<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 0-5734
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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 3, 1998: 26,327,179. (Excludes 4,780,000 Common Shares
subscribed by the Pioneer Stock Benefit Trust.)
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
December 31, 1997
(Unaudited) March 31, 1997
----------- --------------
ASSETS
<S> <C> <C>
Current assets
Cash $ 27,290 $ 28,116
Accounts receivable - net 233,175 209,086
Merchandise inventory 351,925 243,940
Prepaid expenses 6,986 6,633
Deferred income taxes 11,185 10,282
--------- ---------
Total current assets 630,561 498,057
Intangible assets 38,383 39,260
Other assets 9,054 2,602
Property and equipment, at cost 117,189 91,681
Accumulated depreciation 45,555 39,087
--------- ---------
Net 71,634 52,594
--------- ---------
$ 749,632 $ 592,513
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to banks $ 2,500 $ 20,500
Accounts payable 188,510 144,277
Accrued liabilities 36,550 31,867
Long-term debt due within one year 2,880 2,878
--------- ---------
Total current liabilities 230,440 199,522
Long-term debt 275,707 173,587
Deferred income taxes 5,492 5,425
Shareholders' equity
Common stock, at stated value 9,249 9,228
Capital in excess of stated value 134,557 121,489
Retained earnings 167,906 147,055
Unearned compensation (72,895) (63,750)
Foreign currency translation adjustment (824) (43)
--------- ---------
Net 237,993 213,979
--------- ---------
$ 749,632 $ 592,513
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 424,148 $ 384,385 $ 1,251,696 $ 1,117,224
Cost and expenses:
Cost of goods sold 348,406 319,461 1,032,753 924,848
Warehouse, selling and
administrative expense 56,279 50,713 164,300 150,325
----------- ----------- ----------- -----------
Operating profit 19,463 14,211 54,643 42,051
Interest expense 5,490 4,781 14,809 13,326
----------- ----------- ----------- -----------
Income before income taxes 13,973 9,430 39,834 28,725
Provision for income taxes 5,534 3,805 16,631 12,416
----------- ----------- ----------- -----------
Net income $ 8,439 $ 5,625 $ 23,203 16,309
=========== =========== =========== ===========
Weighted average shares - basic 26,312,441 22,572,952 26,163,514 22,542,714
Weighted average shares outstanding - diluted 26,994,629 23,052,739 26,782,500 23,037,580
Earnings per share:
Basic $.32 $.25 $.89 $.72
Diluted $.31 $.24 $.87 $.71
Dividends per share $.03 $.03 $.09 $.09
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine months ended
December 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,203 $ 16,309
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 8,661 7,670
Amortization 3,662 2,371
Increase in operating working capital (84,248) (31,716)
Decrease (Increase) in other assets (6,452) 118
Deferred taxes (836) --
--------- ---------
Total adjustments (79,213) (21,557)
Net cash used in operating activities (56,010) (5,248)
Cash flows from investing activities:
Additions to property and equipment (30,486) (10,634)
--------- ---------
Net cash used in operating (30,486) (10,634)
Cash flows from financing activities:
Decrease in short-term financing (18,000) (21,000)
Revolving credit borrowings - net 105,000 (97,000)
Proceeds of senior notes -- 150,000
Decrease in other long-term debt
obligations (2,878) (3,853)
Proceeds from sale of common shares under the
Pioneer Stock Benefit Trust 3,308 --
Issuance of common shares under company
stock option plan 637 432
Dividends paid (2,352) (2,028)
--------- ---------
Net cash provided by financing activities 85,715 26,551
Effect of exchange rate changes on cash (45) (67)
Net increase (decrease) in cash (826) 10,602
Cash at beginning of period 28,116 24,440
--------- ---------
Cash at end of period $ 27,290 $ 35,042
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 5
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three quarters ended December 31, 1997
are not necessarily indicative of the results that may be expected for the full
fiscal year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended March 31, 1997.
2. ACCOUNTING CHANGES
The Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income" (FAS 130), and Statement No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (FAS 131). FAS 130
establishes standards for reporting comprehensive income and FAS 131 requires
reporting certain information about operating segments. These statements, which
must be adopted by the Company no later than fiscal year 1999, are not expected
to have a material effect on the financial statements.
3. PER SHARE DATA
The Company has adopted Financial Accounting Standards Statement No. 128
"Earnings Per Share" at the end of the third quarter of fiscal 1998. The
calculation of Basic and Diluted earnings per share follows:
<TABLE>
<CAPTION>
Quarter ended Nine months ended
December 31, December 31,
(in thousands except Share and Per Share Amounts)
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $8,439 $5,625 $23,203 $16,309
Net Income
Weighted average shares - basic 26,312,441 22,572,952 26,163,514 22,542,714
Effect of dilutive securities
Employee stock options 682,188 479,787 618,986 494,866
----------- ----------- ----------- -----------
Adjusted weighted average shares and
assumed conversions - assuming dilution 26,994,629 23,052,739 26,782,500 23,037,580
Basic earnings per share $.32 $.25 $.89 $.72
Diluted earnings per share $.31 $.24 $.87 $.71
</TABLE>
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 $132.5 million and current liabilities increased by
$ 30.9 million during the nine-month period ended December 31, 1997, resulting
in an increase of $101.6 million in working capital. The increase in current
assets is primarily attributable to an increase in inventory of $108.0 million
and a $24.1 million increase in accounts receivable. In addition to the
incremental working capital required to support a higher level of sales
activity, the increase in inventory primarily reflects a combination of
increased stocking levels for both recent product line additions as well as
certain of the Company's existing product lines for the purpose of improving
customer satisfaction. The current ratio was 2.7:1 at December 31, 1997 compared
with 2.5:1 at year-end, March 31, 1997.
During the first nine months of the current fiscal year, total interest-bearing
debt increased by $84.1 million. The increase in debt is primarily attributable
to funding working capital for inventory and capital expenditures. The ratio of
interest-bearing debt to capitalization was 54% at December 31, 1997 compared
with 48% at March 31, 1997.
On September 5, 1997 the Company completed the sale of 220,000 Common Shares
which were allocated from the Pioneer Stock Benefit Trust. The net proceeds of
$3.3 million were used to fund Company obligations under certain employee
benefit plans.
On January 15, 1998 the Company entered into a definitive agreement to acquire
Dickens Data Systems, Inc. a privately held company located in Roswell,
Georgia, for approximately $121 million in cash. The transaction, expected to
close within 90 days of the date of the agreement, is subject to standard
governmental regulatory reviews and customary closing conditions. The Company
intends to fund the acquisition primarily through the issuance of debt and
equity-related securities. Dickens Data Systems, Inc. is primarily a
distributor of IBM computer systems, peripherals and services and had
approximately $340 million in sales for the year ended December 31, 1997.
During the third fiscal quarter, the Company purchased a minority equity
interest in World Peace Industrial Company Ltd. of Taiwan, an industrial
electronic components distributor for the Asia-Pacific region. This purchase was
substantially all of the $6.5 million increase in other assets.
Management estimates that capital expenditures for the fiscal year 1998 will
approximate $35 million ($30.4 million of which has been expended in the first
nine months of the current fiscal year). The expected increase in capital
expenditures for fiscal 1998 is mainly due to the acceleration of outlays for
the Company's Information Systems platform from the Company's fiscal quarter
ended in June 1998 to the fourth fiscal quarter for the year ended March 31,
1998. Under present business conditions, it is anticipated that funds from
current operations,
6
<PAGE> 7
available credit facilities, and short term borrowings will be sufficient to
finance both capital spending and working capital needs for the balance of the
current fiscal year. The Company is currently engaged in discussions with its
lenders to expand its credit facilities to provide funds to finance expected
internal growth and certain needs arising from the acquisition of Dickens Data
Systems, Inc.
YEAR 2000 COMPLIANCE
As background for the Year 2000 issue, many existing computer systems and
software programs currently in use are coded to accept only two digit entries in
the date code field. These systems and programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000.
The Company is currently in the process of implementing a new core business
process system on a company-wide basis which it believes is fully Year 2000
compliant. In addition, the Company has identified other applications used by
the Company and is modifying or replacing them in order to be Year 2000
compliant. Although the Company believes that it is taking appropriate
precautions against disruption of its systems due to the Year 2000 issue, there
can be no assurance that the Company will identify all Year 2000 problems in
advance of their occurrence, or that the Company will be able to successfully
remedy any problems that are discovered. Furthermore, there can be no assurance
that the Company's suppliers and customers will not be adversely affected by the
Year 2000. While the Company does not believe that expenditures for the Year
2000 will have a material adverse effect, any resulting systems failures or
interruptions at the Company or its suppliers or customers could have a material
adverse effect on the Company's business, financial condition and operating
results.
7
<PAGE> 8
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH
THE THREE MONTHS ENDED DECEMBER 31, 1996
Net sales for the three-month period ended December 31, 1997 of $424.1 million
increased 10% over the net sales of $384.4 million for the same period in 1996.
The increase in net sales reflects strong demand for computer products and
passive products. Semiconductor products accounted for 36% of the Company's
sales in the current quarter, compared with 42% a year ago. Computer systems
products represented 43% of sales in 1997 versus 39% last year. Interconnect,
passive and electromechanical products were 19% of the Company's sales in 1997
and 16% in 1996. Miscellaneous products accounted for 2% and 3% of sales in 1997
and 1996, respectively.
Cost of goods sold for the three-month period ended December 31, 1997 increased
9% compared to same period in 1996, resulting in a gross margin of 17.9% in the
current quarter compared with 16.9% a year ago. Sales mix within the
semiconductor products was a primary factor in the increased gross margin
percent.
Warehouse, selling and administrative expenses of $56.3 million increased 11%
over the $50.7 million incurred during the same period in 1996. This resulted in
a ratio of these expenses to sales of 13.3% for the current quarter compared
with 13.2% a year ago.
The operating profit for the third quarter of $19.5 million, constituting 4.6%
of sales, increased 37% over the $14.2 million operating profit, constituting
3.7% of sales for the same period in 1996.
Interest expense was $5.5 million in the current quarter compared with $4.8
million a year ago. The higher interest expense is mainly attributable to
increased bank debt to fund working capital needs to support the ongoing growth
of the business.
The effective tax rate for the current year three-month period was 39.6%
compared with 40.3% for the same period a year ago.
Primarily as a result of the factors above, the Company's net income for the
three-month period ending December 31, 1997 of $8.4 million represents an
increase of 50% compared to the $5.6 million earned a year earlier.
8
<PAGE> 9
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH
THE NINE MONTHS ENDED DECEMBER 31, 1996
Net sales for the nine-month period ended December 31, 1997 of $1,251.7 million
were 12% greater than net sales of $1,117.2 million for the same period in 1996.
The increase in net sales reflects a strong demand for computer products and
passive products which more than offset the weaker sales comparisons experienced
by the Company's semiconductor lines. During the first nine months of 1997,
semiconductor products accounted for 35% of the Company's sales compared with
42% in the prior year. Computer systems products accounted for 45% of the
Company's sales in 1997 and 38% in 1996. Passive and electromechanical products
accounted for 18% of the Company's sales in 1997 and 17% in 1996. Miscellaneous
products accounted for 2% of sales in 1997 and 3% a year earlier.
Cost of goods sold for the nine-month period ending December 31, 1997 increased
12% compared to the same period in 1996 resulting in a gross margin of 17.5% in
the current nine months compared to 17.2% a year ago. Sales mix within the
semiconductor products was a primary factor in the increased gross margin
percent.
Warehouse, selling and administrative expenses of $164.3 million increased 9% as
compared with the $150.3 million incurred during the same period in 1996. This
resulted in a ratio of these expenses to sales of 13.1% for the current nine
months compared with 13.5% a year ago, reflecting the Company's efforts to
reduce operating costs as a percentage of sales.
The operating profit for the nine months of $54.6 million, constituting 4.4% of
sales, increased 30% over the $42.1 million operating profit, constituting 3.8%
of sales for the same period in 1996.
Interest expense was $14.8 million in the current nine-month period compared
with $13.3 million a year ago. The higher interest expense is mainly
attributable to increased debt to fund working capital needs to support the
ongoing growth of the business.
The effective tax rate for the current nine-month period was 41.8% compared with
43.2% a year ago.
Primarily as a result of the factors noted above, the Company's net income for
the nine-month period ending December 31, 1997 of $23.2 million was $6.9 million
greater than the $16.3 million earned a year ago, an increase of 42%.
Portions of this report contain current management expectations which may
constitute forward-looking information. The Company's performance may differ
materially from that contemplated by such statements for a variety of reasons,
including, but not limited to: competition, dependence on the computer market
and platform market, cyclical nature of the semiconductor market, inventory
obsolescence and technology changes, and dependence on key suppliers.
9
<PAGE> 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
------ -----------
27 Financial Data Schedule
10
<PAGE> 11
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, 1998 James L.Bayman
---------------------------- ---------------------------------------
Chairman and CEO
Date: February 13, 1998 John V. Goodger
---------------------------- ---------------------------------------
Vice President & Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 27,290
<SECURITIES> 0
<RECEIVABLES> 240,731
<ALLOWANCES> 7,556
<INVENTORY> 351,925
<CURRENT-ASSETS> 630,561
<PP&E> 117,189
<DEPRECIATION> 45,555
<TOTAL-ASSETS> 749,632
<CURRENT-LIABILITIES> 230,440
<BONDS> 275,707
0
0
<COMMON> 9,249
<OTHER-SE> 237,993
<TOTAL-LIABILITY-AND-EQUITY> 749,632
<SALES> 1,251,696
<TOTAL-REVENUES> 1,251,696
<CGS> 1,032,753
<TOTAL-COSTS> 1,032,753
<OTHER-EXPENSES> 164,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,809
<INCOME-PRETAX> 39,834
<INCOME-TAX> 16,631
<INCOME-CONTINUING> 23,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,203
<EPS-PRIMARY> .89
<EPS-DILUTED> .87
</TABLE>
