000,000. Outstanding loans bear
interest at the bank's "reference rate" (9.0% at March 31, 1995).
The Revolving Credit Agreement requires a commitment fee of 1/8% per
annum payable quarterly against the unused availability.
The Revolving Credit Agreement requires maintenance of certain
minimum working capital and other financial ratios and has certain
dividend restrictions. This agreement expires on February 28, 1996.
The Company's liquidity requirements arise primarily from the funding
of working capital needs, including inventories and trade accounts
receivable. The Company funded these needs with internally generated
funds and, at times, borrowings under its revolving credit line.
During the nine months ended March 31, 1995, the Company used $6.4
million for operating activities compared to providing $13.9 million
from operating activities in the comparable prior year period. At
March 31, 1995, the Company had borrowings of $8,940,000, leaving an
available balance of $11,060,000.
Management believes that the Revolving Credit Agreement, together
with vendor lines of credit and internally generated funds, will be
sufficient to satisfy its working capital needs during fiscal 1995.
Other Developments
On March 15, 1995, the Company entered into a letter of intent
("Letter of Intent") with GBC Technologies, Inc. ("GBC")
contemplating the merger of the Company into a wholly-owned
subsidiary of GBC. The Letter of Intent provides that in the merger
the shares of common stock of the Company would be converted into
registered shares of common stock of GBC at a one-to-one exchange
ratio. The Letter of Intent contemplates that the transaction would
be structured as a tax-free merger and would be treated as a "pooling
of interests" for accounting purposes. The merger is subject to the
negotiation of a definitive agreement between the Company and GBC,
satisfactory due diligence by both parties, registration with the
Securities and Exchange Commission of the shares of common stock of
GBC to be issued in the transaction and other customary conditions
and approvals, including approvals by the shareholders of the Company
and GBC. No definitive merger agreement has been entered into or
negotiated by the Company and GBC. The Company and GBC are presently
conducting a due diligence review of each other's business
operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits.
The following exhibits are incorporated by reference or
filed with this report:
Exhibit
Number Description
10.28 Letter of Intent dated March 15, 1995 between the
Registrant and GBC Technologies, Inc.(1)
10.29 Amendment No. Two and Amendment No. Three to
Revolving Credit Agreement dated February 23, 1993
between the Registrant and Southern Electronics
Distributors, Inc.(wholly-owned subsidiary of
Registrant) and National City Bank, Columbus,
(f/k/a BancOhio National Bank).
(1) Incorporated herein by reference to Exhibit 1 to the
Registrant's Current Report on Form 8-K filed March 17,
1995 (date of earliest event reported: March 15, 1995).
(b) Reports on form 8-K
The Registrant filed a Current Report on Form 8-K on March
17, 1995 reporting the execution and delivery, on March 15,
1995, of a Letter of Intent with GBC Technologies, Inc.
("GBC") contemplating the merger of the Registrant with a
wholly-owned subsidiary of GBC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SOUTHERN ELECTRONICS CORPORATION
(Registrant)
May 12, 1995 /s/ Gerald Diamond
Gerald Diamond
Chief Executive Officer
Chairman of the Board
(Principal Executive
Officer)
May 12, 1995 /s/ Larry G. Ayers
Larry G. Ayers
Vice President-Finance and
Treasurer
(Principal Accounting
Officer)
Exhibit No. 10.29
AMENDMENT NO. TWO TO REVOLVING CREDIT AGREEMENT
THIS AMENDMENT NO. TWO (the "Amendment") is made to the Revolving
Credit Agreement (the "Agreement") dated February 23, 1993, executed
by and between SOUTHERN ELECTRONICS CORPORATION, a corporation duly
organized under the laws of the State of Delaware and SOUTHERN
ELECTRONICS DISTRIBUTORS, INC., a corporation duly organized under
the Laws of the State of Delaware (herein collectively or
individually called "Borrower"), and NATIONAL CITY BANK,
COLUMBUS (f/k/a BancOhio National Bank), a national banking
association with its principal office at 155 East Broad Street,
Columbus, Ohio 43251 (herein called "Bank").
WITNESSETH:
WHEREAS, Borrower and Bank entered into the Agreement pursuant to
which Bank extended a revolving credit loan up to a maximum principal
amount of Twenty Million Dollars ($20,000,000.00) each loan pursuant
to the terms of the Agreement, and which loans are evidenced by a
Revolving Credit Note dated February 23, 1993 in the original
principal amount of $20,000,000.00, as amended by Amendment No. One
to Revolving Credit Agreement dated February 25, 1994 (the "Note");
and
WHEREAS, Borrower and Bank desire to amend the Agreement to provide
for a new Loan Termination Date as defined in the Agreement.
NOW THEREFORE, the parties hereto, in consideration of the mutual
promises and covenants herein contained, agree as follows:
1. Section 1.11 of the Agreement is hereby amended by deleting such
section in its entirety and substituting therefore the
following:
1.11 "Loan Termination Date" means May 31, 1995, or such later
date (if any) to which it is hereafter extended by mutual
written agreement of the parties.
2. Borrower hereby expressly acknowledges and confirms that the
representatives and warranties of Borrower set forth in Section
V of the Agreement are true and accurate on this date with the
same effect as if made on and as of this date; that except as
previously disclosed to Bank, no financial condition or
circumstances exists as to Borrower which would inevitably
result in the occurrence of an Event of Default under Section
VII of the Agreement; and that except as previously disclosed to
Bank, no event has occurred or no condition exists which
constitutes, or with the running of time or the giving of notice
would constitute an Event of Default under Section VII of the
Agreement.
3. Except as herein expressly modified, the parties hereto ratify
and confirm all of the terms, conditions, warranties and
covenants of the Agreement, and of all security agreements,
pledge agreements, or mortgage deeds which may have been
executed in connection with the Agreement, including provisions
for the payment of the Note pursuant to the terms of the
Agreement. This Amendment does not constitute the
extinguishment of any obligation or indebtedness previously
incurred, nor does it in any manner effect or impair any
security interest granted to Bank, all of such security
interests to be continued in full force and effect until the
indebtedness described herein is fully satisfied.
4. This Amendment shall be binding upon Borrower, and Bank and
their respective successors and assigns, and shall inure to the
benefit of Bank and its respective successors and assigns.
Executed by the parties hereto in manner and form sufficient to bind
them on this 2nd day of February, 1995.
SOUTHERN ELECTRONICS CORPORATION
By: /s/ Larry G. Ayers
Its: V.P. Finance
SOUTHERN ELECTRONICS
DISTRIBUTORS, INC.
By: /s/ Larry G. Ayers
Its: V.P. Finance
NATIONAL CITY BANK, COLUMBUS
By: /s/ Ralph A. Kaparos
Ralph A. Kaparos
Its: Senior Vice President
AMENDMENT NO. THREE TO REVOLVING CREDIT AGREEMENT
THIS AMENDMENT NO. THREE (the "Amendment") is made to the Revolving
Credit Agreement (the "Agreement") dated February 23, 1993, executed
by and between SOUTHERN ELECTRONICS CORPORATION, a corporation duly
organized under the laws of the State of Delaware and SOUTHERN
ELECTRONICS DISTRIBUTORS, INC., a corporation duly organized under
the Laws of the State of Delaware (herein collectively or
individually called "Borrower"), and NATIONAL CITY BANK,
COLUMBUS (f/k/a BancOhio National Bank), a national banking
association with its principal office at 155 East Broad Street,
Columbus, Ohio 43251 (herein called "Bank").
WITNESSETH:
WHEREAS, Borrower and Bank entered into the Agreement pursuant to
which Bank extended a revolving credit loan up to a maximum principal
amount of Twenty Million Dollars ($20,000,000.00) each loan pursuant
to the terms of the Agreement, and which loans are evidenced by a
Revolving Credit Note dated February 23, 1993 in the original
principal amount of $20,000,000.00, as amended by Amendment No. One
to Revolving Credit Agreement dated February 25, 1994, and as further
amended by Amendment No. Two to Revolving Credit Agreement dated
February 21, 1995 (the "Note"); and
WHEREAS, Borrower and Bank desire to amend the Agreement to provide
for a new Loan Termination Date as defined in the Agreement.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
promises and covenants herein contained, agree as follows:
1. Section 1.11 of the Agreement is hereby amended by deleting such
section in its entirety and substituting therefore the
following:
1.11 "Loan Termination Date" means February 28, 1996, or such
later date (if any) to which it is hereafter extended by
mutual written agreement of the parties.
2. Borrower hereby expressly acknowledges and confirms that the
representatives and warranties of Borrower set forth in section
V of the Agreement are true and accurate on this date with the
same effect as if made on and as of this date; that except as
previously disclosed to Bank, no financial condition or
circumstances exists as to Borrower which would inevitably
result in the occurrence of an Event of Default under Section
VII of the Agreement; and that except as previously disclosed to
Bank, no event has occurred or no condition exists which
constitutes, or with the running of time or the giving of notice
would constitute an Event of Default under Section VII of the
Agreement.
3. Except as herein expressly modified, the parties hereto ratify
and confirm all of the terms, conditions, warranties and
covenants of the Agreement, and of all security agreements,
pledge agreements, or mortgage deeds which may have been
executed in connection with the Agreement, including
provisions for the payment of the Note pursuant to the terms of
the Agreement. This Amendment does not constitute the
extinguishment of any obligation or indebtedness previously
incurred, nor does it in any manner effect or impair any
security interest granted to Bank, all of such security
interests to be continued in full force and effect until the
indebtedness described herein is fully satisfied.
4. This Amendment shall be binding upon Borrower, and Bank and
their respective successors and assigns, and shall inure to the
benefit of Bank and its respective successors and assigns.
Executed by the parties hereto in manner and form sufficient to bind
them on this 27 day of April, 1995.
SOUTHERN ELECTRONICS CORPORATION
By: /s/ Larry G. Ayers
Its: V.P. Finance
SOUTHERN ELECTRONICS
DISTRIBUTORS, INC.
By: /s/ Larry G. Ayers
Its: V.P. Finance
NATIONAL CITY BANK, COLUMBUS
By: /s/ Ralph A. Kaparos
Ralph A. Kaparos
Its: Senior Vice President
