<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 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 0-5734
------
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 10, 1997: 22,579,229. (Excludes 5,000,000 Common Shares
subscribed by the Share Subscription Agreement and Trust.)
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, 1996
(Unaudited) March 31, 1996
----------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 35,042 $ 24,440
Accounts receivable - net 195,377 189,296
Merchandise inventory 247,405 238,370
Prepaid expenses 2,237 2,922
Deferred income taxes 11,454 11,454
--------- ---------
Total current assets 491,515 466,482
Intangible assets 41,562 42,446
Other assets 1,385 1,503
Property and equipment, at cost 88,046 84,024
Accumulated depreciation 37,930 35,345
--------- ---------
Net 50,116 48,679
--------- ---------
$584,578 $ 559,110
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to banks $ -- $ 21,000
Accounts payable 158,143 184,946
Accrued liabilities 42,469 32,825
Long-term debt due within
one year 2,878 2,871
--------- ---------
Total current liabilities 203,490 241,642
Long-term debt 213,587 164,447
Deferred income taxes 2,328 2,328
Shareholders' equity
Common stock, at stated value 8,210 6,667
Capital in excess of stated value 81,735 17,221
Retained earnings 140,786 126,506
Deferred compensation (65,625) ---
Foreign currency translation adjustment 67 299
--------- ----------
Net 165,173 150,693
--------- ----------
$ 584,578 $ 559,110
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
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,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $384,385 $263,940 $1,117,224 $723,577
Cost and expenses:
Cost of goods sold 319,461 216,390 924,848 587,061
Warehouse, selling and
administrative expense 50,713 36,455 150,325 100,293
-------- -------- -------- --------
Operating profit 14,211 11,095 42,051 36,223
Interest expense 4,781 2,067 13,326 5,032
Equity in loss of
50% -owned company -- (1,082) -- (173)
-------- -------- -------- --------
Income before income taxes 9,430 7,946 28,725 31,018
Provision for income taxes 3,805 3,857 12,416 13,408
-------- -------- -------- --------
Net income $ 5,625 $ 4,089 $ 16,309 $ 17,610
======== ======== ======== ========
Weighted average shares outstanding 22,982,606 23,108,433 23,037,580 23,156,263
Earnings per share - primary and
fully diluted $.24 $.18 $.71 $.76
Dividends per share $.03 $.03 $.09 $.077
</TABLE>
See accompanying notes.
3
<PAGE> 4
PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine months ended
December 31,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,309 $ 17,610
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 10,041 6,679
Undistributed earnings of affiliate --- 173
Increase in operating working capital (31,716) (30,397)
Increase (decrease) in other assets 118 (8,400)
------ ------
Total adjustments (21,557) (31,945)
------ ------
Net cash used in
operating activities (5,248) (14,335)
Cash flows from investing activities:
Purchase of remaining 50% of affiliate
net of cash acquired --- (49,883)
Additions to property and equipment (10,634) (15,269)
------ ------
Net cash used in investing activities (10,634) (65,152)
Cash flows from financing activities:
Decrease in short-term financing (21,000) (7,000)
Revolving credit borrowings - net (97,000) 49,000
Letter of credit commitment secured by
revolving credit agreement --- 50,000
Proceeds of senior notes 150,000 ---
Decrease in other long-term
debt obligations (3,853) (3,468)
Issuance of common shares under company
stock option plan 432 589
Dividends paid (2,028) (1,720)
------ ------
Net cash provided by financing activities 26,551 87,401
Effect of exchange rate changes on cash (67) 34
------ ------
Net increase in cash 10,602 7,948
Cash at beginning of period 24,440 9,598
------ ------
Cash at end of period $ 35,042 $ 17,546
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
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, 1996 and 1995. Common share equivalents consist of
shares issuable upon exercise of stock options computed by using the treasury
stock method. Due to the application of treasury stock method, the 5,000,000
shares subscribed for by the trust (see note 2) have no effect on earning per
share.
2. SHARE SUBSCRIPTION AGREEMENT AND TRUST
On July 2, 1996 the Company entered into a Share Subscription Agreement and
Trust (the "Trust") with Wachovia Bank of North Carolina N.A., as Trustee, and
the Trustee subscribed for 5,000,000 Common Shares of the Company which will be
paid for over the 15-year term of the Trust. The proceeds from the sale or
direct use of the Common Shares over the life of Trust will be used to fund
company obligations under various benefit plans. As of December 31, 1996 no
shares have been released from the Trust. The following details the fair market
value of the 5,000,000 shares subscribed for by the Trust reflected in
Shareholders Equity at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Common stock at stated value (5,000,000 @ $.30) $ 150,000
Capital in excess of stated value (5,000,000 shares) $65,475,000
Deferred compensation (5,000,000 shares @ $13.125 fair market value) ($65,625,000)
-------------
Net effect on shareholders equity $ 0
============
</TABLE>
3. 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,
1996 and 1995. 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
<PAGE> 6
PIONEER-STANDARD ELECTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Current assets increased by $25.0 million and current liabilities decreased by
$38.2 during the nine-month period ended December 31, 1996, resulting in an
increase of $63.2 million of working capital. The decrease in liabilities is
primarily attributable to a $26.8 million reduction in accounts payable levels
reflecting timing differences and to a $21.0 million reduction of short-term
bank borrowings. The current ratio was 2.4:1 at December 31, 1996 compared with
1.9:1 at year-end, March 31, 1996.
During the first nine months of the current year, total interest-bearing debt
increased by $28.1 million. The increase in debt is attributable to funding
working capital requirements and capital expenditures. The ratio of
interest-bearing debt to capitalization was 57% at December 31, 1996 compared
with 56% at March 31, 1996.
Management estimates that capital expenditures for the current fiscal year will
approximate $15 million ($10.6 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 credit facilities will be sufficient
to finance both capital spending and working capital needs for the balance of
the current fiscal year.
On August 12, 1996, the Company completed a public offering of $150 million
principal amount of 8.50% Senior Notes due 2006. Net proceeds from the sale of
the Notes were applied to the repayment of a portion of the borrowings under the
Company's bank revolving credit facility. As of August 12, 1996, the Company's
$200 million bank revolving credit facility was replaced with a three-year $125
million facility with the Company's banks. As of December 31, 1996, $55.0
million was borrowed under the bank revolving credit facility. In addition, the
Company has unsecured short-term lines of credit aggregating $40 million
available for use. At December 31, 1996, the Company had an aggregate of $110.0
million available for use under these combined credit facilities. In addition to
the bank credit facilities, the Company has $50 million remaining under the
Shelf Form S-3 Registration Statement filed in July, 1996 to offer to the public
in the form of either debt or equity: However, due to market conditions and
other factors which may be beyond the Company's control, there can be no
assurances that the Company will complete such a transaction.
6
<PAGE> 7
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
THE THREE MONTHS ENDED DECEMBER 31, 1995
Net sales for the three-month period ended December 31, 1996 of $384.4 million
increased 46% over sales of the prior year three-month period of $263.9 million.
The current quarter sales include the sales of Pioneer-Standard of Maryland,
Inc., the Company's former 50%-owned affiliate which Pioneer acquired in
November, 1995. Including the former affiliate's sales on a pro forma basis for
the prior year period, net sales increased to $384.4 million from $324.0 million
a year ago, or a 19% increase. Semiconductor products accounted for 42% of the
Company's sales in the current quarter, compared with 36% a year ago. Computer
systems products were 39% of sales in 1996 versus 42% last year. Passive and
electromechanical products were 16% of the Company's business in 1996 compared
with 19% a year earlier. Miscellaneous products accounted for 3% of the
Company's business in both 1996 and 1995.
Cost of goods sold increased 48% compared with the prior year quarter, resulting
in a gross margin of 16.9% in the current quarter compared with 18.0% a year
ago. A shift in product mix, particularly with respect to a higher volume of
lower gross margin products within the semiconductor line, such as
microprocessors, was a principal factor impacting current year margins.
Typically, semiconductor products have the highest gross margin percentage of
the three product categories, but the increased sales of high volume, low margin
products, such as microprocessors in the semiconductor category, rank the gross
margin percentage of semiconductors below the other two product categories.
Passives had the highest gross margin percentage.
Warehouse, selling and administrative expenses of $50.7 million increased by 39%
over the $36.5 million incurred during the prior year three-month period. This
resulted in a ratio of these expenses to sales of 13.2% for the current quarter
compared with 13.8% a year ago, reflecting expense controls and efficiencies.
The operating profit resulting from the activity described above of $14.2
million, or 3.7% of sales, in the current period rose by 28% compared with $11.1
million, or 4.2% of sales a year ago.
Interest expense was $4.8 million in the current quarter compared with $2.1
million a year ago. The higher interest expense is due to increased debt
incurred in connection with the purchase of the Company's former 50%-owned
affiliate and to fund working capital needs to support ongoing growth needs of
the business.
The consolidated statement of income for the three month period of the current
year includes the operating results of Pioneer Maryland, whereas results for the
same period in 1995 included a net loss of 1.1 million, representing the
Company's 50% equity interest in Pioneer Maryland's net loss for the two months
ended November and the consolidated operating results for December. The net loss
for Pioneer Maryland for the two-month period in 1995 included an after-tax
non-recurring discontinuance charge of $2.4 million recorded by Pioneer Maryland
to conform to the Company's methods of accounting.
7
<PAGE> 8
RESULTS OF OPERATIONS (cont'd)
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
THE THREE MONTHS ENDED DECEMBER 31, 1995
The effective tax rate for the current year three-month period was 40.3%
compared with 48.5% for the same period a year ago. In the prior year, the
equity in the net loss of the Company's former 50%-owned affiliate of $1.1
million was included in pre-tax income in accordance with the equity basis of
accounting. This is the primary factor causing the difference in the effective
tax rates for the two periods.
Primarily as a result of the factors above, the Company's net income for the
three-month period ending December 31, 1996 of $5.6 million was $1.5 million
greater than the $4.1 million earned a year earlier.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
THE NINE MONTHS ENDED DECEMBER 31, 1995
Net sales for the nine-month period ended December 31, 1996 of $1,117.2 million
were 54% greater than sales of the prior year nine-month period of $723.6
million. The current nine-month sales include the sales of Pioneer-Standard of
Maryland, Inc., the Company's former 50%-owned affiliate, which Pioneer acquired
in November, 1995. Including the former affiliate's sales on a pro forma basis
for the prior year period, net sales increased to $1,117.2 million from $943.3
million a year ago, or an 18% increase. During the first nine months of 1996,
semiconductor products accounted for 42% of the Company's sales compared with
35% in the prior year. Computer systems products accounted for 38% of the
Company's sales in 1996 and 40% in 1995. Passive and electromechanical products
accounted for 17% of the Company's sales in 1996 and 22% of sales in 1995.
Miscellaneous products accounted for 3% of sales in both 1996 and 1995.
The percentage increase in cost of goods sold of 58% resulted in a gross margin
of 17.2% in the first nine months of the current year compared with 18.9% a year
ago. A shift in product mix, particularly with respect to a higher volume of
lower gross margin products within the semiconductor line was a principal factor
impacting current year margins. Typically, semiconductor products have the
highest gross margin percentage of the three product categories, but the
increased sales of high volume, low margin products, such as microprocessors in
the semiconductor category, rank the gross margin percentage of semiconductors
below the other two product categories. Passives had the highest gross margin
percentage.
Warehouse, selling and administrative expenses of $150.3 million increased by
50% as compared with the $100.3 million incurred during the prior year
nine-month period. This resulted in a ratio of these expenses to sales of 13.5%
for the current nine months compared with 13.9% a year ago, reflecting expense
controls and efficiencies.
The operating profit resulting from the activity described above of $42.1
million in 1996 or 3.8% of sales rose by 16% compared with $36.2 million or 5.0%
of sales a year ago.
Interest expense was $13.3 million in the current nine-month period compared
with $5.0 million a year ago. The higher interest expense is due to increased
debt resulting from the purchase of the Company's former 50%-owned affiliate and
to fund working capital needs to support ongoing growth needs of the business.
8
<PAGE> 9
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH
THE NINE MONTHS ENDED DECEMBER 31, 1995 (cont'd)
The consolidated statement of income for the nine-month period of the current
year includes the operating results of Pioneer Maryland, whereas the same period
in 1995 included a net loss of 1.1 million, representing the Company's 50%
equity interest in Pioneer Maryland's net loss for the eight months through
November and the consolidated operating results for December. The net loss for
Pioneer Maryland for the eight-month period in 1995 included an after-tax
non-recurring discontinuance charge of $2.4 million recorded by Pioneer Maryland
to conform to the Company's methods of accounting.
The effective tax rate was 43.2% in both nine-month periods.
Primarily as a result of the factors noted above, the Company's net income for
the nine-month period ending December 31, 1996 of $16.3 million was $1.3 million
lower than the $17.6 million earned a year ago.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
------ -----------
11 Calculation of Primary Earnings Per Share
27 Financial Data Schedule
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.
PIONEER-STANDARD ELECTRONICS, INC.
Date: February 13, 1996 James L. Bayman
------------------- -----------------------------------
Chairman, President and CEO
Date: February 13, 1996 John V. Goodger
------------------- -----------------------------------
Vice President & Treasurer
10
<PAGE> 1
Exhibit 11
CALCULATION OF PRIMARY EARNINGS PER SHARE
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares
and common share equivalents
outstanding 22,982,606 23,108,433 23,037,580 23,156,263
Net income $5,625 $4,089 $16,309 $17,610
Earnings per share - primary and
fully diluted $.24 $.18 $.71 $.76
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 35,042
<SECURITIES> 0
<RECEIVABLES> 202,851
<ALLOWANCES> 7,474
<INVENTORY> 247,405
<CURRENT-ASSETS> 491,515
<PP&E> 88,046
<DEPRECIATION> 37,930
<TOTAL-ASSETS> 584,578
<CURRENT-LIABILITIES> 203,490
<BONDS> 213,587
<COMMON> 8,210
0
0
<OTHER-SE> 156,963
<TOTAL-LIABILITY-AND-EQUITY> 584,578
<SALES> 1,117,224
<TOTAL-REVENUES> 1,117,224
<CGS> 924,848
<TOTAL-COSTS> 924,848
<OTHER-EXPENSES> 150,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,326
<INCOME-PRETAX> 28,725
<INCOME-TAX> 12,416
<INCOME-CONTINUING> 16,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,309
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
</TABLE>
