<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 June 30, 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 0-5734
------
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 August 1, 1998: 26,348,554. (Excludes 4,780,000 Common Shares
subscribed by the Pioneer Stock Benefit Trust.)
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, 1998
(Unaudited) March 31, 1998
------------- --------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 32,486 $ 31,999
Accounts receivable - net 325,604 303,599
Merchandise inventory 354,311 349,100
Prepaid expenses 5,076 5,799
Deferred income taxes 8,507 10,113
--------- ---------
Total current assets 725,984 700,610
Intangible assets 158,517 154,908
Other assets 22,494 14,258
Property and equipment, at cost 146,570 135,803
Accumulated depreciation 58,879 48,076
--------- ---------
Net 87,691 87,727
--------- ---------
$ 994,686 $ 957,503
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 212,464 $ 197,167
Accrued liabilities 33,840 38,893
Long-term debt due within one year 3,106 3,101
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Total current liabilities 249,410 239,161
Long-term debt 341,183 336,234
Other long-term liabilities 11,368 12,112
Mandatorily redeemable convertible trust preferred securities 143,750 125,000
Shareholders' equity
Common stock, at stated value 9,256 9,256
Capital in excess of stated value 107,320 120,465
Retained earnings 179,199 174,411
Unearned compensation (45,410) (58,555)
Foreign currency translation adjustment (1,390) (581)
--------- ---------
Net 248,975 244,996
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$ 994,686 $ 957,503
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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
June 30,
1998 1997
----------- -----------
<S> <C> <C>
Net sales $ 544,327 $ 396,264
Cost and expenses:
Cost of goods sold 457,857 327,553
Warehouse, selling and
administrative expense 68,414 51,423
----------- -----------
Operating profit 18,056 17,288
Interest expense 6,754 4,324
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Income before income taxes 11,302 12,964
Provision for income taxes 4,268 5,659
Distributions on mandatorily redeemable
convertible trust preferred securities, net of tax 1,455 --
----------- -----------
Net income $ 5,579 $ 7,305
=========== ===========
Weighted average shares outstanding
Basic 26,348,554 26,049,777
Diluted 35,792,921 26,498,936
Earnings per share:
Basic $ .21 $ .28
Diluted $ .20 $ .28
Dividends per share $ .03 $ .03
</TABLE>
See accompanying notes to consolidated financial statements.
3
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PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months ended
June 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,579 $ 7,305
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 3,707 3,012
Amortization 2,283 1,434
Increase in operating working capital (18,856) (46,885)
(Increase) decrease in other assets (4,412) 30
Deferred taxes 1,606 360
-------- --------
Total adjustments (15,672) (42,049)
Net cash used in operating activities (10,093) (37,744)
Cash flows from investing activities:
Additions to property and equipment (4,769) (3,115)
Investment in affiliate (7,433) --
-------- --------
Net cash used in operating activities (12,202) (3,115)
Cash flows from financing activities:
Decrease in short-term financing -- (3,000)
Decrease in revolving credit borrowings 5,000 30,000
Decrease in other long-term
debt obligations (51) (8)
Issuance of common shares under company
Stock option plan -- 380
Proceeds from issuance of mandatorily redeemable
Convertible trust preferred securities 18,750
Dividends paid (790) (781)
-------- --------
Net cash provided by financing activities 22,909 26,591
Effect of exchange rate changes on cash (127) (35)
Net increase in cash 487 11,303
Cash at beginning of period 31,999 28,116
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Cash at end of period $ 32,486 $ 16,813
======== ========
</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 quarter ended June 30, 1998 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, 1998.
2. ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" (FAS 131).
FAS 131 requires reporting certain information about operating segments. This
statement, which must be adopted by the Company no later than fiscal year end
1999, is currently being analyzed by management for the potential effects of the
adoption of this statement.
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" which requires disclosure of
comprehensive income defined as the aggregate change in shareholders' equity
excluding changes in ownership interests. The components of comprehensive income
are as follows:
<TABLE>
<CAPTION>
Quarter ended
June 30,
(in thousands)
1998 1997
<S> <C> <C>
Net income $ 5,579 $ 7,305
Foreign currency translation adjustment (809) 42
------- -------
Comprehensive income $ 4,770 $ 7,347
======= =======
</TABLE>
5
<PAGE> 6
3. NET INCOME PER SHARE DATA
Basic earnings per common share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
during each period. Diluted computations include dilutive common share
equivalents of outstanding stock options and assumed conversion of
company-obligated mandatorily redeemable convertible trust preferred securities
and the elimination of related distributions, net of income taxes.
The computation of basic and diluted earnings per common share for the quarters
ended June 30, 1998 and June 30, 1997 is shown below:
<TABLE>
<CAPTION>
Quarter ended
June 30,
1998 1997
----------- -----------
<S> <C> <C>
Basic
Net income applicable to common shareholders $ 5,579,000 $ 7,305,000
Weighted average shares outstanding 26,348,554 26,049,777
Basic earnings per share $ .21 $ .28
Diluted
Net income applicable to common shareholders $ 5,579,000 $ 7,305,000
Add back:
Distributions on mandatorily redeemable
convertible trust preferred securities, net of tax 1,455,000 --
----------- -----------
Net income applicable to common shareholders $ 7,034,000 $ 7,305,000
=========== ===========
Weighted average shares outstanding 26,348,554 26,049,777
Effect of diluted securities:
Common share equivalents of outstanding stock options 375,931 449,159
Common shares issuable upon conversion of mandatorily
redeemable convertible trust preferred securities 9,068,436 --
----------- -----------
Diluted weighted average shares outstanding 35,792,921 26,498,936
=========== ===========
Diluted earnings per share $ .20 $ .28
</TABLE>
6
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PIONEER-STANDARD ELECTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH
THE THREE MONTHS ENDED JUNE 30, 1997
Net sales for the three-month period ended June 30, 1998 of $544.3 million
increased 37% over the prior year three-month period of $396.3 million. All
three product categories contributed to the increase in sales with comparable
quarter sales up 14% over last year, net of the effects of the March 31, 1998
acquisition of Dickens Data Systems, Inc. Semiconductor products accounted for
30% of the Company's sales in the current quarter, compared with 34% a year ago.
Computer systems products represented 54% of sales in 1998 versus 46% last year.
Interconnect, passive and electromechanical products were 15% of the Company's
sales in 1998 versus 18% in 1997. Miscellaneous products accounted for 1% and 2%
of sales in 1998 and 1997, respectively.
Cost of goods sold increased 40% compared to the prior year quarter, resulting
in a gross margin of 15.9% in the current quarter compared with 17.3% a year
ago. The industry excess semiconductor supply versus demand conditions adversely
impacting average selling prices and the increased percentage of sales of
computer systems with lower gross margins were the primary factors contributing
to the decrease in the gross margin percent.
Warehouse, selling and administrative expenses were $68.4 million compared to
$51.4 million incurred during the prior year three-month period. This resulted
in a ratio of these expenses to sales of 12.6% for the current quarter compared
with 13.0% a year ago. The reduction in the ratio of these expenses is due to
the lower ratio of selling expenses associated with computer system sales and
ongoing cost containment programs.
The operating profit resulting from the activity described above of $18.1
million, or 3.3% of sales in the current period, was up 4% compared with $17.3
million, or 4.4% of sales a year ago.
Interest expense was $6.8 million in the current quarter compared with $4.3
million a year ago. The increased interest expense is primarily attributable to
the additional debt to fund working capital and capital expenditure requirements
necessary to support the ongoing growth needs of the business as well as the
effect of the acquisition of Dickens Data Systems, Inc.
The effective tax rate for the current year three-month period was 37.8%
compared with 43.7% for the same period a year ago. The tax rate decrease was
primarily due to the recognization of the tax benefit associated with previous
operating losses of the Canadian subsidiary and lower effective state tax rates.
Distributions on the recently issued mandatorily redeemable convertible trust
preferred securities, net of tax, were $1.5 million for the current year three
month period.
7
<PAGE> 8
Primarily as a result of the factors above, the Company's net income for the
three-month period ending June 30, 1998 of $5.6 million was $1.7 million less
than the $7.3 million earned in the prior year.
FINANCIAL CONDITION
Current assets increased by $25.4 million and current liabilities increased by
$10.3 million during the three-month period ended June 30, 1998, resulting in an
increase of $15.1 million in working capital. The current ratio was 2.9:1 at
June 30, 1998 and at year-end March 31, 1998.
In April 1998, the Company purchased a minority equity interest in Eurodis
Electron PLC ("Eurodis"), a pan-European distributor of electronic components.
This purchase furthers the Company's growth strategy by offering it access to
what management believes is a very broad industrial electronic components
market, as well as one of the world's largest telecommunication markets.
Headquartered near London, Eurodis employs 1,100 people in 13 countries and has
operating centers in the United Kingdom, Austria, the Netherlands, Belgium,
France, Germany, Italy, Switzerland and Eastern Europe.
In April 1998, the Company issued an additional $18.7 million of mandatorily
redeemable convertible trust preferred securities which were sold upon exercise
of the overallotment option.
During the first three months of the current year, total interest-bearing debt
increased by $5.0 million. The increase in debt is primarily attributable to
funding working capital and capital expenditure needs. The ratio of
interest-bearing debt to capitalization was 47% at June 30, 1998 compared with
48% at March 31, 1998.
Management estimates that capital expenditures for the fiscal year 1999 will
approximate $45 million. Capital expenditures in the first three months of the
current year were $4.8 million. 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.
OTHER MATTERS
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's core business process system is currently undergoing remediation
to meet Year 2000 compliance. Remediation of the core business process is
anticipated to be completed by October 1998. 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
8
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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.
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,
cyclical nature of 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 5. PROPOSALS BY SHAREHOLDERS
Proposals by shareholders for the 1999 annual meeting must be received
by May 15, 1999. If a proponent fails to notify the Company by May 15,
1999, the management proxies may use their discretionary voting
authority when the proposal is raised at the annual meeting, without
any discussion of the matter in the proxy statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended June 30, 1998, the
following Current Reports on Form 8-K were
filed:
<TABLE>
<CAPTION>
Date of Report Item Reported
-------------- -------------
<S> <C> <C>
April 13, 1998 Financial Statements of business
acquired (Dickens Data Systems,
Inc.) and pro forma financial
statements of Pioneer-Standard
Electronics, Inc. and Dickens Data
Systems, Inc.
June 19, 1998 Financial Statements of business
acquired (Dickens Data Systems,
Inc.) and pro forma financial
statements of Pioneer-Standard
Electronics, Inc. and Dickens Data
Systems, Inc.
</TABLE>
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: August 14, 1998 /S/ James L Bayman
------------------------ -------------------------------
James L. Bayman
Chairman and CEO
Date: August 14, 1998 /S/ John V. Goodger
------------------------ -------------------------------
John V. Goodger
Vice President & Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1998
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 32,486
<SECURITIES> 0
<RECEIVABLES> 334,596
<ALLOWANCES> 8,992
<INVENTORY> 354,311
<CURRENT-ASSETS> 725,984
<PP&E> 146,570
<DEPRECIATION> 58,879
<TOTAL-ASSETS> 994,686
<CURRENT-LIABILITIES> 249,410
<BONDS> 484,933
0
0
<COMMON> 9,256
<OTHER-SE> 239,719
<TOTAL-LIABILITY-AND-EQUITY> 994,686
<SALES> 554,327
<TOTAL-REVENUES> 544,327
<CGS> 457,857
<TOTAL-COSTS> 457,857
<OTHER-EXPENSES> 68,414
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,754
<INCOME-PRETAX> 11,302
<INCOME-TAX> 4,268
<INCOME-CONTINUING> 5,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,579
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
