<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
---
For the quarterly period ended December 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 0-5734
------
Pioneer-Standard Electronics, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0907152
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 East 131st Street, Cleveland, OH 44105
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (216) 587-3600
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Shares, as of the latest practical date: COMMON SHARES, WITHOUT PAR
VALUE, AS OF FEBRUARY 1, 1996: 22,451,135.
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PART I - FINANCIAL INFORMATION
PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1995
(Unaudited) March 31, 1995
--------------- --------------
ASSETS
<S> <C> <C>
Current assets
Cash $ 17,546 $ 9,598
Accounts receivable - net 168,565 133,987
Merchandise inventory 211,422 123,008
Prepaid expenses 4,051 1,623
Deferred income taxes 6,783 5,708
--------- ---------
Total current assets 408,367 273,924
Investment in 50% - owned company --- 16,963
Intangible assets 45,970 4,456
Other assets 1,364 1,143
Property and equipment, at cost 78,323 55,396
Accumulated depreciation 33,277 24,467
--------- ---------
Net 45,046 30,929
--------- ---------
$500,747 $ 327,415
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to banks $ --- $ 7,000
Accounts payable 137,001 106,905
Accrued liabilities 33,428 25,625
Long-term debt due within
one year 2,873 2,956
-------- --------
Total current liabilities 173,302 142,486
Long-term debt 181,933 56,318
Deferred income taxes 2,196 2,196
Shareholders' equity
Common stock, at stated value 6,653 6,630
Capital in excess of stated value 16,884 16,318
Retained earnings 119,537 103,646
Foreign currency translation adjustment 242 (179)
--------- ---------
Retained earnings 143,316 126,415
--------- ---------
$500,747 $ 327,415
========= =========
</TABLE>
See accompanying notes.
2
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PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Quarter ended Nine months ended
December 31, December 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $263,940 $212,433 $723,577 $590,688
Cost and expenses:
Cost of goods sold 216,390 173,841 587,061 479,508
Warehouse, selling and
administrative expense 36,455 27,090 100,293 79,527
-------- -------- ------- --------
Operating profit 11,095 11,502 36,223 31,653
Interest expense 2,067 1,041 5,032 2,686
Equity in earnings (loss) of
50% -owned company (1,082) 9 (173) 865
-------- ---------- -------- --------
Income before income taxes 7,946 10,470 31,018 29,832
Provision for income taxes 3,857 4,340 13,408 12,088
------- ------- -------- -------
Net income $ 4,089 $ 6,130 $ 17,610 $ 17,744
======== ======== ======== ========
Average shares outstanding 23,108,433 22,893,931 23,156,263 22,879,266
Shares outstanding at end of period 22,451,135 22,370,019 22,451,135 22,370,019
Earning per share $.18 $.27 $.76 $.78
Dividends per share $.03 $.02 $.077 $.055
</TABLE>
See accompanying notes.
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PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine months ended
December 31,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 17,610 $ 17,744
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 6,679 4,749
Undistributed (earnings) loss of affiliate 173 (865)
Increase in operating working capital (30,585) (28,594)
(Increase) decrease in other assets 187 (1,460)
Increase in intangible assets (8,400) ---
Deferred taxes --- (1,077)
------- -------
Total adjustments (31,946) (27,247)
------- -------
Net cash used in
operating activities (14,336) (9,503)
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (49,883) (10,068)
Additions to property and equipment (15,269) (7,523)
------- --------
Net cash used in investing activities (65,152) (17,591)
Cash flows from financing activities:
Increase (decrease) in short-term financing (7,000) 2,500
Increase in revolving credit borrowings 87,000 42,000
Letter of credit commitment secured by revolving
credit agreement 50,000 ---
Repayment of revolving credit borrowings (38,000) (5,000)
Decrease in other long-term
debt obligations (3,468) (3,052)
Issuance of common shares under company
stock option plan 589 575
Dividends paid (1,719) (1,240)
------- --------
Net cash provided by financing activities 87,402 35,783
Effect of exchange rate changes on cash 34 (62)
------- -------
Net increase in cash 7,948 8,627
Cash at beginning of period 9,598 5,954
------- ------
Cash at end of period $17,546 $ 14,581
======= ========
</TABLE>
See accompanying notes.
4
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NOTES - Pioneer-Standard Electronics, Inc.
1. PER SHARE DATA
Net income per common share is computed using the weighted average common
shares and common share equivalents outstanding during the quarters and
nine-month periods ended December 31, 1995 and 1994. Common share equivalents
consist of shares issuable upon exercise of stock options computed by using the
treasury stock method.
2. STOCK SPLIT
On July 25, 1995, the Board of Directors declared a three-for-two stock split
effected in the form of a 50% share dividend of the Company's common shares
payable September 6, 1995 to shareholders of record August 16, 1995. The share
and per share data have been restated for the periods presented to reflect the
stock split.
3 ACQUISITION
On November 30, 1995, the Company acquired the remaining 50% of the common
stock of Pioneer/Technologies Group, Inc. ("Technologies") for $50 million in
cash. Intangible assets of $41.5 million arising from the transaction are
being amortized over 40 years. The consolidated statements include the
operating results of Technologies from the date of acquisition. Prior to the
acquisition, the Company accounted for its investment in Technologies under the
equity method of accounting.
4 MANAGEMENT OPINION
The information furnished herein reflects all normal and recurring adjustments
which are, in the opinion of management, necessary to provide a fair statement
of the results of operations for the quarters and nine months ended December
31, 1995 and 1994. The results of operations for the three and nine month
periods are not necessarily indicative of results which may be expected for a
full year.
5
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PIONEER-STANDARD ELECTRONICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION
On November 30, 1995, the Company acquired the remaining 50% of the common
stock of Pioneer/Technologies Group, Inc. ("Technologies") for $50 million cash
and assumed certain liabilities including $30 million of bank debt of
Technologies. The cash payment for the purchase price, secured by a letter of
credit under terms of the Company's credit agreement, was made on January 4,
1996.
Current assets increased by $134.4 million and current liabilities increased by
$30.8 million during the nine-month period ended December 31, 1995, resulting
in an increase of $103.6 million of working capital. The acquisition of
Technologies accounted for $57.9 million of the increase in working capital.
The balance of the increase in working capital is attributable to the increased
level of business activity. The current ratio was 2.4:1 at December 31, 1995,
compared with 1.9:1 at year-end, March 31, 1995.
During the first nine months of the current year, total interest-bearing debt
increased by $118.5 million. Interest bearing debt arising from the purchase
of Technologies and related assumption of debt amounted to $80 million. The
balance of the increase in debt is attributable to funding the working capital
and capital expenditure needs arising from an increased level of business
activity. As indicated in the following narrative, nine month sales without
the one month (December) contribution from the Technologies' acquisition were
18% over the comparable period a year ago. The ratio of interest-bearing debt
to capitalization was 56% at December 31, 1995 compared with 32% at March 31,
1995.
On November 29, 1995, the Company and Pioneer-Standard of Maryland, Inc.
(formerly Pioneer/Technologies Group, Inc.) entered into a new credit agreement
with five banks providing up to an aggregate of $200 million of unsecured
borrowings on a revolving credit basis for two years. Interest rates on
borrowings are based on various floating rate alternative pricing mechanisms.
There is a commitment fee on the unborrowed amount and there is no prepayment
penalty. Terms of the agreement provide, among other things, limitations on
other borrowings and capital expenditures, minimum working capital and equity
requirements and the maintenance of certain ratios. Terms of the agreement
also provide for borrowings up to an aggregate of $40 million under unsecured
lines which are in addition to the $200 million capacity under the new
agreement. This new facility replaced the credit agreement for $100 million
dated January 23, 1992, as amended. Borrowings outstanding under these
facilities totaled $170 million as of December 31, 1995 and includes the $50
million letter of credit commitment for the purchase price of the affiliate
acquisition as well as $30 million arising from refinancing the bank debt
assumed in the purchase transaction. It is anticipated that some portion of
the borrowings will be refinanced with a combination of equity and fixed rate
debt, given favorable market conditions, however, there can be no assurances
that any part of the borrowings will be refinanced.
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Management estimates that capital expenditures for the current year will
approximate $22 million ($15.3 million was expended in the first nine months of
the current year). Under present business conditions, it is anticipated that
funds from current operations and available debt facilities will be sufficient
to finance both capital spending and working capital needs for the balance of
the current fiscal year.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH
THE THREE MONTHS ENDED DECEMBER 31, 1994
Net sales for the three-month period ended December 31, 1995 of $263.9 million
increased 24% over sales of the prior year three-month period of $212.4
million. The third quarter sales without the one month contribution from the
Technologies acquisition of $238.8 million, were 13% over the comparable period
a year ago. The increase in sales reflects continuing strong demand for
electronic components and computer and peripheral products although the rate of
growth has slowed from a year ago. Semiconductor products accounted for 36% of
the Company's sales in the current quarter, compared with 38% a year ago.
Computer systems products were 42% of sales in 1995 versus 39% last year.
Passive and electromechanical products were 19% of the Company's business in
1995 compared with 21% a year earlier. Miscellaneous products accounted for 3%
and 2% of sales in 1995 and 1994, respectively.
Cost of goods sold increased 25% compared with the prior year quarter,
resulting in a gross margin of 18.0% in the current quarter compared with 18.2%
a year ago.
Warehouse, selling and administrative expenses of $36.5 million increased by
35% over the $27.1 million incurred during the prior year three-month period.
This resulted in a ratio of these expenses to sales of 13.8% for the current
quarter compared with 12.8% a year ago. The increased rate of expenses
incurred in the current period is in part a reflection of the Company's
investment in various programs to foster growth and improve customer service
and satisfaction..
The operating profit resulting from the activity described above was $11.1
million, or 4.2% of sales in the current period compared with $11.5 million, or
5.4% of sales a year ago. In addition to spending for growth programs
described above, the current year margin was also reduced by effects of
consolidating the one month operations of the acquisition.
Interest expense was $2.1 million in the current quarter compared with $1.0
million a year ago. The increase is due to financing working capital
attributable to the increased level of business activity as was discussed in
the Financial Condition section of this report.
The consolidated statements of income include the operating results of
Technologies from the date of acquisition. The Company's equity in earnings
(loss) of Technologies for the three month period ended December 31, 1995 was a
net loss of $1,082,000 compared with $9,000 net profit for the same period a
year ago. Included in the current period net loss were discontinuance costs
associated with the acquisition of $1,225,000 after-tax or $.05 per common
share.
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<PAGE> 8
The change in the effective tax rate for the current year three-month period of
48.5% compared with 41.4% a year ago is substantially attributable to effects
of the net loss in the equity in earnings of the affiliate.
Primarily as a result of the factors above, the Company's net income for the
three-month period ending December 31, 1995 of $4.1 million was $2.0 million
less than the $6.1 million earned a year ago.
NINE MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH
THE NINE MONTHS ENDED DECEMBER 31, 1994
Net sales for the nine-month period ended December 31, 1995 of $723.6 million
were 23% greater than sales of the prior year nine-month period of $590.7
million. The nine month sales without the one month contribution from the
acquisition of $698.6 million were 18% over the comparable period a year ago.
The increase in sales reflects continuing strong demand for electronic
components and computer systems although the rate of growth has slowed from a
year ago. During the first nine months of 1995, semiconductor products
accounted for 35% of the Company's sales compared with 38% in the prior year.
Computer systems products accounted for 40% of the Company's sales in 1995 and
38% in 1994. Passive and electromechanical products accounted for 22% of sales
in both 1995 and in 1994. Miscellaneous products accounted for 3% and 2% of
sales in 1995 and 1994, respectively.
The percentage increase in cost of goods sold of 22% resulted in a gross margin
of 18.9% in the first nine months of the current year compared with 18.8% a
year ago. Warehouse, selling and administrative expenses of $100.3 million
increased by 26% as compared with the $79.5 million incurred during the prior
year nine-month period. This resulted in a ratio of these expenses to sales of
13.9% for the current nine-month period compared with 13.5% a year ago. The
increased rate of expenses incurred in the current period is in part a
reflection of the Company's investment in various programs to foster growth and
improve customer service and satisfaction.
The resulting operating profit of $36.2 million in 1995 was 5.0% of sales
compared with $31.7 million in 1994, which was 5.4% of sales.
Interest expense was $5.0 million in the nine months compared with $2.7 million
a year ago. The increase is due to financing working capital attributable to
the increased level of business activity as was discussed in the Financial
Condition section of this report.
The consolidated statements of income includes the operating results of
Technologies from the date of acquisition. The Company's equity in earnings
(loss) of Technologies for the nine month period ended December 31, 1995 was a
net loss of $173,000 compared with $865,000 net income for the same period a
year ago. Current nine month results include a charge for discontinuance costs
associated with the acquisition of $1,225,000 after-tax or $.05 per common
share.
The change in the effective tax rate for the current nine-month period of 42.9%
compared with 40.5% a year ago is substantially attributable to effects of the
net loss of equity in earnings of the affiliate.
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Primarily as a result of the factors noted above, the Company's net income for
the nine-month period ending December 31, 1995 of $17.6 million was $.1 million
lower than the $17.7 million earned a year ago.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
------ -----------
11 Calculation of Primary Earnings
27 Financial Data Schedule
(b) FORM 8-K A current report on Form 8-K, dated November
30, 1995, was filed to report that on November 30, 1995
Pioneer-Standard Electronics, Inc. acquired 50% of the
common stock of Pioneer/Technologies Group, Inc.
pursuant to a Plan and Agreement of Merger. An
amendment to the Form 8-K, dated November 30, 1995, was
filed on February 9, 1996 to file the Audited Financial
Statements of Pioneer/Technologies Group, Inc. (were
incorporated by reference), the Unaudited Condensed
Financial Statements of Pioneer/Technologies Group,
Inc. (were incorporated by reference) and the Unaudited
Pro-Forma Condensed Combined Financial Statements of
Pioneer-Standard Electronics, Inc. and Subsidiaries and
Pioneer/Technologies Group, Inc.
There were no other reports on Form 8-K filed during
the three-month period ended December 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIONEER-STANDARD ELECTRONICS, INC.
Date: February 13, 1996 James L. Bayman
--------------------- ---------------------------------
President and CEO
Date: February 13, 1996 John V. Goodger
--------------------- ---------------------------------
Vice President & Treasurer
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Exhibit 11
CALCULATION OF PRIMARY EARNINGS PER SHARE
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
December 31, December 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares 23,108,433 22,893,931 23,156,263 22,879,266
and common share equivalents
outstanding
Net income $4,089 $6,130 $17,610 $17,744
Earnings per share $.18 $.27 $.76 $.78
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> DEC-31-1995
<CASH> 17,546
<SECURITIES> 0
<RECEIVABLES> 175,429
<ALLOWANCES> 6,864
<INVENTORY> 211,422
<CURRENT-ASSETS> 408,367
<PP&E> 78,323
<DEPRECIATION> 33,277
<TOTAL-ASSETS> 500,747
<CURRENT-LIABILITIES> 173,302
<BONDS> 181,933
0
0
<COMMON> 6,653
<OTHER-SE> 136,663
<TOTAL-LIABILITY-AND-EQUITY> 500,747
<SALES> 723,577
<TOTAL-REVENUES> 723,577
<CGS> 587,061
<TOTAL-COSTS> 587,061
<OTHER-EXPENSES> 100,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,032
<INCOME-PRETAX> 31,018
<INCOME-TAX> 13,408
<INCOME-CONTINUING> 17,610
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,610
<EPS-PRIMARY> .76
<EPS-DILUTED> 0
</TABLE>
