THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED
PURSUANT TO RULE 901(d) OF REGULATION S-T
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 December 31, 1996
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)
(770) 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 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
At January 10, 1997, there were 7,165,520 shares of Common Stock, $.01
par value, outstanding.
<PAGE>
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 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 10
Item 2 - Changes in Securities 10
Item 3 - Default Upon Senior Securities 10
Item 4 - Submission of Matters to a Vote of Security
Holders 10
Item 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K 10
<PAGE>
<TABLE>
ITEM 1: FINANCIAL STATEMENTS
SOUTHERN ELECTRONICS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1996 1996
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,604,000 $ 662,000
Trade accounts receivable, net 41,212,000 44,621,000
Inventories 87,662,000 72,501,000
Deferred income taxes 1,230,000 1,230,000
Other current assets 1,194,000 527,000
----------- -----------
TOTAL CURRENT ASSETS 132,902,000 119,541,000
PROPERTY AND EQUIPMENT, net 5,084,000 4,341,000
INTANGIBLES, net 7,254,000 7,423,000
----------- -----------
$145,240,000 $131,305,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 66,770,000 $75,508,000
Accrued liabilities 2,879,000 2,842,000
Income taxes payable 238,000 695,000
------------ -----------
TOTAL CURRENT LIABILITIES 69,887,000 79,045,000
REVOLVING BANK DEBT 31,000,000 10,610,000
STOCKHOLDERS' EQUITY:
Preferred Stock
129,500 shares authorized, none issued
Common stock, $.01 par value; 25,000,000 shares
authorized; 7,491,110 shares (December 31, 1996)
and 7,444,712 shares (June 30, 1996) issued 75,000 74,000
Additional paid-in capital 12,404,000 12,204,000
Retained earnings 34,953,000 31,190,000
Treasury stock, at cost, 325,590 shares
(December 31, 1996) and 125,590 shares
(June 30, 1996) (2,715,000) (1,390,000)
Prepaid compensation - stock awards (364,000) (428,000)
------------ ------------
44,353,000 41,650,000
------------ ------------
$145,240,000 $131,305,000
============ ============
</TABLE>
<PAGE>
<TABLE>
SOUTHERN ELECTRONICS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $153,286,000 $101,865,000 $313,400,000 $211,858,000
COST OF SALES, Including buying
and occupancy expenses 143,446,000 95,006,000 294,559,000 198,391,000
------------ ------------ ------------ ------------
9,840,000 6,859,000 18,841,000 13,467,000
------------ ------------ ------------ ------------
OTHER COSTS AND EXPENSES
Selling, general, and administrative 6,259,000 4,514,000 11,958,000 9,221,000
Interest expense, net 424,000 152,000 755,000 423,000
------------ ------------ ------------ ------------
6,683,000 4,666,000 12,713,000 9,644,000
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 3,157,000 2,193,000 6,128,000 3,823,000
INCOME TAXES 1,212,000 839,000 2,365,000 1,459,000
------------ ------------ ------------ ------------
NET EARNINGS $ 1,945,000 $ 1,354,000 $ 3,763,000 $ 2,364,000
============ =========== ============ ============
NET EARNINGS PER COMMON SHARE $.25 $.19 $.49 $.33
==== ==== ==== ====
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,826,000 7,083,000 7,652,000 7,103,000
============ ============ ============ ============
</TABLE>
<PAGE>
<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, 1996 7,444,712 $74,000 $12,204,000 $31,190,000 125,590 $(1,390,000) $(428,000)
Stock options exercised 46,398 1,000 200,000
Amortization of stock awards 64,000
Treasury stock purchased 200,000 (1,325,000)
Net earnings 3,763,000
--------- ------- ----------- ----------- ------- ----------- ---------
BALANCE, December 31, 1996 7,491,110 $75,000 $12,404,000 $34,953,000 325,590 $(2,715,000) $(364,000)
========= ======= =========== =========== ======= =========== =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
SOUTHERN ELECTRONICS CORPORATION
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 3,763,000 $ 2,364,000
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities
Depreciation and amortization 754,000 461,000
Compensation - stock awards 64,000 36,000
Changes in assets and liabilities (21,684,000) 4,462,000
----------- -----------
Net cash provided by (used in)
operating activities (17,103,000) 7,323,000
----------- -----------
INVESTING ACTIVITIES:
Purchases of equipment (1,328,000) (403,000)
Purchase of business, net of cash acquired -- (21,000)
----------- -----------
Net cash used in investing activities (1,328,000) (424,000)
FINANCING ACTIVITIES:
Borrowings under line of credit, net 20,390,000 (6,920,000)
Proceeds from issuance of common stock 201,000 --
Purchase of treasury stock (1,325,000) --
----------- -----------
Net cash provided by (used in)
financing activities 19,266,000 (6,920,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 835,000 (21,000)
CASH AND CASH EQUIVALENTS, beginning of period 769,000 790,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,604,000 $ 769,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
In conjunction with the acquired business,
liabilities were assumed as follows:
Fair value of assets acquired $13,850,000
Consideration paid consisting of
cash and common stock (2,600,000)
-----------
Liabilities assumed $11,250,000
===========
</TABLE>
<PAGE>
SOUTHERN ELECTRONICS CORPORATION
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months
Ended December 31, 1996 and 1995
(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 six months ended December 31,
1996 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, 1996.
B. Earnings Per Common Share:
Earnings per common share have been calculated based on the
weighted average number of common shares and dilutive common
share equivalents outstanding during each period.
C. Common Stock:
On August 6, 1996, the Company repurchased 200,000 shares of its
common stock for approximately $1.3 million in an open market
transaction under a stock buy-back program previously authorized
by the Board of Directors.
D. Newly Issued Accounting Standards:
In March, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be disposed of, which the Company adopted
effective July 1, 1996. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for
impairment when events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable, with any
impairment losses being reported in the period on which the
recognition criteria are first applied based on the fair value of
the asset. Long lived assets and certain intangibles to be
disposed of are required to be reported at the lower of carrying
amount or fair value less cost to sell. The initial adoption of
SFAS No. 121 had no impact on the Company's results of operations
for the six months ended December 31, 1996.
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123 "Accounting for Stock-Based Compensation" which the
Company adopted effective July 1, 1996. SFAS No. 123 requires
expanded disclosures of stock-based compensation arrangements
with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to
continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB
Opinion No. 25 to its stock based compensation awards to
employees and will disclose the required pro forma effect on net
income and earnings per share in its 1997 Annual Report.
Accordingly, the initial adoption of SFAS No. 123 had no impact
on the Company's results of operations for the six months ended
December 31, 1996.
E. Acquisition:
On December 14, 1995, the Company acquired substantially all of
the assets and assumed certain liabilities of U.S. Computer of
North America, Inc., a distributor of Hewlett-Packard computer
products in Latin America for approximately $2,600,000, including
$350,000 in estimated expenses, consisting of 275,000 shares of
common stock valued at $1,375,000 and cash amounting to
$1,225,000.
This acquisition has been accounted for using the purchase method
of accounting. Goodwill arising from this acquisition is being
amortized using the straight-line method over 30 years. The
operating results of the acquired business are included in the
Company's Consolidated Statements of Earnings from the date of
acquisition.
The following unaudited pro forma consolidated financial
information gives effect to the acquisition as if the transaction
had occurred as of July 1, 1995. The pro forma consolidated
information is not necessarily indicative of the results that
would have been reported had the acquisition occurred on
such date, nor is it indicative of the Company's future
operations.
Six Months Ended
December 31, 1995
----------------
Net Sales $237,787,000
Net Earnings $ 2,678,000
Net Earnings
per Common Share $.36
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended December 31, 1996 Compared to Three Months Ended
December 31, 1995
Net sales for the second quarter ended December 31, 1996 increased
50.5% compared to the second quarter ended December 31, 1995. This
growth resulted primarily from the increase in sales to customers in
Latin America. Sales of microcomputers and computer peripheral
products represented approximately 92.2% of the Company's business for
the second quarter ended December 31, 1996 as compared to
approximately 88.7% for the second quarter ended December 31, 1995.
Sales of cellular telephone products accounted for approximately 7.8%
of the business for the second quarter ended December 31, 1996 as
compared to 11.3% for the year-earlier period.
Gross profit as a percentage of net sales was 6.4% for the second
quarter as compared to 6.7% for the same period in the prior year.
This decrease is primarily attributable to more competitive pricing
during the quarter ended December 31, 1996 as compared to the quarter
ended December 31, 1995.
Selling, general, and administrative expenses as a percentage of net
sales decreased to 4.1% for the second quarter ended December 31, 1996
compared with 4.4% for the quarter ended December 31, 1995. This
decrease is due primarily to greater revenue coverage of expenses and
the Company's efforts to contain expense increases.
Income tax expense was recorded at an effective annual rate of 38.4%
for the second quarter ended December 31, 1996 and 38.3% for the
second quarter ended December 31, 1995.
Six Months Ended December 31, 1996 Compared to Six Months Ended
December 31, 1995
Net sales for the six months ended December 31, 1996 increased 47.9%
compared to the six months ended December 31, 1995. This growth
resulted primarily from the increase in sales to value-added resellers
and dealers served by the Company and the USC acquisition. Sales of
microcomputers and computer peripherals products represented
approximately 93.0% of the Company's business for the six months ended
December 31, 1996 as compared to approximately 89.9% for the six
months ended December 31, 1995. Sales of cellular telephone products
accounted for approximately 7.0% of the business for the six months
ended December 31, 1996 as compared to 10.1% for the year-earlier
period.
Gross profit as a percentage of net sales was 6.0% for the six months
ended December 31, 1996 as compared to 6.4% for the same period in the
prior year. This decrease is primarily attributable to more
competitive pricing during the six months ended December 31, 1996 as
compared to the six months ended December 31, 1995.
Selling, general, and administrative expenses as a percentage of net
sales decreased to 3.8% for the six months ended December 31, 1996
compared with 4.4% for the six months ended December 31, 1995. This
decrease is due primarily to greater revenue coverage of expenses and
the Company's efforts to contain expense increases.
Income tax expense was recorded in the six months ended December 31,
1996 at an effective annual rate of 38.6% as compared to 38.2% in the
six months ended December 31, 1995.
<PAGE>
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 new revolving
credit loan agreement (the "Revolving Credit Agreement") with National
City Bank, Columbus, Ohio, and Wachovia Bank of Georgia, N.A., as of
January 24, 1997, which now provides for an unsecured line of credit
of $50,000,000. The Company may borrow at the prime rate offered by
Wachovia Bank of Georgia, N.A., 8.25% at December 31, 1996, or the
Company may fix the interest rate for periods of 30 to 180 days under
various interest rate options. The new Revolving Credit Agreement
requires a commitment fee of 3/8% of the unused commitment. The
Revolving Credit Agreement requires maintenance of certain minimum
working capital and other financial ratios and has certain dividend
restrictions. This new agreement expires on January 23, 1998. At
December 31, 1996, the Company had borrowings of $31,000,000 and
irrevocable standby letters of credit of $1,200,000 outstanding under
the Revolving Credit Agreement.
The Company's liquidity requirements arise primarily from the funding
of working capital needs, including inventories and trade accounts
receivable. The Company funds its increases in inventories and
accounts receivable with internally generated funds and, at times,
borrowings under its Revolving Credit Agreement.
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 1997.
Forward-Looking Information
The matters discussed in this report and, in particular, information
regarding future revenues and Southern Electronics Corporation's
future business plans, consist of forward-looking information under
the Private Securities Litigation Reform Act of 1995, and are subject
to and involve risks and uncertainties which could cause actual
results to differ materially from the forward-looking information.
These risks and uncertainties include, but are not limited to, general
economic conditions, industry trends, the dependence upon and/or loss
of key suppliers or customers, the loss of strategic product shipping
relationships, customer demand, product availability, competition
(including pricing and availability), concentrations of credit risk,
distribution efficiencies, capacity constraints, technological
difficulties, risk of international operations including exchange rate
fluctuations and the regulatory and trade environment (both domestic
and foreign).
<PAGE>
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.
Exhibit
Number Description
27 Financial Data Schedule
b) Reports on Form 8-K
None
<PAGE>
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)
, 1997 /s/Gerald Diamond
Gerald Diamond
Chief Executive Officer
Chairman of the Board
(Principal Executive Officer)
, 1997 /s/Larry G. Ayers
Larry G. Ayers
Vice President-Finance and
Treasurer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
SOUTHERN ELECTRONICS CORPORATION AND SUBSIDIARIES CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,604,000
<SECURITIES> 0
<RECEIVABLES> 41,212,000
<ALLOWANCES> 0
<INVENTORY> 87,662,000
<CURRENT-ASSETS> 132,902,000
<PP&E> 5,084,000
<DEPRECIATION> 3,201,000
<TOTAL-ASSETS> 145,240,000
<CURRENT-LIABILITIES> 69,887,000
<BONDS> 0
0
0
<COMMON> 75,000
<OTHER-SE> 44,353,000
<TOTAL-LIABILITY-AND-EQUITY> 145,240,000
<SALES> 313,400,000
<TOTAL-REVENUES> 313,400,000
<CGS> 294,559,000
<TOTAL-COSTS> 294,559,000
<OTHER-EXPENSES> 11,958,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 755,000
<INCOME-PRETAX> 6,128,000
<INCOME-TAX> 2,365,000
<INCOME-CONTINUING> 3,763,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,763,000
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
