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 March 31, 1998
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 April 24, 1998, there were 10,498,945 shares of Common Stock, $.01 par
value, outstanding.
<PAGE>
SED International Holdings, Inc.
And Subsidiaries
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 8-11
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Default Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of Security
Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 13
<PAGE>
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
SED International Holdings, Inc.
And Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
ASSETS 1998 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,489,000 $ 783,000
Trade accounts receivable, net 93,524,000 55,745,000
Inventories 120,782,000 112,813,000
Deferred income taxes 1,223,000 1,223,000
Other current assets 1,897,000 1,219,000
------------ ------------
TOTAL CURRENT ASSETS 224,915,000 171,783,000
PROPERTY AND EQUIPMENT, net 9,098,000 6,469,000
INTANGIBLES, net 20,112,000 19,077,000
------------ ------------
$254,125,000 $197,329,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $112,171,000 $ 88,070,000
Accrued liabilities 7,014,000 4,363,000
Income taxes payable 825,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 120,010,000 92,433,000
REVOLVING BANK DEBT 22,500,000 56,000,000
STOCKHOLDERS' EQUITY:
Preferred Stock
129,500 shares authorized, none issued
Common stock, $.01 par value; 100,000,000 shares
authorized; 10,825,718 shares (March 31, 1998)
and 7,522,786 shares (June 30, 1997) issued 108,000 75,000
Additional paid-in capital 69,465,000 12,719,000
Retained earnings 45,064,000 39,095,000
Treasury stock, at cost, 329,883 shares
(March 31, 1998) and 325,590 shares
(June 30, 1997) (2,792,000) (2,715,000)
Prepaid compensation - stock awards (230,000) (278,000)
------------ ------------
111,615,000 48,896,000
------------ ------------
$254,125,000 $197,329,000
============ ============
</TABLE>
<PAGE>
<TABLE>
SED International Holdings, Inc.
And Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
NET SALES $243,281,000 $165,168,000 $673,085,000 $478,568,000
COST AND EXPENSES
Cost of sales including buying
and occupancy expenses 229,760,000 155,311,000 634,769,000 449,870,000
------------ ------------ ------------ ------------
Gross Profit 13,521,000 9,857,000 38,316,000 28,698,000
Selling, general, and
administrative expenses 9,629,000 5,843,000 24,633,000 17,801,000
Start-up expenses -- -- 1,400,000 --
------------ ------------ ------------ ------------
OPERATING INCOME 3,892,000 4,014,000 12,283,000 10,897,000
INTEREST EXPENSE, NET 766,000 751,000 2,514,000 1,506,000
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 3,126,000 3,263,000 9,769,000 9,391,000
INCOME TAXES 1,207,000 1,253,000 3,800,000 3,618,000
------------ ------------ ------------ ------------
NET EARNINGS $ 1,919,000 $ 2,010,000 $ 5,969,000 $ 5,773,000
============ ============ ============ ============
NET EARNINGS PER COMMON SHARE:
Basic $.18 $.28 $.64 $.80
Diluted .18 .27 .61 .75
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 10,468,000 7,183,000 9,299,000 7,180,000
Diluted 10,852,000 7,576,000 9,818,000 7,628,000
</TABLE>
<PAGE>
<TABLE>
SED International Holdings, Inc.
And Subsidiaries
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)
Issuance of common stock
net of offering costs 3,000,000 30,000 54,280,000
Stock options exercised 223,513 2,000 1,383,000
Amortization of stock awards 86,000
Stock awards issued 5,800 85,000 (85,000)
Stock awards canceled (6,100) (47,000) 47,000
Treasury stock purchased 4,293 (77,000)
Issuance of common stock
for business acquired 79,719 1,000 1,045,000
Net earnings 5,969,000
--------- -------- ----------- ----------- ------- ----------- ---------
BALANCE, March 31, 1998 10,825,718 $108,000 $69,465,000 $45,064,000 329,883 $(2,792,000) $(230,000)
========== ======== =========== =========== ======= =========== =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
SED International Holdings, Inc.
And Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings $ 5,969,000 $ 5,773,000
Adjustments to reconcile net earnings
to net cash used in
operating activities
Depreciation and amortization 1,990,000 1,271,000
Compensation - stock awards 86,000 105,000
Changes in assets and liabilities, net of
effects of acquired business (18,289,000) (33,812,000)
----------- -----------
Net cash used in
operating activities (10,244,000) (26,663,000)
----------- -----------
INVESTING ACTIVITIES:
Purchases of equipment, net (3,655,000) (2,024,000)
----------- -----------
Purchase of distribution rights (1,181,000) --
Purchase of business, net of cash acquired (370,000) --
----------- -----------
Net cash used in investing activities (5,206,000) (2,024,000)
----------- -----------
FINANCING ACTIVITIES:
Borrowings (payments) under line of credit, net (33,500,000) 29,390,000
Proceeds from issuance of common stock, net 55,733,000 318,000
Purchase of treasury stock (77,000) (1,325,000)
----------- -----------
Net cash provided by financing activities 22,156,000 28,383,000
----------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,706,000 (304,000)
CASH AND CASH EQUIVALENTS, beginning of period 783,000 662,000
----------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 7,489,000 $ 358,000
=========== =============
</TABLE>
<PAGE>
SED International Holdings, Inc.
And Subsidiaries
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended March 31, 1998 and 1997
A. Corporate Name Change:
On November 12, 1997, Southern Electronics Corporation changed its
corporate name to SED International Holdings, Inc.
B. Interim Financial Statements:
The accompanying condensed consolidated financial statements of SED
International Holdings, Inc. and its subsidiaries (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 nine (9) months ended March 30, 1998 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. Purchase of Business:
On November 30, 1997, the Company acquired the outstanding stock of
Magna Distribuidora Ltda. (Magna), a distributor of computer
peripherals and software products located in S o Paulo, Brazil for
approximately $1,416,000, including $370,000 in expenses, consisting
of 79,719 shares of the Company's common stock valued at $1,046,000
and $370,000 in cash. Of the 79,719 shares, 54,039 are being held in
escrow through November 30, 2002 subject to the indemnification
provisions of the acquisition. The Company is also required to pay
additional consideration through November 30, 1999 based on the net
earnings of Magna, as defined. Such additional consideration, if
paid, will be recognized as goodwill.
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.
D. 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 principally during the first fiscal quarter ended
September 30, 1997 reflecting costs associated with the hiring of new
sales people, opening new sales offices and other transition expenses.
<PAGE>
E. Stockholders' Equity:
The Company completed a secondary stock offering of 3,000,000 shares
of common stock effective on October 6, 1997 with proceeds to the
Company of $54,280,000, net of offering costs.
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.
F. Earnings Per Share:
Beginning with the quarter ended December 31, 1997, earnings per share
("EPS") is computed in accordance with Statement of Financial
Accounting Standards Number ("SFAS") 128. All prior period EPS data
has been restated to conform with SFAS 128. Under SFAS 128,
presentation of basic and diluted EPS on the income statement is
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 Accounting Principles Board No. 15. For all
periods presented, the Company's diluted EPS differs from basic EPS
solely from the effect of dilutive stock options.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended
March 31, 1997
On November 30, 1997, the Company acquired the outstanding stock of Magna
Distribuidora, Ltda. (Magna), a distributor of computer peripherals and
software products located in S o Paulo, Brazil. The operating results of
Magna were included in the consolidated results of operations since its
acquisition date.
Net sales increased 47.3%, or $78.1 million, to $243.3 million in the third
quarter ended March 31, 1998, compared to $165.2 million in the third
quarter ended March 31, 1997. This growth resulted from an increase in
both United States net sales and export net sales, principally into Latin
America. Sales by Magna included in the quarter ended March 31, 1998 were
approximately $8.8 million. Sales of microcomputer products represented
approximately 91.1% of the Company's third quarter ended March 31, 1998 net
sales compared to 92.5% for the third quarter ended March 31, 1997. Sales
of wireless telephone products accounted for approximately 8.9% of the
Company's third quarter ended March 31, 1998 net sales compared to 7.5% for
the third quarter ended March 31, 1997.
Gross profit increased 37.2%, or $3.7 million, to $13.5 million in the
third quarter ended March 31, 1998 compared to $9.9 million in the third
quarter ended March 31, 1997. Gross profit as a percentage of net sales
decreased to 5.6% in the third quarter ended March 31, 1998 from 6.0% in
the third quarter ended March 31, 1997. 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 increased 64.8%, or $3.8
million, to $9.6 million in the third quarter ended March 31, 1998,
compared to $5.8 million in the third quarter ended March 31, 1997. These
expenses as a percentage of net sales increased to 4.0% in the third
quarter ended March 31, 1998 compared to 3.5% in the third quarter ended
March 31, 1997. The dollar increase in these expenses was primarily due to
increased salaries and commissions for salespeople and expanded sales and
distribution facilities. Also included are selling, general and
administrative expenses of Magna of approximately $1.2 million for the
quarter ended March 31, 1998.
Net interest expense was $0.8 million in the third quarter ended March 31,
1998 and in the third quarter ended March 31, 1997. Interest expense as a
percentage of net sales was 0.3% in the third quarter ended March 31, 1998
compared to 0.5% in the third quarter ended March 31, 1997.
Income tax expense was recorded at an effective annual rate of 38.6% in the
third quarter ended March 31, 1998 compared to 38.4% in the third quarter
ended March 31, 1997.
Nine Months Ended March 31, 1998 Compared to Nine Months Ended
March 31, 1997
Net sales increased 40.6%, or $194.5 million, to $673.1 million for the
nine months ended March 31, 1998 compared to $478.6 million for the nine
months ended March 31, 1997. This growth resulted from an increase in both
United States net sales and export net sales, principally into Latin
America. Sales by Magna included in the nine months ended March 31, 1998
were approximately $12.3 million. Sales of microcomputer products
represented approximately 87.7% of the Company's net sales for the nine
months ended March 31, 1998 compared to 92.8% for the nine months ended
March 31, 1997. Sales of wireless telephone products accounted for
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (continued)
approximately 12.3% of the Company's net sales for the nine months ended
March 31, 1998 compared to 7.2% for the nine months ended March 31, 1997.
Gross profit increased 33.5%, or $9.6 million, to $38.3 million in the nine
months ended March 31, 1998 compared to $28.7 million for the nine months
ended March 31, 1997. Gross profit as a percentage of net sales decreased
to 5.7% in the nine months ended March 31, 1998 from 6.0% in the nine
months ended March 31, 1997. 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 $1.4 million of
start-up expenses) increased 38.4%, or $6.8 million, to $24.6 million for
the nine months ended March 31, 1998, compared to $17.8 million for the
nine months ended March 31, 1997. These expenses as a percentage of net
sales were 3.7% for the nine months ended March 31, 1998 and for the nine
months ended March 31, 1997. The dollar increase in these expenses was
primarily due to increased salaries and commissions for salespeople and
expanded sales and distribution facilities. Also included are selling,
general and administrative expenses of Magna of approximately $1.6 million
for the nine months ended March 31, 1998.
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 $1.4
million of 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 66.9%, or $1.0 million, to $2.5 million for
the nine months ended March 31, 1998 compared to $1.5 million for the nine
months ended March 31, 1997. Interest expense as a percentage of net sales
increased to 0.4% for the nine months ended March 31, 1998 compared to 0.3%
for the nine months ended March 31, 1997. 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 38.9% for
the nine months ended March 31, 1998 compared to 38.5% for the nine months
ended March 31, 1997.
<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 subsidiaries and relies on payments from its
subsidiaries to generate the funds necessary to meet its obligations. As
the Company pursues its growth strategy and acquisition opportunities both
in the United 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 $10.2 million of cash in the nine months ended
March 31, 1998. The use of cash resulted primarily from increases of $34.1
million in accounts receivable and $3.9 million in inventory, partially
offset by net earnings of $6.0 million and a $17.4 million increase in
accounts payable, net of the effects of acquired business.
Investing activities used $5.2 million of cash in the nine months ended
March 31, 1998. The use of cash was primarily due to the purchase of
equipment and distribution rights.
Financing activities provided $22.2 million. On October 6, 1997, the
Company received $54.3 million net of costs 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. Additional financing activities in the nine months ended March
31, 1998 relate to the exercise of stock options for $1.4 million and net
borrowings of $33.5 million under the Company's Credit Agreement.
The Company, and its subsidiary, 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 March 31, 1998) 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 March 31, 1998, the Company had
principal borrowings of $22.5 million under the credit agreement at a
weighted average interest rate of 6.98% per annum.
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.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (continued)
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 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
10.1 Form of Third Amendment, dated January 8, 1998, among
National City Bank, Columbus, Wachovia Bank of
Georgia, N.A., the Registrant and SED International,
Inc., a wholly-owned subsidiary of the Registrant, to
Revolving Credit Agreement dated as of June 29, 1995
among National City Bank, Columbus, Wachovia Bank of
Georgia, N.A., the Registrant and SED.
27.1 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)
May 1, 1998 /s/Gerald Diamond
Gerald Diamond
Chief Executive Officer
Chairman of the Board
(Principal Executive Officer)
May 1, 1998 /s/Larry G. Ayers
Larry G. Ayers
Vice President-Finance and
Treasurer
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10.1 Form of Third Amendment, dated January 8, 1998, among
National City Bank, Columbus, Wachovia Bank of Georgia,
N.A., the Registrant and SED International, Inc., a
wholly-owned subsidiary of the Registrant, to Revolving
Credit Agreement dated as of June 29, 1995 among National
City Bank, Columbus, Wachovia Bank of Georgia, N.A., the
Registrant and SED.
27.1 Financial Data Schedule
<PAGE>
Exhibit No. 10.1
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is dated as of the 8th day of January, 1998,
among SED INTERNATIONAL HOLDINGS, INC. (formerly known as
SOUTHERN ELECTRONICS CORPORATION) and SED INTERNATIONAL, INC.,
jointly and severally (collectively, the "Borrowers"), WACHOVIA
BANK, N.A., as Agent (the "Agent") and WACHOVIA BANK, N.A. and
NATIONAL CITY BANK OF COLUMBUS, as Banks (collectively, the
"Banks");
W I T N E S S E T H:
WHEREAS, the Borrowers, the Agent and the Banks executed and
delivered that certain $100,000,000 Amended and Restated Credit
Agreement, dated as of the 13th day of August, 1997, as amended
by that certain First Amendment to Amended and Restated Credit
Agreement, dated as of September 22, 1997, and that certain
Second Amendment to Amended and Restated Credit Agreement dated
as of October 15, 1997 (as so amended, the "Credit Agreement");
WHEREAS, the Borrowers have requested and the Agent and the
Banks have agreed to make certain amendments to the Credit
Agreement, subject to the terms and conditions hereof;
NOW, THEREFORE, for and in consideration of the above premises
and other good and valuable consideration, the receipt and
sufficiency of which hereby is acknowledged by the parties
hereto, the Borrowers, the Agent and the Banks hereby covenant
and agree as follows:
1. Definitions. (a) Unless otherwise specifically defined
herein, each term used herein which is defined in the Credit
Agreement has the meaning assigned to such term in the Credit
Agreement. Each reference to "hereof", "hereunder", "herein" and
"hereby" and each other similar reference and each reference to
"this Agreement" and each other similar reference contained in
the Credit Agreement from and after the date hereof refer to the
Credit Agreement as amended hereby.
(b) A new definition of "SED-Magna" is hereby added to
Section 1.01 as follows:
"SED Magna" means SED-Magna Distribuidora Ltda., a
Brazilian corporation.
2. Amendments to Section 1.01. The definition of
"Restricted Investment" is hereby amended and restated in its
entirety as set forth below:
<PAGE>
"Restricted Investment" shall mean any investment in cash
or by delivery of property to any Person, whether by
acquisition of stock, indebtedness or other obligation
(including, without limitation, by Guarantee of such Person)
or security, or by loan, advance or capital contribution, or
otherwise, or in any property, except that investments
consisting of the following shall not constitute "Restricted
Investments": (i) property used or to be used in the ordinary
course of business; (ii) current assets arising from the sale
of goods or the provision of services in the ordinary course
of business; (iii) loans or advances to employees for salary,
commissions, travel or the like, made in the ordinary course
of business; (iv) unless immediately after giving effect to
the making of any of the following investments, a Default or
Event of Default shall have occurred and be continuing,
investments in (A) direct obligations of the United States
Government maturing within one year, (B) certificates of
deposit issued by a commercial bank whose credit is
satisfactory to the Agent, (C) commercial paper rated A1 or
the equivalent thereof by S&P or P1 or the equivalent thereof
by Moody's and in either case maturing within 6 months after
the date of acquisition and/or (D) tender bonds the payment of
the principal of and interest on which is fully supported by
a letter of credit issued by a United States bank whose
long-term certificates of deposit are rated at least AA or the
equivalent thereof by S&P and Aa or the equivalent thereof by
Moody's; (v) loans or advances to SED-Magna not exceeding an
aggregate principal balance outstanding at any time equal to
$2,000,000, evidenced by a promissory note subject to the
Agent's first priority perfected security interest therein as
a part of the Collateral; (vi) equity investments by SED in
SED-Magna (whether in cash or as a part of a stock or other
equity interest exchange with respect to SEC capital stock)
not exceeding an aggregate amount equal to $3,000,000 (valued
at the amount of cash so invested, if cash, or the market
value of SEC capital stock, if capital stock), which equity
interests so obtained shall be subject to the Agent's first
priority perfected security interest therein as a part of the
Collateral (provided that the Agent's security interest
therein shall not exceed the "Foreign Equity Lien Limitation"
defined below); and (vii) investments consisting of Permitted
Acquisitions. "Foreign Equity Lien Limitation" means the
lesser of (x) 100% of the equity interests issued by SED-Magna
owned by SED at any time, or (y) in the event SED owns more
than 65% of all of the issued and outstanding equity interests
of SED-Magna at any time, an amount not greater than 65% of
all of such issued and outstanding equity interests of SED-Magna.
<PAGE>
3. Amendments to Section 6.28. Section 6.28 is hereby
amended and restated in its entirety as set forth below:
SECTION 6.28. Additional Debt. Neither of the Borrowers
or any of their Subsidiaries shall incur or permit to exist
any Debt not in existence on the Closing Date and disclosed in
the Borrowers' most recent consolidated financial statements
delivered to the Banks, and extensions or renewals thereof,
other than (i) Debt permitted to be secured by Liens permitted
by Section 6.18, (ii) Debt of the types described in clause
(vii) of the definition of Debt which is incurred in the
ordinary course of business in connection with the sale or
purchase of goods or to assure performance of any obligation
to a utility or a governmental entity or a worker's
compensation obligation; (iii) Debt permitted by Section 6.18;
(iv) other Debt not to exceed an aggregate amount outstanding
at any time of $500,000; (v) trade payables arising in the
ordinary course of business; and (vi) Debt consisting of a
Guarantee by SEC of SED's obligations to purchase certain
equity interests in SED-Magna Distribuidora Ltda in an amount
not to exceed such investment amount permitted under the
definition of "Restricted Investment".
4. Restatement of Representations and Warranties. Each of
the Borrowers hereby restates and renews each and every
representation and warranty heretofore made by it in the Credit
Agreement and the other Loan Documents as fully as if made on the
date hereof and with specific reference to this Amendment and all
other loan documents executed and/or delivered in connection
herewith.
5. Effect of Amendment. Except as set forth expressly
hereinabove, all terms of the Credit Agreement and the other Loan
Documents remain in full force and effect, and constitute the
legal, valid, binding and enforceable obligations of the
Borrowers. The amendments contained herein will be deemed to
have prospective application only, unless otherwise specifically
stated herein.
6. Ratification. Each of the Borrowers hereby restates,
ratifies and reaffirms each and every term, covenant and
condition set forth in the Credit Agreement and the other Loan
Documents effective as of the date hereof.
7. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and
delivered will be deemed to be an original and all of which
counterparts, taken together, will constitute but one and the
same instrument.
<PAGE>
8. Section References. Section titles and references used in
this Amendment have substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties
hereto evidenced hereby.
9. No Default; Release. To induce the Agent and the Banks to
enter into this Amendment and to continue to make advances
pursuant to the Credit Agreement, each of the Borrowers hereby
acknowledges and agrees that, as of the date hereof, and after
giving effect to the terms hereof, (i) there exists no Default or
Event of Default, (ii) there exists no right of offset, defense,
counterclaim, claim or objection in favor of the Borrowers
arising out of or with respect to any of the Loans or other
obligations of the Borrowers owed to the Banks under the Credit
Agreement, and (iii) the Agent and each of the Banks has acted in
good faith and has conducted its relationships with each of the
Borrowers in a commercially reasonable manner in connection with
the negotiations, execution and delivery of this Amendment and in
all respects in connection with the Credit Agreement, each of the
Borrowers hereby waiving and releasing any such claims to the
contrary.
10. Further Assurances. Each of the Borrowers agrees to take
such further actions as the Agent reasonably requests in
connection herewith to evidence the amendments herein contained
to the Borrowers.
11. Governing Law. This Amendment is governed by, and
construed and interpreted in accordance with, the laws of the
State of Georgia.
12. Conditions Precedent. This Amendment becomes effective
only upon execution and delivery of this Amendment by each of the
parties hereto. Notwithstanding the foregoing, the agreements of
the Agent and the Banks under this Amendment shall become null
and void and of no force or effect in the event that SED fails to
deliver to the Agent, for the benefit of the Banks, satisfactory
to the Agent in all respects, the following items on or before
March 27, 1998 (and such failure shall constitute an Event of
Default): an executed and delivered pledge agreement (the "Pledge
Agreement") whereby SED grants the Agent, for the ratable benefit
of the Banks, a first priority perfected security interest in and
to (A) a promissory note with a maturity date not exceeding 3
years issued by SED-Magna payable to the order of SED evidencing
all loans and advances made by SED to SED-Magna from time to
time, satisfactory in all respects to the Agent in its reasonable
credit judgment, and in any event, in compliance with any
necessary requirements of Brazilian law, and (B) the lesser of
(the following equity interests being referred to herein as the
"Equity Collateral")(x) 100% of the equity interests issued by
<PAGE>
SED-Magna owned by SED at any time, or (y) in the event SED owns
more than 65% of all of the issued and outstanding equity
interests of SED-Magna at any time, an amount not greater than
65% of all of such issued and outstanding equity interests of
SED-Magna.
13. UCC Amendments. The Borrowers agree to cause the
execution and delivery to the Agent amendments to all recorded
UCC financing statements in favor of the Agent to reflect the
name change to "SED INTERNATIONAL HOLDINGS, INC.," on or before
March 27, 1998.
IN WITNESS WHEREOF, the Borrowers, the Agent and each of the
Banks has caused this Amendment to be duly executed, under seal,
by its duly authorized officer as of the day and year first above
written.
SED INTERNATIONAL HOLDINGS, INC.
By:_________________________ (SEAL)
Title:
SED INTERNATIONAL, INC.
By:_________________________ (SEAL)
Title:
WACHOVIA BANK, N.A.,
as Agent
By:_________________________ (SEAL)
Title:
NATIONAL CITY BANK OF COLUMBUS
By:_________________________ (SEAL)
Title:
<PAGE>
<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 ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,489,000
<SECURITIES> 0
<RECEIVABLES> 93,524,000
<ALLOWANCES> 1,918,000
<INVENTORY> 120,782,000
<CURRENT-ASSETS> 224,915,000
<PP&E> 9,098,000
<DEPRECIATION> 5,059,000
<TOTAL-ASSETS> 254,125,000
<CURRENT-LIABILITIES> 120,010,000
<BONDS> 0
0
0
<COMMON> 108,000
<OTHER-SE> 111,507,000
<TOTAL-LIABILITY-AND-EQUITY> 254,125,000
<SALES> 673,085,000
<TOTAL-REVENUES> 673,085,000
<CGS> 634,769,000
<TOTAL-COSTS> 634,769,000
<OTHER-EXPENSES> 26,033,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,514,000
<INCOME-PRETAX> 9,769,000
<INCOME-TAX> 3,800,000
<INCOME-CONTINUING> 5,969,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,969,000
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.61
</TABLE>
