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 September 30, 1997
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
SED International Holdings, Inc.
(FORMERLY KNOWN AS 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 October 31, 1997, there were 10,263,188 shares of Common Stock, $.01 par
value, outstanding.
<PAGE>
SED International Holdings, Inc.
And Subsidiary
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 8-10
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Default Upon Senior Securities 11
Item 4 - Submission of Matters to a Vote of Security
Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
SED International Holdings, Inc.
And Subsidiary
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1997 1997
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,441,000 $ 783,000
Trade accounts receivable, net 82,472,000 55,745,000
Inventories 137,590,000 112,813,000
Deferred income taxes 1,223,000 1,223,000
Other current assets 2,394,000 1,219,000
------------ ------------
TOTAL CURRENT ASSETS 225,120,000 171,783,000
PROPERTY AND EQUIPMENT, net 7,316,000 6,469,000
INTANGIBLES, net 19,192,000 19,077,000
------------ ------------
$251,628,000 $197,329,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable 121,363,000 88,070,000
Accrued liabilities 5,308,000 4,363,000
Income taxes payable 311,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 126,982,000 92,433,000
REVOLVING BANK DEBT 74,000,000 56,000,000
STOCKHOLDERS' EQUITY:
Preferred Stock
129,500 shares authorized, none issued
Common stock, $.01 par value; 100,000,000 shares
authorized; 7,590,216 shares (September 30, 1997)
and 7,522,786 shares (June 30, 1997) issued 76,000 75,000
Additional paid-in capital 13,098,000 12,719,000
Retained earnings 40,504,000 39,095,000
Treasury stock, at cost, 329,883 shares
(September 30, 1997) and 325,590 shares
(June 30, 1997) (2,792,000) (2,715,000)
Prepaid compensation - stock awards (240,000) (278,000)
------------ ------------
50,646,000 48,896,000
------------ ------------
$251,628,000 $197,329,000
============ ============
</TABLE>
<PAGE>
<TABLE>
SED International Holdings, Inc.
And Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
September 30,
1997 1996
<S> <C> <C>
NET SALES $214,032,000 $160,114,000
COST AND EXPENSES
Including buying
and occupancy expenses 202,425,000 151,113,000
Selling, general, and administrative 6,774,000 5,699,000
Start-up expenses 1,400,000 --
------------ ------------
210,599,000 156,812,000
------------ ------------
OPERATING INCOME 3,433,000 3,302,000
INTEREST EXPENSE 1,124,000 331,000
EARNINGS BEFORE INCOME TAXES 2,309,000 2,971,000
INCOME TAXES 900,000 1,153,000
------------ ------------
NET EARNINGS $ 1,409,000 $ 1,818,000
============ ===========
NET EARNINGS PER COMMON SHARE $.18 $.24
==== ====
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 7,940,000 7,480,000
============ ============
</TABLE>
<PAGE>
<TABLE>
SED International Holdings, Inc.
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, 1997 7,522,786 $75,000 $12,719,000 $39,095,000 325,590 $(2,715,000) $ (278,000)
Stock options exercised 69,430 1,000 390,000
Amortization of stock awards 27,000
Stock awards cancelled (2,000) (11,000) 11,000
Treasury stock purchased 4,293 (77,000)
Net earnings 1,409,000
--------- ------- ----------- ----------- ------- ----------- ----------
BALANCE, September 30, 1997 7,590,216 $76,000 $13,098,000 $40,504,000 329,883 $(2,792,000) $ (240,000)
========= ======= =========== =========== ======= =========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
SED International Holdings, Inc.
And Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 1,409,000 $ 1,818,000
Adjustments to reconcile net earnings
to net cash used in
operating activities
Depreciation and amortization 457,000 364,000
Compensation - stock awards 27,000 32,000
Changes in assets and liabilities (18,046,000) (18,284,000)
----------- ------------
Net cash used in
operating activities (16,153,000) (16,070,000)
INVESTING ACTIVITIES:
Purchases of equipment, net (1,304,000) (765,000)
Purchase of distribution rights (199,000) --
----------- ------------
Net cash used in investing activities (1,503,000) (765,000)
----------- ------------
FINANCING ACTIVITIES:
Borrowings under line of credit, net 18,000,000 18,690,000
Proceeds from issuance of common stock 391,000 --
Purchase of treasury stock (77,000) (1,325,000)
----------- ------------
Net cash used in
financing activities 18,314,000 17,365,000
----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 658,000 530,000
CASH AND CASH EQUIVALENTS, beginning of period 783,000 662,000
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,441,000 $ 1,192,000
=========== ============
</TABLE>
<PAGE>
SED International Holdings, Inc.
And Subsidiary
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 1997 and 1996
A. Corporate Name Change:
On November 12, 1997 Southern Electronics Corporation changed its
corporate name to SED International Holdings, Inc. The stockholders
of Southern Electronics Corporation approved the name change at the
1997 Annual Meeting of Stockholders held on November 11, 1997.
B. Interim Financial Statements:
The accompanying condensed consolidated financial statements of SED
International Holdings, Inc. and subsidiary (the "Company") have been
pre-pared 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 ended September 30, 1997
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, 1997.
C. Start-up Expense:
As a result of a transaction with Globelle, Inc. (Globelle) in June
1997, the Company acquired the distribution rights for certain
significant vendor lines in the United States and subsequently hired
36 experienced sales people formerly with Globelle. Because the
Globelle transaction was not an acquisition of a going business
concern, a transition period followed the close of that transaction
during which the newly-hired sales people became acclimated to the
Company's policies, procedures and product offerings and the inventory
of new product lines became stocked at the Company's warehouses. As a
result of this transaction, the Company incurred start-up expenses
during the fiscal quarter ended September 30, 1997 reflecting costs
associated with the hiring of new sales people, opening new sales
offices and other transition expenses.
D. Subsequent Events:
The Company completed a secondary stock offering of 3,000,000 primary
shares of common stock effective on October 6, 1997 with proceeds to
the Company of approximately $55,000,000 (before expenses).
On November 11, 1997 the Company's stockholders approved an increase
in the number of shares of common stock authorized for issuance to
100,000,000 from 25,000,000.
E. Newly Issued Accounting Standards:
SFAS 128, "Earnings Per Share," is effective for both interim and
annual periods ending after December 15, 1997. This statement
simplifies the standards for computing earnings per share ("EPS")
previously found in APB 15. Presentation of basic and diluted EPS on
the income statement will be required. Basic EPS is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted
EPS is computed similarly to fully diluted EPS under APB 15. The
Company will adopt this Statement in the second quarter of fiscal
1998. Basic EPS on a pro forma basis for the quarters ended
<PAGE>
September 30, 1997 and 1996 would be $.19 and $.25, respectively.
Diluted EPS on a pro forma basis for each of the quarters ended
September 30, 1997 and 1996 would be approximately equal to EPS as
reflected in the accompanying consolidated statements of earnings.
SFAS 130, "Reporting Comprehensive Income," and 131 "Disclosures about
Segments of an Enterprise and Related Information," are effective for
fiscal periods beginning after December 15, 1997 with early adoption
permitted. The Company is evaluating the effects these statements will
have on its financial reporting and disclosures. The statements will
have no effect on the Company's consolidated results of operations or
financial position.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
Net sales increased 33.7%, or $53.9 million, to $214.0 million in the first
quarter ended September 30, 1997 compared to $160.1 million in the first
quarter ended September 30, 1996. This growth resulted from an increase in
both United States net sales and net sales to customers for export
principally into Latin America. Sales of microcomputer products
represented approximately 84.7% of the Company's first quarter ended
September 30, 1997 net sales compared to 93.7% for the first quarter ended
September 30, 1996. Sales of wireless telephone products accounted for
approximately 15.3% of the Company's first quarter ended September 30, 1997
net sales compared to 6.3% for the first quarter ended September 30, 1996.
Gross profit increased 28.8%, or $2.6 million, to $11.6 million in the
first quarter ended September 30, 1997 compared to $9.0 million in the
first quarter ended September 30, 1996. Gross profit as a percentage of
net sales decreased to 5.4% in the first quarter ended September 30, 1997
from 5.6% in the first quarter ended September 30, 1996. The dollar
increase in gross profit relates directly to the increase in net sales.
The decrease in the gross profit percentage was primarily due to continued
highly competitive pricing.
Selling, general and administrative expenses (excluding start up expenses)
increased 18.9%, or $1.1 million, to $6.8 million in the first quarter
ended September 30, 1997, compared to $5.7 million in the first quarter
ended September 30, 1996. These expenses as a percentage of net sales
decreased to 3.2% in the first quarter ended September 30, 1997 compared to
3.6% in the first quarter ended September 30, 1996. The dollar increase in
these expenses was primarily due to increased salaries and commissions for
salespeople and expanded sales and distribution facilities. The percentage
decrease in these expenses was primarily due to the Company's ability to
control variable costs over a larger sales base.
As a result of a transaction with Globelle, Inc. (Globelle) in June 1997,
the Company acquired the distribution rights for certain significant vendor
lines in the United States and subsequently hired 36 experienced sales
people formerly with Globelle. Because the Globelle transaction was not an
acquisition of a going business concern, a transition period followed the
close of that transaction during which the newly-hired sales people became
acclimated to the Company's policies, procedures and product offerings and
the inventory of new product lines became stocked at the Company's
warehouses. As a result of this transaction, the Company incurred start-up
expenses during the fiscal quarter ended September 30, 1997 reflecting
costs associated with the hiring of new sales people, opening new sales
offices and other transition expenses.
Net interest expense increased 239.6%, or $.8 million, to $1.1 million in
the first quarter ended September 30, 1997 compared to $331,000 in the
first quarter ended September 30, 1996. Interest expense as a percentage
of net sales increased to 0.5% in the first quarter ended September 30,
1997 compared to 0.2% in the first quarter ended September 30, 1996. The
increase in interest expense was primarily due to borrowing costs
associated with funding increased levels of working capital.
Income tax expense was recorded at an effective annual rate of 39.0% in the
first quarter ended September 30, 1997 compared to 38.8% in the first
quarter ended September 30, 1996.<PAGE>
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (continued)
Financial Condition, Liquidity, and Capital Resources
The Company's liquidity requirements arise primarily from the funding of
working capital needs, including inventories and trade accounts receivable.
Historically, the Company has financed its liquidity needs largely through
internally generated funds, borrowings under its credit agreement and
vendor lines of credit. The Company derives all of its operating income
and cash flow from its subsidiary and relies on payments from its
subsidiary to generate the funds necessary to meet its obligations. As the
Company pursues its growth strategy and acquisition opportunities both in
the Unites States and in Latin America, management believes that exchange
controls in certain countries may limit the ability of the Company's
present and future subsidiaries in those countries to make payments to the
Company.
Operating activities used $16.2 million of cash in the first quarter ended
September 30, 1997. The use of cash in the first quarter ended September
30, 1997 resulted primarily from increases of $26.7 million in accounts
receivable and $24.8 million in inventory partially offset by net earnings
of $1.4 million and a $33.3 million increase in accounts payable.
Investing activities used $1.5 million of cash in the first quarter ended
September 30, 1997. The use of cash was primarily due to purchase of
equipment.
Financing activities provided $18.0 million. These activities related
primarily to borrowings and repayments under the Company's revolving credit
facility.
The Company and SED International, Inc. are parties to a credit agreement,
which provides for a secured line of credit of $100.0 million. The Company
may borrow at the prime rate offered by Wachovia Bank, N.A. (8.50% at
September 30, 1997) or the Company may fix the interest rate for periods of
30 to 180 days under various interest rate options. The credit agreement
requires a commitment fee of 0.25% of the unused commitment. The credit
agreement is secured by accounts receivable and inventory and requires
maintenance of certain minimum working capital and other financial ratios
and has certain dividend restrictions. The credit agreement expires in
August 2000. At September 30, 1997, the Company had principal borrowings
of $74.0 million under the credit agreement at a weighted average interest
rate of 8.55% per annum.
The Company received approximately $55 million (before expenses) on October
6, 1997 from a public stock offering of 3,000,000 primary shares of Common
Stock. The net proceeds from this stock offering were used to reduce
indebtedness under the Company's credit agreement.
In the event the Company seeks to grow more rapidly than presently
contemplated, whether through internal growth or growth through
acquisitions, the Company may need to seek additional financing, which
financing may not be available to the Company on acceptable terms.
Management believes that the credit agreement together with vendor lines of
credit, the proceeds from the recently completed public offering and
internally generated funds, will be sufficient to satisfy its working
capital needs during fiscal 1998. The credit agreement permits up to $30.0
million to be borrowed for the purpose of financing acquisitions, subject
to a limitation of $15.0 million for any one acquisition, and further
subject to compliance with the other terms of the credit agreement.
Forward-Looking Information
The matters discussed herein contain certain forward-looking statements
that represent the Company's expectations or beliefs, including, but not
limited to, statements concerning future revenues and future business
plans. When used by or on behalf of the Company, the words "may," "could,"
"should," "would," "believe," "anticipate," "estimate," "intend," "plan,"
and similar expressions
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (continued)
Financial Condition, Liquidity, and Capital Resources
are intended to identify forward-looking statements. These statements by
their nature involve substantial risks and uncertainties, certain of which
are beyond the Company's control. The Company cautions that various
factors, including the factors described under the captions "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the Company's Registration Statement on
Form S-3 (SEC File No. 333-35069) as well as general economic conditions
and industry trends, the level of acquisition opportunities available to
the Company and the Company's ability to negotiate the terms of such
acquisition on a favorable basis, a dependence upon and/or loss of key
vendors or customers, the loss of strategic product shipping relationships,
customer demand, product availability, competition (including pricing and
availability), concentrations of credit risks, distribution efficiencies,
capacity constraints and technological difficulties could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the
Company. The Company undertakes no obligation to update any
forward-looking statement.
<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.
SED International Holdings, Inc.
(Registrant)
November 14, 1997 /s/Gerald Diamond
Gerald Diamond
Chief Executive Officer
Chairman of the Board
(Principal Executive Officer)
November 14, 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 SED
INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AS OF AND FOR THE PERIOD ENDING SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 1,441,000
<SECURITIES> 0
<RECEIVABLES> 82,472,000
<ALLOWANCES> 1,500,000
<INVENTORY> 137,590,000
<CURRENT-ASSETS> 225,120,000
<PP&E> 7,316,000
<DEPRECIATION> 4,042,000
<TOTAL-ASSETS> 251,628,000
<CURRENT-LIABILITIES> 126,982,000
<BONDS> 0
0
0
<COMMON> 76,000
<OTHER-SE> 50,570,000
<TOTAL-LIABILITY-AND-EQUITY> 251,628,000
<SALES> 214,032,000
<TOTAL-REVENUES> 214,032,000
<CGS> 202,425,000
<TOTAL-COSTS> 202,425,000
<OTHER-EXPENSES> 8,174,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,124,000
<INCOME-PRETAX> 2,309,000
<INCOME-TAX> 900,000
<INCOME-CONTINUING> 1,409,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,409,000
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
