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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, 2000.
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.
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(Exact name of registrant as specified in its charter)
Ohio 34-0907152
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6065 Parkland Boulevard, Mayfield Heights, Ohio 44124
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (440) 720-8500
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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, 2000: 31,551,856. (Excludes 4,056,202 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.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
June 30, 2000
(Unaudited) March 31, 2000
----------- -----------
ASSETS
Current assets
Cash $ 28,505 $ 34,253
Accounts receivable - net 408,253 407,309
Merchandise inventory 417,710 348,120
Prepaid expenses 1,165 2,871
Deferred income taxes 10,120 9,178
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Total current assets 865,753 801,731
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Intangible assets - net 150,402 150,503
Investments in affiliated companies 62,568 46,030
Other assets 8,102 8,055
Property and equipment, at cost 195,887 192,626
Accumulated depreciation (92,075) (86,729)
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Net property and equipment 103,812 105,897
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TOTAL ASSETS $1,190,637 $1,112,216
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 247,209 $ 240,229
Notes payable 18,064 26,086
Accrued liabilities 32,535 30,831
Current maturities of long-term debt 3,053 3,052
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Total current liabilities 300,861 300,198
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Long-term debt 378,172 320,205
Other long-term liabilities 28,250 23,998
Mandatorily redeemable convertible trust
preferred securities 143,750 143,750
Shareholders' equity:
Common stock, at stated value 9,384 9,323
Capital in excess of stated value 134,530 137,092
Retained earnings 248,366 238,968
Unearned employee benefits (59,831) (63,885)
Unearned compensation on restricted stock (6,752) (7,526)
Accumulated other comprehensive income 13,907 10,093
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Total shareholders' equity 339,604 324,065
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,190,637 $1,112,216
=========== ==========
See accompanying notes to consolidated financial statements
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PIONEER-STANDARD ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Net sales $ 675,085 $ 575,973
Cost and expenses:
Cost of goods sold 572,003 486,699
Warehouse, selling and
administrative expense 76,317 67,142
----------- -----------
Operating profit 26,765 22,132
Other income (45) (188)
Interest expense 7,637 6,096
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Income before income taxes 19,173 16,224
Provision for income taxes 7,477 7,056
Distributions on mandatorily redeemable
convertible trust preferred securities, net of tax 1,475 1,459
----------- -----------
Net income $ 10,221 $ 7,709
=========== ===========
Weighted average shares outstanding
Basic 26,726 26,355
Diluted 36,752 35,818
Earnings per share:
$ .38 $ .29
Basic
$ .32 $ .26
Diluted
Dividends per share $ .03 $ .03
</TABLE>
See accompanying notes to consolidated financial statements.
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PIONEER-STANDARD ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Three months ended
June 30,
2000 1999
---- ----
Operating activities:
Net income $ 10,221 $ 7,709
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation 3,637 3,691
Amortization 3,557 2,432
Increase in operating working
capital (60,322) (5,337)
Other 558 (3,450)
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Net cash provided by (used for) operating (42,349) 5,045
activities
Investing activities:
Additions to property and equipment (3,338) (3,655)
Investment in affiliates (9,639) (13,029)
Acquisition of business (1,500) --
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Net cash used for investing (14,477) (16,684)
Financing activities:
Notes payable (8,022) 1,359
Revolving credit borrowings 58,000 3,000
Issuance of common shares under company
stock option plan 1,553 --
Dividends paid (823) (791)
Other (32) (111)
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Net cash provided by financing activities 50,676 3,457
Effect of exchange rate changes on cash 402 (308)
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Net decrease in cash (5,748) (8,490)
Cash at beginning of period 34,253 28,898
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Cash at end of period $ 28,505 $ 20,408
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See accompanying notes to consolidated financial statements.
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PIONEER-STANDARD ELECTRONICS, INC.
Notes to Condensed 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 months ended June 30, 2000 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, 2000.
Reclassifications: Certain 1999 amounts have been reclassified to conform with
the 2000 presentation.
2. COMPREHENSIVE INCOME
The components of comprehensive income for the three months ended June 30, 2000
and 1999 are as follows (amounts in thousands):
Three months ended
June 30,
2000 1999
---- ----
Net income $ 10,221 $ 7,709
Unrealized gain on investments 4,195 4,295
Foreign currency translation adjustment (381) 559
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Comprehensive income $ 14,035 $ 12,563
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3. EARNINGS PER SHARE
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, restricted stock and assumed
conversion of company-obligated mandatorily redeemable convertible trust
preferred securities and the elimination of related distributions, net of income
taxes.
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The computation of basic and diluted earnings per common share for the three
months ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three months ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Basic
Net income applicable to common shareholders $ 10,221 $ 7,709
Weighted average shares outstanding 26,726 26,355
Basic earnings per share $ .38 $ .29
========== ==========
Diluted
Net income applicable to common shareholders $ 10,221 $ 7,709
Add back:
Distributions on mandatorily redeemable
convertible trust preferred securities,
net of tax 1,475 1,459
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Net income applicable to common
shareholders after assumed conversion $ 11,696 $ 9,168
========== ========
Weighted average shares outstanding 26,726 26,355
Effect of diluted securities:
Common share equivalents 899 336
Common shares issuable upon conversion of
mandatorily redeemable convertible trust
preferred securities 9,127 9,127
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Diluted weighted average shares outstanding 36,752 35,818
========== ========
Diluted earnings per share $ .32 $ .26
========== ==========
</TABLE>
4. BUSINESS SEGMENT INFORMATION
The Company's operations are classified into two reporting segments: Computer
Systems and Industrial Electronics. The Company's two reportable business
segments are managed separately based on product and market differences.
Computer Systems products include mid-range computer systems, high-end
platforms, personal computers, display terminals and networking products.
Industrial Electronics products include semiconductors and interconnect, passive
and electromechanical products.
The Company evaluates performance and allocates resources based on return on
capital and profitable growth. Specifically, the Company measures segment profit
or loss based on operating profit.
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Business Segment Information
(amounts in thousands)
Three months ended
June 30,
2000 1999
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Sales
Computer Systems $ 316,697 $ 278,113
Industrial Electronics 358,388 297,860
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Total Sales $ 675,085 $ 575,973
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Operating Income
Computer Systems $ 4,541 $ 9,759
Industrial Electronics 22,224 12,373
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Total Operating Income $ 26,765 $ 22,132
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Reconciliation to Income Before
Income Taxes
Other income (45) (188)
Interest expense 7,637 6,096
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Income Before Income Taxes $ 19,173 $ 16,224
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5. COMPANY-OBLIGATED MANDORILY REDEEMABLE CONVERTIBLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST
In March 1998 and April 1998, Pioneer-Standard Financial Trust (the "Trust")
issued a total of $143.7 million of 6 3/4% Mandatorily Redeemable Convertible
Trust Preferred Securities (the "Trust Preferred Securities"). The Trust, a
statutory business trust, is a wholly-owned consolidated subsidiary of the
Company, with its sole asset being $148.2 million aggregate principal amount of
6 3/4% Junior Convertible Subordinated Debentures due March 31, 2028 of
Pioneer-Standard Electronics, Inc. (the "Trust Debenture"). The Company has
executed a guarantee with regard to the Trust Preferred Securities. The
guarantee, when taken together with the Company's obligations under the Trust
Debenture, the indenture pursuant to which the Trust Debenture was issued, and
the applicable Trust Document provides a full and unconditional guarantee of the
Trust's obligations under the Trust Preferred Securities.
6. CONTINGENCIES
The Company is the subject of various threatened or pending legal actions and
contingencies in the normal course of conducting its business. The Company
provides for costs related to these matters when a loss is probable and the
amount is reasonably estimable. The effect of the outcome of these matters on
the Company's future results of operations and liquidity cannot be predicted
because any such effect depends on future results of operations and the amount
or timing of the resolution of such matters. While it is not possible to predict
with certainty, management believes that the ultimate resolution of such matters
will not have a material adverse effect on the consolidated financial position
or results of operations of the Company.
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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, 2000 COMPARED WITH
THE THREE MONTHS ENDED JUNE 30, 1999
Net sales for the quarter ended June 30, 2000 of $675.1 million increased 17.2%
over $576.0 million of net sales for the prior year three-month period. Both the
Industrial Electronics and Computer Systems segments contributed to the
increased sales with increases of 20% and 14%, respectively. Industrial
Electronics, which comprised 53% of sales in the quarter, benefited from strong
sales of semiconductors, which continues to be driven by a strong communication
market, as well as by improved sales of interconnect, passive and
electromechanical products compared with the same quarter last year. This
improvement was tempered by lower year to year sales of microprocessors,
resulting from vendor constraints on certain products.
Computer Systems revenues, which comprised 47% of sales for the quarter,
benefited from continuing demand for products that support Internet
applications. Although the Company is experiencing high sales growth for these
products, the sales mix has shifted towards lower margin products in the first
quarter of fiscal 2001.
Cost of goods sold increased 17.5% compared with the prior year quarter,
resulting in a gross margin percentage of 15.3% in the current quarter compared
with 15.5% a year ago. Gross margins increased slightly in the Industrial
Electronics segment as pricing improved compared with last year. This
improvement was offset by lower margins in the computer systems segment, caused
by a sales mix shift to lower margin product and continuing competitive pricing
pressures in the computer business.
Warehouse, selling and administrative expenses were $76.3 million compared with
$67.1 million incurred during the prior year three-month period. This resulted
in a ratio of these expenses to sales of 11.3% for the current quarter compared
with 11.7% a year ago. The reduced ratio of operating expenses to sales in the
current year reflects a combination of the effects of cost containment programs
as well as leveraging costs on higher sales volume.
Operating profit of $26.8 million, or 4.0% of sales in the current period, was
up 20.9% compared with $22.1 million, or 3.8% of sales a year ago. Operating
profit of the Computer Systems segment was $4.5 million, or 1.4% of sales for
the current quarter compared with 3.5% of a year ago. Operating profit of the
Industrial Electronics segment was $22.2 million, or 6.2% of sales compared with
4.2% a year ago.
Interest expense was $7.6 million in the current quarter compared with $6.1
million a year ago. The increased interest expense is a result of additional
borrowings to fund increased working
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capital needs and slightly higher interest rates in the current quarter compared
with the same period in fiscal 2000.
The effective tax rate for the current year three-month period was 39.0%
compared with 43.5% for the same period a year ago. The tax rate differential
was primarily due to the unrecognized tax benefit of the operating losses of the
Canadian subsidiary which affected the prior year quarter.
Primarily as a result of the factors above, the Company's net income for the
three-month period ending June 30, 2000 increased 32.6% to $10.2 million from
$7.7 million for the same period of the prior year.
FINANCIAL CONDITION
Current assets increased by $64.0 million and current liabilities increased by
$.7 million during the three-month period ended June 30, 2000, resulting in an
increase of $60.3 million in working capital. The current ratio was 2.9:1 at
June 30, 2000 compared with 2.7:1 at March 31, 2000. The working capital
increase related primarily to higher inventory levels, which increased to $417.7
million at June 30, 2000. These inventory increases have been necessary to
support the Company's robust sales growth.
During the first three months of the current year, total interest-bearing debt
increased by $49.9 million reflective of the change in working capital needed to
support increased sales level. The ratio of interest-bearing debt to
capitalization was 45 percent at June 30, 2000 compared with 43 percent at March
31, 2000.
The Company's investments in affiliates increased $16.5 million during the first
quarter. The increase is attributable to the unrealized gains in the market
value of investments and the Company's purchase, in May 2000, of a minority
equity interest in Magirus AG, a leading European computer systems distributor.
Headquartered in Stuttgart, Germany, Magirus employs more than 300 people in
Germany, Austria, France, Italy, Spain and Switzerland.
Management estimates that capital expenditures for the fiscal year 2001 will
approximate $25 million. Capital expenditures in the first three months of the
current year were $3.3 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.
The Company capitalized approximately $34.2 million in fiscal 1998 and 1999 in
connection with the acquisition and installation of an enterprise-wide
information technology ("IT") system. Amounts representing approximately $11.5
million of these expenditures were operational in fiscal 1999 and $8.5 million
are planned to become operational in the current fiscal year. The balance of
$14.2 million represents work-in-process components which are not yet
operational. The Company is evaluating these components and presently has no
reason to believe that they will not become operational. In addition, management
believes there would be no material adverse effect on the financial condition or
results of operations of the Company should such components require further
modification or replacement. It is contemplated that implementation for
completing the balance of the IT system installation will commence in the
current fiscal year.
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Portions of this report contain current management expectations which may
constitute forward-looking information. All statements that address operating
performance, events or developments that management anticipates will occur in
the future, including statements relating to future revenue, profits, expenses,
income and earnings per share or statements expressing general optimism about
future results, are forward-looking statements within the meaning to Section 21E
of the Securities Exchange Act of 1934 (the "Exchange Act"). In addition, words
such as "expects," "anticipates," "intends," "plans," "believes," "estimates,"
variations of such words, and similar expressions are intended to identify
forward-looking statements. Forward-looking statements are subject to safe
harbors created in the Exchange Act. 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,
inventory obsolescence and technology changes, dependence on key suppliers,
effects of industry consolidation, risks and uncertainties involving
acquisitions, instability in world financial markets, downward pressure on gross
margins, uneven patterns of inter-quarter and intra-quarter sales, and
management of growth of the business.
10
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
In the normal course of business, operations of the Company are
exposed to continuing fluctuations in foreign currency values
and interest rates that can affect the cost of operating and
financing. Accordingly, the Company addresses a portion of these
risks through a program of risk management that includes the use
of derivative financial instruments. The Company's objective is
to reduce earnings volatility associated with these
fluctuations. The Company does not enter into any derivative
transactions for speculative purposes.
The Company's primary interest rate risk exposure results from
the revolving credit facility's various floating rate pricing
mechanisms. This interest rate exposure is managed by interest
rate swaps to fix the interest rate on a portion of the debt and
the use of multiple maturity dates. If interest rates were to
increase 100 basis points (one percent) from June 30, 2000
rates, and assuming no changes in debt from June 30, 2000
levels, the additional annualized net expense would be
approximately $1.1 million or $.03 per diluted share.
The Company has investments, assets, liabilities and cash flows
in foreign currencies creating foreign exchange risk. The
primary foreign currencies creating foreign exchange risk are
the Canadian dollar, British pound, German mark, and New Taiwan
dollar. Monthly measurement, evaluation and forward exchange
contracts are employed as methods to reduce this risk. At June
30, 2000, one forward exchange contract existed with a maturity
of 31 days.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
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27 Financial Data Schedule
(b) Reports on Form 8-K - None
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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, 2000 /S/ James L. Bayman
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James L. Bayman
Chairman & CEO
Date: August 14, 2000 /S/ Steven M. Billick
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Steven M. Billick
Senior Vice President & CFO
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