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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 19992000
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 No. 0-5734
PIONEER-STANDARD ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
Ohio 34-0907152
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
4800 East 131st Street, Cleveland,6065 Parkland Boulevard, Mayfield 44124
Heights, Ohio 44105(Zip code)
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (216) 587-3600(440) 720-8500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Shares, without par value
Common Share Purchase Rights
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 requirement for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K Annual Report
or any amendment to this Form 10-K. [ ]
The aggregate market value of voting shares of the Registrant held by
non-affiliates was $289,882,855$338,032,724 as of June 7, 1999,5, 2000, computed on the basis of the
last reported sale price per share ($11.375)13.50) of such shares on the Nasdaq
National Market. Common Shares held by each officer, Director and person who
owns or may be deemed to own 10% or more of the outstanding Common Shares have
been excluded because such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of June 7, 1999,5, 2000, the Registrant had the following number of Common
Shares outstanding: 31,134,741.31,541,780.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Shareholders to be held on July 27, 199925, 2000
are incorporated by reference into Part III of this Form 10-K.
Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended March 31, 19992000 are incorporated by reference into Parts II and
IV of this Form 10-K.
Except as otherwise stated, the information contained in this Annual
Report on Form 10-K is as of March 31, 1999.2000.
PART I
ITEM 1. BUSINESS
(a) Pioneer-Standard Electronics, Inc. was organized as an Ohio
corporation in 1963 and maintains its principal office at 4800 East 131st
Street, Cleveland,6065 Parkland
Boulevard, Mayfield Heights, Ohio 4410544124 (telephone number (216) 587-3600)(440) 720-8500).
Except as otherwise stated, the term "Company" as used herein shall mean
Pioneer-Standard Electronics, Inc. and its wholly-owned subsidiaries.
DESCRIPTION OF SEGMENTS - The Company's business may beis classified into
two segments: Computer Systems and Industrial Electronics.
Computer Systems. The Company's computer systems distribution and
value-added services business is conducted by its Computer Systems segment.
Through this segment the Company distributes a wide variety of systems products,
including mid-range computer systems and high-end platforms, storage subsystems,
software, servers, computers (primarily mini and personal), display terminals
and networking products. As a complement to its systems distributor operations,
the Company provides value-added services including systems integration,
enterprise resource planning systems design and network consulting. The
Company's systemsystems products and value-added services accounted for 50%48% of the
Company's sales in fiscal 19992000 compared with 50% in 1999 and 40% in 1998 and 31% in 1997.1998.
Industrial Electronics. The Company's Industrial Electronics segment
conducts the operations of the Company related to industrial electronics
products distribution. Products sold by this segment may be classified into two
broad categories: semiconductors and interconnect, passive and electromechanical
components. The semiconductor products distributed by this segment include
microprocessors, memory devices, programmable logic devices and analog and
digital integrated circuits and other semiconductor devices. This segment's
interconnect, passive and electromechanical product offerings include
capacitors, connectors, resistors, switches and power conditioning equipment.
This segment also provides value-added services associated with industrial
electronic products, such as point of use inventory management, just-in-time
kitting operations, turnkey assembly, memory and logic device programming,
connector and cable
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assemblies to customer specifications and power products integration. Sales of
industrial electronics products constituted 50%52% of the Company's total sales in
fiscal 1999,2000, compared with 50% in 1999 and 60% in 1998 and 69% in 1997.1998.
For financial information regarding the total assets and operating income of each
segment of the Company's two business
segments, see Note 6 of Notes to Consolidated Financial Statements of the
Company.
PRODUCTS DISTRIBUTED AND SOURCES OF SUPPLY - The Company distributes
products supplied by more than 100 manufacturers. A majority of the Company's
revenues comes from products sourced by relatively few suppliers. During the
19992000 fiscal year, products purchased from the Company's three largest suppliers
accounted for 64%59% of the Company's sales volume. The largest three suppliers,
IBM, Compaq (including Digital Equipment Corporation), IBM and Intel Corporation,
supplied 25%21%, 20% and 19%18%, respectively, of the Company's sales volume. The loss
of any one of the top three suppliers and/or a combination of certain other
suppliers could have a material adverse effect on the Company's sales and
earnings unless alternative products manufactured by others are available to the
Company.
INVENTORY - The Company believes that it must maintain certain levels
of inventory in order to ensure that the lead times to its customers remain
competitive. However, to minimize its inventory exposure, the Company has
arrangements with certain of its suppliers for "just in time" product delivery.
The majority of the products sold by the Company are purchased pursuant to
distributor agreements which generally provide for inventory return privileges
by the Company upon cancellation of a distributor agreement. The distributor
agreements also typically provide protection to the Company for product
obsolescence and price erosion. The Company believes it has good relationships
with its suppliers.
CUSTOMERS - The Company serves over 24,000 customers in many major
markets of North America. Both of the Company's segments have a varied customer
base which includes original equipment manufacturers (which constitute the core
customer base of the Industrial Electronics segment), value-added resellers,
research laboratories, government agencies and commercial end-users, including
manufacturing companies and service and other non-manufacturing organizations.
No single customer accounted for more than ten percent of the Company's total
sales or the sales of either segment during the fiscal year 1999.2000.
BACKLOG - The Company historically has not had a significant backlog of
orders, although some shipments may be scheduled for delivery over an extended
period of time. There was not a significant backlog during the last fiscal year.
COMPETITION - The sale and distribution of industrial electronic and
computer systems products are highly competitive, primarily with respect to
price and product availability, but also with respect to service, variety and
availability of products carried, number of locations and promptness of service.
Many of the distributors with which the Company competes are regional or local
distributors. However, several of the Company's strongest competitors have
national and international distribution businesses. The Company also experiences
competition from
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manufacturers, including some of the Company's suppliers, who may sell directly
to the industrial and end-user account base.
EMPLOYEES - As of March 31, 1999,2000, the Company had 2,4402,481 employees. The
Company is not a party to any collective bargaining agreement, has had no
strikes or work stoppages and considers its employee relations to be excellent.
(d) The Company distributes its products principally in the United
States and Canada. Export sales are not a significant portion of the Company's
sales.
ITEM 2. PROPERTIES
The Company owns the 87,000 square foot facility, located in Cleveland,
Ohio that houses its corporate headquarters and the 106,000 square foot facility, located in Twinsburg, Ohio, that
houses its corporateindustrial electronics distribution center. Commencing in fiscal 2000, theThe Company intends to relocaterelocated
certain of its corporate offices to a 60,000 square foot facility located in
Mayfield Heights, Ohio, as to which the Company entered into an 11 year lease in
April 1999. The Company's operations occupy a total of approximately 1,601,0001,343,000
square feet, with the majority, approximately 1,481,0001,198,000 square feet, devoted to
product distribution facilities. Of the approximately 1,601,0001,343,000 square feet
occupied, 253,000226,000 square feet are owned and 1,348,0001,117,000 square feet are occupied
under operating leases. The Company's facilities of 100,000 square feet or
larger, as of March 31, 1999,2000, are set forth in the table below.
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TYPE OF APPROXIMATE LEASED OR SEGMENT
LOCATION FACILITY SQUARE FOOTAGE OWNED USING FACILITY
- -------- -------- -------------- -------------- --------------
Gaithersburg, Maryland Distribution 102,600 Leased Industrial Electronics
and Computer Systems
Solon, Ohio Distribution 174,000 Leased Industrial Electronics
and Computer Systems
Solon, Ohio Distribution 224,600 Leased Industrial Electronics
and Computer Systems
Solon, Ohio Distribution 108,700 Leased Industrial Electronics
and Computer Systems
Solon, Ohio Distribution 102,500 Leased Industrial Electronics
and Computer Systems
Twinsburg, Ohio Distribution 106,000 Owned Industrial Electronics
The Company's major leases contain renewal options for periods of up to
ten years. For information concerning the Company's rental obligations, see Note
4 (Leases) of Notes to Consolidated Financial Statements of the Company. The
Company believes that its distribution and office facilities are well maintained
and suitable for the operations of the Company.
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ITEM 3. LEGAL PROCEEDINGS
As of March 31, 1999,2000, the Company was not a party to any material
pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of its fiscal year ended March 31, 1999.2000.
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EXECUTIVE OFFICERS OF THE COMPANY (1)
The name, age and positions of each executive officer of the Company as
of June 1, 19992000 are as follows:
NAME AGE POSITION
---- --- --------
James L. Bayman 62Name Age Position
---- --- --------
James L. Bayman 63 Chairman of the Board of the Company
since April 1, 1996 and Chief
Executive Officer of the Company
since April 3, 1995. President of
the Company from June, 1984 to April
29, 1997. Chief Operating Officer of
the Company from June, 1984 to April
3, 1995.
Arthur Rhein 54 President and Chief Operating
Officer of the Company since April
29, 1997; Senior Vice President of
the Company from 1993 to April 29,
1997 and Vice President - Marketing
of the Company from 1986 to 1993.
Steven M. Billick 44 Senior Vice President and Chief
Financial Officer of the Company
since April 26, 2000.
Thomas G. Pitera 45 President of the Company's
Industrial Electronics Division
since April 1, 1998.
Lawrence N. Schultz 52 Secretary of the Company since
April 1, 1996 and Chief Executive Officer of
the Company since April 3, 1995. President
of the Company from June, 1984 to April 29,
1997. Chief Operating Officer of the Company
from June, 1984 to April 3, 1995.
Arthur Rhein 53 President and Chief Operating Officer of the
Company since April 29, 1997; Senior Vice
President of the Company from 1993 to April
29, 1997 and Vice President - Marketing of
the Company from 1986 to 1993.
Gregory T. Geswein 44 Senior Vice President and Chief Financial
Officer of the Company since April 27, 1999.
Prior thereto, Vice President and Controller
of Mead Corporation from February 1997 to
March 1999; Controller of Mead Corporation
from April 1995 to February 1997; and
Treasurer of Mead Corporation from October
1993 to April 1995.
John V. Goodger 63 Vice President, Treasurer and Assistant
Secretary of the Company since 1990. Prior
thereto, Vice President, Treasurer and
Assistant Secretary of Ferro Corporation
from 1987 to 1990 and Vice President and
Treasurer of Ferro Corporation from 1984 to
1990.
William A. Papenbrock 60 Secretary of the Company since 1986.
Partner of the law firm of Calfee,
Halter & Griswold LLP (2).
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(1) The description of Executive Officers called for in this Item is included
pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K.
(2) The law firm of Calfee, Halter & Griswold LLP serves as counsel to the
Company.
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There is no relationship by blood, marriage or adoption among the
above-listed officers. Messrs. Bayman, Rhein Geswein and GoodgerBillick hold office until
terminated as set forth in their employment agreements. Mr. PapenbrockSchultz holds office
until his successor is elected by the Board of Directors.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Shares, without par value, are traded on the
Nasdaq National Market. Common Share prices are quoted daily under the symbol
"PIOS." The high and low sales prices for the Common Shares, the cash dividends
paid on the Common Shares and additional information for each quarter of the two
most recent fiscal years required by this Item are set forth at page 3633 of the
Company's 19992000 Annual Report to Shareholders, which information is incorporated
herein by reference.
Cash dividends are payable quarterly upon authorization by the Board of
Directors. Regular payment dates are the first day of August, November, February
and May. The Company maintains a Dividend Reinvestment Plan whereby cash
dividends and a maximum of an additional $5,000 per month may be invested in the
Company's Common Shares at no commission cost.
On April 27, 1999, the Company adopted a Common Share Purchase Rights
Plan. For further information about the Common Share Purchase Rights Plan, see
Note 8 (Shareholders' Equity) of Notes to Consolidated Financial Statements of
the Company.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth at page 3734 of the
Company's 19992000 Annual Report to Shareholders, which information is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED WITH FISCAL 1999
CONSOLIDATED SALES
Fiscal 1999 Compared with Fiscal 1998
Consolidated Sales
Fiscal 19992000 was the 13th14th consecutive year of record sales and the 27th28th year in
the 2829 years the Company has been public in which sales increased. Net sales for
the year ended March 31, 1999,2000, of $2,259.1$2,550.7 million increased 3413 percent over
sales of the prior year of $1,685.3$2,259.1 million. TheBoth of the Company's segments
contributed to the increase was
primarily attributable to higher net sales volume of
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computer products resulting from the acquisition of Dickens Data Systems, Inc.
("Dickens") on March 31, 1998. Including sales of Dickens with the prior year on
a pro forma basis, fiscal 1999 sales increased 10 percent compared with fiscal
1998.
Segment Salesin sales.
SEGMENT SALES
The Company's business is classified into two operating segments:
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Computer Systems products include mid-range computer systems and high-end
platforms, storage subsystems, software, servers, personal computers, display
terminals and networking products.
Computer systems accounted for 5048 percent of the Company's sales in fiscal 19992000
compared with 4050 percent a year ago. Sales of computer systems increased 688
percent in fiscal 1999, primarily due to added
sales resulting from the Dickens acquisition discussed above. Including sales of
Dickens with the prior year on a pro forma basis, computer systems sales
increased 9 percent in fiscal 1999.2000.
Industrial Electronics products compriseare comprised of semiconductors, and
interconnect, passive and electromechanical products. Semiconductors are the
building blocks of computer chips and include microprocessors, memory devices,
programmable logic devices, and analog and digital integrated circuits.
Interconnect, passive and electromechanical products are devices that move or
use an electrical signal and include capacitors, connectors, resistors,
potentiometers, switches and power conditioning equipment.
Industrial electronics accounted for 5052 percent of sales in fiscal 19992000 compared
with 6050 percent a year ago. The increase in industrial electronics sales of 18
percent in fiscal 2000 is primarily attributable to the increased demand for
semiconductors from the Internet and communications markets.
GROSS MARGINS
Gross margin for the consolidated operations decreased to 15.5 percent for
fiscal 2000 from 15.6 percent in the prior year.
The gross margin for computer systems declined to 14.8 percent of sales in
fiscal 2000 from 16.4 percent a year ago. The decrease is primarily attributable
to continued pricing pressures within the market.
The gross margin for industrial electronics increased to 16.2 percent in fiscal
2000 from 14.8 percent a year ago. The increase is attributable primarily to the
industry's strengthening demand versus supply, positively impacting average
selling prices.
Management expects overall gross margin pressure to continue in the next fiscal
year.
OPERATING EFFICIENCIES
Warehouse, selling and administrative expenses for consolidated operations were
11.5 percent of sales in fiscal 2000, down from 11.8 percent of sales in the
prior year. During 2000, the improvements came from operating efficiencies,
coupled with the effects of cost controls.
Efficiencies were realized through improved employee productivity and working
capital management. Sales per employee increased to $1,038,000 from $879,000 in
1999, which represents a gain of approximately 18 percent. Accounts receivable
remained at 44 days in 2000. Inventory turnover of 6.1 times increased from 5.5
times in the prior year.
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The resulting consolidated operating profit of $101.5 million was up 19 percent
from $84.9 million in 1999. Consolidated operating profit was 4.0 percent of
sales in 2000 compared with 3.8 percent of sales in 1999, reflecting the
operating expense improvement in fiscal 2000.
Operating profit margin for computer systems of 3.1 percent decreased from 4.4
percent in fiscal 1999 primarily due to pricing pressures.
Operating profit margin for industrial electronics increased to 4.8 percent from
3.1 percent in fiscal 1999 primarily because of the improvement in gross margin
due to increased demand in relationship to supply.
OTHER INCOME
In fiscal 2000, the Company recorded a pre-tax gain of $1.8 million related to
the sale and disposal of assets no longer required in the business.
INTEREST EXPENSE
Interest expense was $26.1 million, net of $0.8 million capitalized, in fiscal
2000 compared with $24.3 million a year ago. The increased interest expense is
primarily attributable to the additional debt to fund working capital and
capital expenditures needed to support the ongoing growth needs of the business.
TAXES
The effective tax rate for fiscal 2000 was 40.4 percent compared with 39.6
percent a year ago. The tax rate increase was primarily due to the unrecognized
tax benefits associated with the current year operating loss of the Company's
Canadian subsidiary.
NET INCOME
Primarily as a result of the factors noted above, the Company's net income for
fiscal 2000 reached a record high of $40.1 million, an increase of 30 percent,
or $9.3 million, over fiscal 1999 income of $30.8 million.
Diluted earnings per share for fiscal 2000 increased to $1.27 from $1.03 in the
previous year.
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FISCAL 1999 COMPARED WITH FISCAL 1998
SALES
Fiscal 1999 consolidated net sales of $2,259.1 million in-creased 34 percent
over sales in the prior year of $1,685.3 million. The increase was primarily
attributable to higher sales volume of computer systems resulting from the
acquisition of Dickens Data Systems, Inc. ("Dickens") on March 31, 1998.
Including the sales of Dickens with the prior year on a pro forma basis, fiscal
1999 sales increased 10 percent compared with fiscal 1998.
Computer systems sales increased 68 percent in fiscal 1999 primarily due to
added sales resulting from the Dickens acquisition discussed above. This segment
accounted for 50 percent of sales in fiscal 1999 compared with 40 percent in the
prior year.
Industrial electronics net sales increased 12 percent in fiscal 1999 is primarily
attributable to the increased sales of the high-volume, low-margin semiconductor
products.
Gross MarginsGROSS MARGINS
The fiscal 1999 consolidated gross margin for the consolidated operations decreased toof 15.6 percent for fiscal 1999decreased from 17.7
percent in the prior year. Both operating segments experienced declines in gross
margin in fiscal 1999 as described below.
TheComputer systems gross margin for computer systems declineddecreased to 16.4 percent of sales
in fiscal 1999 from 18.7 percent
a year ago. The decrease is primarily attributabledue to the Dickens sales earning a lower gross margin compared with
the other computer systems sales. The gross margin for industrial electronics
declined to 14.8 percent in fiscal 1999 from 17.1 percent a year ago.in 1998. The decrease
iswas attributable primarily to the increase in sales of high-volume, low-margin
products and to the industry's excess semiconductor supply versus demand conditions adversely
impacting average selling prices.
Management expects gross margin pressure to continue in the next fiscal
year.
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Operating Efficienciesdemand.
OPERATING EFFICIENCIES
Warehouse, selling and administrative expenses for consolidated operationsexpenses were 11.8 percent of
sales in fiscal 1999 down fromand 13.4 percent of
sales in the prior year.1998. During 1999, gains resulted from
improvements bydue to leveraging expenses on higher sales volume, coupled with the
effects of implementing cost controls.
Efficiencies were realized through improved employee productivity and inventory
turnover. Sales per employee increased to $879,000 from $766,000 in 1998.
Sales per employee have reflected an annual average efficiency gain of
approximately 9 percent over the past five years. Accounts receivable remained
atReceivable collections were 44 days in 1999.1999 and 1998. Inventory turnover of 5.5
times in 1999 increased from 4.4 times in the prior year.
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The resulting consolidated operating profit of $84.9 million was up 16 percent
from $73.0 million in 1998. Consolidated operating profit was 3.8 percent of
sales in 1999 compared with 4.3 percent of sales in 1998, reflecting the gross
margin erosion in fiscal 1999 discussed above.
TheComputer systems operating profit marginas a percent of computer systemssales decreased to 4.4 percent
in 1999 from 5.4 percent of sales in fiscal 1998, to 4.4 percent of sales in fiscal 1999 primarily due to the integration of Dickens.
TheIndustrial Electronics operating profit marginas a percent of industrial electronicssales declined to 3.1
percent of salesin 1999 from 3.6 percent of sales in fiscal 1998 primarily because ofdue to the gross margin
erosion from the excess capacity in the semiconductor industry referred to above.
Interest Expenseindustry.
INTEREST EXPENSE
Interest expense was $24.3 million in fiscal 1999 compared with $20.7 million a year ago.in
fiscal 1998. The increased interest expense is primarily attributable to the additional debt
incurred to fund working capital and capital expenditures neededexpenditure requirements necessary
to support the ongoing growth needs of the business, as well as the effect of
the acquisition of Dickens.
TaxesTAXES
The effective tax rate was 39.6 percent for fiscal 1999 was 39.6 percent compared with 41.4
percent a year ago.in fiscal 1998. The tax rate decrease was primarily due to the
utilization of the operating loss carryforward of the Canadian subsidiary.
Net Incomesubsidiary and
lower effective state tax rates.
NET INCOME
Primarily as a result of the factors noted above, the Company'sCompany reported net
income for fiscal 1999 reached a record high of $30.8 million - an increase of $0.3 million, or 1
percent over fiscal 1998 net income of $30.5 million.
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Diluted earnings per share for fiscal 1999 decreased to $1.03 from $1.14 in the
previous year. The average diluted shares outstanding increased to 35.7 million
in fiscal 1999 from 26.9 million the prior year primarily due to the issuance of
convertible trust preferred securities a year ago.
Fiscal 1998 Compared with Fiscal 1997
Sales
Fiscal 1998 consolidated net sales of $1,685.3 million increased 12
percent over sales of the prior year of $1,508.7 million.RISK CONTROL
The increase was
attributable to higher sales volume of computer systems.
Computer systems sales increased 43 percentCompany has assets, liabilities and cash flows in fiscal 1998, reflecting
strong demand for computer systems products. This segment accounted for 40
percent of sales in fiscal 1998 compared with 31 percent in the prior year.
Industrial electronics net sales decreased 2 percent in fiscal 1998
reflecting a steady demand for interconnect, passive and electromechanical
products, which was offset by a weaker sales comparison experienced by the
Company's semiconductor lines. The slower pace of the Company's semiconductor
sales was reflective of the industry's excess of supply versus demand for that
product category.
Gross Margins
The fiscal 1998 consolidated gross margin of 17.7 percent increased
from 17.2 percent in the prior year.
Computer systems gross margin percent decreased to 18.7 percent from
19.1 percent and industrial electronics gross margin increased to 17.1 percent
from 16.3 percent the prior year. The gross margin percent changes for both
segments are primarily attributable to sales mix changes.
Operating Efficiencies
Warehouse, selling and administrative consolidated expenses were 13.4
percent of sales in fiscal 1998 and 1997. During 1998, gains resulting from
improvements from leveraging expenses on higher sales volume, coupledforeign currencies
creating foreign exchange risk with the effects of implementation of cost controls, were offset both by added sales
personnel for administration ofprimary foreign currency being the
Company's new and expanding lines and by an
acceleration of expenses associated with the Company's multi-year computer
platform project.
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Efficiencies were realized through improved employee productivity and
receivable collections. Sales per employee increased to $766,000 from $739,000
in 1997. Sales per employee have reflected an annual average efficiency gain of
approximately 11 percent over the past five years. Receivable collections were
reduced to 44 days in 1998 from 47 days in the previous year. However, inventory
turnover of 4.4 times declined from 5.2 times in 1997, reflecting a combination
of increased stocking levels for recent product line additions as well as for
certain of the Company's existing product lines, for improved customer
satisfaction.
The resulting consolidated operating profit of $73.0 million was up 27
percent from $57.4 million in 1997. Consolidated operating profit was 4.3
percent of sales in 1998 compared with 3.8 percent of sales in 1997, reflecting
the increased gross margin percent gain for both operating segments in fiscal
1998, discussed above. Computer systems operating profit percent of sales
increased to 5.4 percent from 4.9 percent and industrial electronics gross
margin increased to 3.6 percent from 3.3 percent the prior year.
Interest Expense
Interest expense was $20.7 million in fiscal 1998 compared with $17.1
million in fiscal 1997. The increased interest expense is attributable to
additional debt to fund working capital and capital expenditure requirements
necessary to support the ongoing growth needs of the business.
Taxes
The effective tax rate was 41.4 percent for fiscal 1998 compared with
42.3 percent in fiscal 1997. The downward trend is reflective primarily of the
reduction of various local and state taxes relative to the Company's operations.
Net Income
Primarily as a result of the factors noted above, the Company's net
income for fiscal 1998 of $30.5 million increased $7.2 million, or 31 percent
over 1997 net income of $23.3 million.
Diluted earnings per share for fiscal 1998 increased to $1.14 from
$1.00 in the previous year.
Risk ControlCanadian dollar. Systems are in place for continuous measurement and evaluation
of foreign exchange exposures so that timely action can be taken when considered
desirable. Reducing exposure to foreign currency fluctuations is an integral
part of the Company's risk management program. Financial instruments in the form
of forward exchange contracts are employed as one of the methods to
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reduce such risk. 11
12At March 31, 2000, one forward exchange contract in the amount
of $2.7 million existed with a maturity of 30 days. The foreign exchange
contracts have had an immaterial impact on the Company's results of operations
for the fiscal years ended 2000, 1999 and 1998.
The Company has entered into several interest rate swap agreements for purposes
of serving as a hedge of the Company's variable rate credit agreement
borrowings. The effect of the swaps is to establish fixed rates on the variable
rate debt and to reduce exposure to interest rate fluctuations. At March 31,
1999,2000, the Company had interest rate swaps with a notional amount of $70 million.
Pursuant to these agreements, Pioneerthe Company pays interest at a weighted average
fixed rate of 5.47 percent. The weighted average LIBOR rates applicable to these
agreements were 5.366.11 percent at March 31, 1999.2000. The swap agreements have had an
immaterial impact on the Company's results of operations for the fiscal years
ended 2000, 1999 and 1998.
The Company is exposed to interest rate risk from the revolving credit
facility's various floating rate pricing mechanisms. This interest rate exposure
is managed by the 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 (1 percent) from March 31, 2000 rates, and assuming no
changes in debt from March 31, 2000 levels, the additional annualized net
expense would be approximately $1.2 million or $.02 per diluted share.
The Company is exposed to credit loss in the event of nonperformance by the
other party to the derivative financial instruments. The Company limits this
exposure by entering into agreements with major financial institutions that meet
credit standards established by the Company and that are expected to satisfy
fully their obligations under the contracts.
The Company extends credit based on customers' financial conditions, and
generally, collateral is not required. The Company obtains credit insurance in
certain circumstances to protect its interests. Credit losses are provided for
in the financial statements when collections are in doubt.
Inflation has had a nominal effect on the Company's operations.
Accounting ChangesNEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFASStatement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities.Activities," This Statement
establishes accounting and reporting standards for derivative instruments and
hedging activities. Itwhich requires that an entity recognize all derivatives as
either assets or liabilities into be recognized on the
balance sheet and measure those instruments
at fair value. The Company will adoptThis statement is effective for fiscal years
beginning after June 15, 2000. Derivatives that are not hedges must be adjusted
to fair value through income. If the Statement in fiscal year 2002.
Adoptionderivative is a hedge, depending on the
nature of the new Standard is not expected to have a material impact on the
results of operations or financial position of the Company.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Startup
Activities," which requires that the cost of startup activities, including
organization costs, be expensed as incurred. Adoption of the new Standard is not
expected to have a material impact on the results of operations or financial
position of the Company and is required for the Company's fiscal year ending
March 31, 2000.
Acquisitions
On March 31, 1998, the Company acquired 100 percent of the outstanding
capital stock of Dickens Data Systems, Inc. for $121.0 millionhedge, changes in cash. Dickens
Data Systems, Inc. was one of IBM's largest distributors of mid-range computer
systems, and had total sales approximating $367.1 million for the fiscal year
ended March 31, 1998. Management believes the acquisition will expand the
Company's customer base and product offerings and enhance the Company's ability
to take advantage of growth opportunities in the mid-range computer systems
market. The acquisition was funded with borrowings under the Company's revolving
credit facility. The excess of the purchase price over the fair value of the netderivative will either be
offset against the change in fair value of the hedged assets, acquired approximated $119.1 million,liabilities or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. Management is in the process of
analyzing and is being amortized over 40
years.assessing the impact of the adoption
12
13
of SFAS 133 on the Company's consolidated results of operations and financial
position. The Company must adopt the statement no later than April 1, 2001.
In November 1997, the Company purchased an initial minority equity
interest in World Peace Industrial Co., Ltd. ("WPI") of Taiwan. Subsequent to
year-end, in AprilDecember 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition in Financial Statements," which
summarizes the staff's views regarding the application of generally accepted
accounting principles to selected revenue recognition issues and is effective
January 1, 2001 for the Company. The Company added to its investment in WPI. Management
believes this investmentis currently assessing the impact
SAB 101 will provide the Company with access to an extensive
distribution network in the Asia-Pacific region. Headquartered in Taipei, WPI
has offices in countries throughout the region, including Singapore, South
Korea, Thailand, Malaysia, mainland China and Hong Kong. This minority interest
investment is recordedhave on the cost basis and is included in other assets.
In April 1998, the Company purchased an initial minority equity
interest in Eurodis Electron PLC ("Eurodis"), a pan-European distributorCompany's results of electronic components. Subsequent to year-end, in May 1999, the Company added to
its investment in Eurodis. This investment 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
telecommunications 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.
Liquidity and Capital Resourcesoperations.
LIQUIDITY AND CAPITAL RESOURCES
Current assets including cash and cash equivalents decreased $23.4increased by $124.5 million and current
liabilities decreased $38.3increased by $99.3 million for the year ended March 31, 1999,2000,
resulting in an increase of $14.9$25.2 million of working capital. Despite
increasedIncreased sales in
the fourth quarter of fiscal 1999 over2000 compared with the same quarter a year ago, improved inventory turnover forand
the current yearweighting of sales within the fourth quarter of 5.5 times
compared with 4.4 times a year ago resulted in reducedincreased current
asset needs. The decreaseincrease in current liabilities is primarily attributable to
reducedincreased inventory funding requirements and to timing differences in payments.requirements. The Company's current ratio was 3.4:2.7:1
at March 31, 1999,2000, and 2.9:3.4:1 at year-end March 31, 1998.
In April 1998, the Company issued an additional $18.7 million of
preferred securities upon exercise of an overallotment option in connection with
issuance of convertible trust preferred securities by the Company in March 1998
of $125 million.1999.
The Company's revolving credit facility has a total capacity of $260.0 million,
substantially all of which may be borrowed as of March 31, 1999,2000 in accordance with
availability requirements which are subject to meeting certain minimum ratios.
As of March 31, 1999, $160.02000, $170.0 million was borrowed under the facility. A year
ago, such borrowings aggregated $180.0$160.0 million.
Capital expenditures were $36.0 million in fiscal 2000 compared with $22.2
million in fiscal 1999 compared with
$44.3 million in fiscal 1998.1999. This spending reflects ongoing initiatives designed to improve
efficiencies through computer enhancement of operating processes as well as
expanded facilities. Management estimates that capital expenditures will be in
the range of $35.0$25.0 million in fiscal 2000.
13
142001.
During fiscal 1999,2000, the Company made additional investments in World Peace
Industrial Co. Ltd., Eurodis Electron PLC and two other investments in the
United States totaling $13.9 million. These investments further the Company's
growth strategy by offering access to an extensive distribution network in the
Asia-Pacific region, Europe and markets within the United States. Subsequent to
year end, in May 2000, the Company purchased a minority equity interest in
Magirus AG, a leading European computer systems distributor. Headquartered in
Stuttgart, Magirus employs more than 300 people in Germany, Austria, France,
Italy, Spain and Switzerland.
During fiscal 2000, total interest-bearing debt decreasedincreased by $23.0$23.3 million. The
decreaseincrease in debt is primarily attributable to improved inventory
turnover in fiscal 1999 and application of proceeds of the April 1998 sale of
preferred securities.funding working capital
requirements. The ratio of interest-bearing debt to capitalization (including convertible trust preferred securities as equity) was 43
percent at March 31, 19992000 compared with 4844 percent a year ago.
The Company believes that cash generated from operations and amounts available
under its credit facility are sufficient to fund its working capital and capital
expenditure requirements.
Information Technology Systems13
14
INFORMATION TECHNOLOGY SYSTEMS
The Company capitalized approximately $34.2 million over the past two
yearsin fiscal 1998 and 1999 in
connection with the acquisition and installation of an upgradedenterprise-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 fiscal 2000.2001. 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 plansimplementation for completing the balance of the information
technology (IT)IT
system installation will be finalizedcommence in fiscal 2000.
Year2001.
YEAR 2000
Readiness Disclosure
The YearCompany completed its year 2000 problem - software, hardware or an embedded chip that
does not correctly process date information for years after 1999 - results fromremediation efforts and, since the practice of storing date information with only the last two digitsturn of
the year.
The Company began to address Year 2000 issuescentury, has not experienced any significant problems internally or with
suppliers and customers in 1996. Since 1997, the
Company has employed internal and external resources to assist it in
identifying, remediating and testing Year 2000connection with this event. Nevertheless, there still
remain some future dates that could potentially cause computer system problems.
The Company has also
assembled a multi-departmental Year 2000 task forcecontinues to coordinatemonitor these dates and facilitate
its Year 2000 efforts and provide regular updates to the board of directors.
The scope of the Year 2000 readiness effort includes the Company's
internal IT systems, such as hardware and software; non-IT systems with
date-sensitive characteristics; and the status of key third parties, including
suppliers, service providers and customers.
The Company's major IT applications are currently Year 2000 ready.
Remediation and testing of the balance of the IT systems are expected to be
completed by July 1999. The Company continues with analyzing the readiness of
non-IT systems and anticipates thataddress any necessary
remediation and testing of any non-compliant
systems will be completed by October 1999. The
14
15
Company also is taking steps to determine the compliance of key third parties
and expects that it will have received and reviewed responses from the majority
of such parties by October 1999.
Although the Company expects to meet the target dates for completion of
remediation and testing and for determining the status of key third parties, the
task force continues with developing contingency plans should the programs not
be completed when anticipated or should the third parties not be ready on a
timely basis. Although the Company anticipates the adoption of contingency plans
including the use of manual systems, use of alternative systems or other means
to prevent the more important IT systems from failure should serve to mitigate
potential losses arising from Year 2000 disruptions in connection with the
Company's IT system, there can be no assurances that disruptions will not have a
material adverse effect on the Company.
Despite the Company's efforts of canvassing its more critical
third-party suppliers for compliance with Year 2000 issues and identifying
alternate sources, it is more difficult to anticipate the effect of the actions
of such third parties on the financial status of the Company. The Company has
not become aware of any third party non-compliance not in the process of
remediation that might result in a major disruption.
Costs of the initiative to date approximate $2.1 million. It is
anticipated that an additional $1.0 million will be incurred to complete the
program. Substantially all of these outlays are expected to result from
remediation of existing systems as opposed to replacing existing systems. Costs
of the initiative are being funded from operating cash flows. The actual costs
of the Company's Year 2000 efforts may vary from current estimates, which are
based on information available at the time.
At the present time, the Company believes that the greatest threat
posed to it by the Year 2000 problem is potential litigation arising out of any
failure of products sold or services performed by the Company due to Year 2000
non-compliance, however the Company is not currently aware of any threatened
litigation. Based on currently available information, the Company is unable to
quantify losses, if any, it may incur as a result of any Year 2000 non-compliant
products or services sold by it, and cannot provide any assurance that such
losses may not be material. The Company believes that its exposure to liability
resulting from the malfunction of Year 2000 non-compliant products is mitigated
in substantial part by certain manufacturers' warranties that are passed through
to the customer. Regardless of whether the Company is ultimately held liable for
any customer's losses, the costs of defending customer lawsuits could have a
material adverse effect on the Company's business, results of operations and
financial condition, depending on the number and nature of such actions. Due to
the uncertain number and nature of such lawsuits, the Company is unable to
estimate its potential litigation expenses resulting from any Year 2000
non-compliance of products or services sold by it.
15
16
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 all
problems that are discovered. Furthermore, there can be no assurance that the
Company's third-party relationships will not be adversely affected by Year 2000
issues.
While the Companybut does not anticipate that costs of Year 2000
disruptions will have a material adverse effect, Year 2000 disruptions, arising
either from within the Company or through third-party relationships, could have
a material adverse effectany major impact on the Company's business, operating results and
financial condition.
Subsequent Eventits operations.
OTHER EVENTS
On May 13, 1999, ProGen Technologies, Inc. "ProGen", one of the Company's major
customers, filed for protection under Chapter 11 of the U.S. Bankruptcy Code in
the Central District of the stateState of California. On June 18, 1999, ProGen subsequently filedmade a
motion, which was granted, on June 18, 1999, to convert its Chapter 11 proceeding to a Chapter 7
proceeding. At the time of its initialthe bankruptcy filing, ProGen owed the Company
approximately $9.3 million formillion. The bankruptcy court has appointed a Trustee who has
proceeded with liquidation of the shipmentassets of microprocessors ($5.7
million at March 31, 1999).ProGen. The Company intendscontinues to
pursueassert its security interest and rights in the bankruptcy proceedings, and, atproceedings. At this
time, management anticipatesbelieves, due to the Company's status in the bankruptcy
proceedings, any effects resulting from this matter will not result inhave a material
adverse effect on the consolidated financial condition or results of operations
of the Company.
Forward-Looking InformationOn February 11, 2000, the Company experienced a fire at its Twinsburg, Ohio
distribution center. This event affected approximately 3 percent of the
Company's inventory but caused no structural damage or major disruption. The
Company believes it has adequate insurance coverage to offset any property loss
or business impact resulting from the fire.
14
15
FORWARD-LOOKING INFORMATION
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 asfor a resultvariety of certain risk
factors,reasons,
including, but not limited to those set forth below.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.
Competition
The Company is a distributor in the industrial electronics and computer
systems industry, which has been highly competitive in recent years. The Company
faces intense competition in two major respects: in obtaining sources of supply
for the products distributed, and in developing relationships with customers. In
the case of semiconductor and computer systems products, the Company competes
for customers with other distributors as well as with some of its suppliers.
Some of the Company's competitors are larger and more established and have
greater financial and other resources, which may enable them to compete more
effectively. Also, it is possible that an increasing number of suppliers may
decide to distribute their products directly to the customer, which will
heighten competitive pressures further. Due to continuing competitive pressures,
the Company's gross margins have declined in recent years, and the Company
expects a continued downward pressure on gross margins in the foreseeable future.
16
17
Softening in the Computer Network and Platform Market
The Company distributes many products that are used in the manufacture
or configuration of mid-range computer systems and high-end platforms. The
technology used in these products has changed rapidly over the last several
years, resulting in short life cycles for these products. Because the Company's
customers have been forced to replace systems that have become technologically
obsolete in a relatively short period of time, the Company has experienced
substantial demand for these products that has contributed significantly to its
revenue growth. A slowdown in this market could have a substantial negative
effect on the Company's revenues and results of operations.
Fluctuations in Semiconductor Supply and Demand
The semiconductor market historically has experienced fluctuations in
product supply and demand associated with technology changes and supply
capability occurring from time to time. At times when product supply has been
high relative to demand, prices for those products have declined. The Company
has attempted to minimize the effect of these price fluctuations in its
distribution arrangements. The Company's gross margins may nevertheless be
negatively affected if an excess supply of semiconductors causes a general
decline in prices for those products. If there is a shortage of semiconductor
supply, the Company's results of operations
15
16
will depend on how much product it is able to obtain from suppliers to sell and
how quickly the Company receives shipments of those products. There can be no
assurance that supply and demand fluctuations in the semiconductor market will
not have a material adverse effect on the Company's results of operations and
business.
Risks Related to Rapidly Changing Technology
The Company's results of operations will depend in part on successful
management of the challenges of rapidly changing technology and evolving
industry standards characteristic of the market for industrial electronics and
computer systems products. These challenges include predicting the nature and
timing of technological changes and the direction of evolving industry
standards; identifying, obtaining and successfully marketing new products as
they emerge; and minimizing the risk of loss due to inventory obsolescence. Some
of the Company's competitors may be able to market products that have perceived
advantages over the products distributed by the Company or that render the
products distributed by the Company obsolete or more difficult to market.
Although the Company attempts to minimize the effects of inventory obsolescence
in its distribution arrangements, the Company may have high inventories of
unsold product if a new technology renders a product distributed by the Company
less desirable or obsolete. In addition, customers may be less willing, for
financial or other reasons, to purchase the new products necessary to use new
technologies.
Dependence on Key Suppliers
During fiscal 19992000 the Company's three largest suppliers accounted for
6459 percent of total sales, with IBM, Compaq (including Digital Equipment
Corporation), IBM and Intel Corporation supplying 2520 percent, 20 percent and 19
percent, respectively, of the Company's sales volume.
17
18 Although the Company
believes that its relationships with suppliers are good, there can be no
assurance that the Company's suppliers will continue to supply products to the
Company on terms acceptable to the Company. The loss of any of the Company's
three top suppliers or a combination of other suppliers could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Industry Consolidation
The industrial electronics and computer systems products distribution
industry has become increasingly concentrated in recent years as companies have
combined or formed strategic alliances. If this trend continues, new business
combinations or strategic alliances may have a competitive advantage if their
potentially greater financial, technical, marketing or other resources allow
them to negotiate relationships with suppliers that are more favorable than the
Company's relationships with its suppliers. If such relationships develop, these
new business combinations or strategic alliances may be able to offer lower
prices that could precipitate an industry-wide decline in prices. This decline
would have a negative impact on the Company's gross margins, and could cause a
decline in the Company's revenues and loss of market share.
Risks Related to Growth through Acquisitions
16
17
The Company constantly reviews acquisition prospects that would
complement its existing business, augment its market coverage or provide
opportunities to expand into new markets. The Company's continued growth depends
in part on its ability to find suitable acquisition candidates and to consummate
strategic acquisitions. If the consolidation trend in the industry continues,
the cost of completing acquisitions could increase significantly. To fund rising
acquisition costs, the Company may issue equity securities, which could dilute
the holdings of existing equity holders, or incur debt, which could reduce the
fixed charge ratio and result in overleveraging. These actions, and the
amortization of expenses related to goodwill and other intangible assets, could
have a material adverse effect on the Company's financial condition and results
of operations or the price of the Company's Common Shares. Furthermore,
acquiring businesses always entails risk and uncertainties. The Company's may
not be able to integrate the operations of the acquired businesses successfully,
and the failure to do so could have a material adverse impact on the Company's
business and results of operations.
Leverage
At March 31, 1999,2000, the Company's borrowings under a $260 million
revolving credit facility with National City Bank, Cleveland, Ohio, as agent for
itself and a syndicate of other lenders, totaled $160$170 million. In addition, the
Company issued $150 million principal amount of 8 1/2 percent Senior Notes due
2006 in August 1996. In March and April 1998, the Company's wholly owned
subsidiary, the Pioneer-Standard Financial Trust, issued a total of $143.7
million of 6 3/4 percent mandatorily redeemable convertible preferred
securities, which is an equity-related security. The sole assets of the
Pioneer-Standard Financial Trust are $148.2 million aggregate principal amount
of 6 3/4 percent Series A Junior Convertible Subordinated Debentures due March
31, 2028. The Company has executed a guarantee providing a full and
unconditional guarantee of the trust's obligations under the trust preferred
securities. As a consequence of the
18
19 Company's obligations, a substantial portion
of its cash flow from operations must be dedicated to servicing these
obligations and will not be available for other purposes. Furthermore, the
Company's obligations may limit its ability to obtain additional financing in
the future for working capital, capital expenditures and acquisitions, and its
flexibility to react to changes in the industry and changing business and
economic conditions. The Company's ability to satisfy its existing obligations
will depend upon its future operating performance, which may be affected by
prevailing economic conditions and financial, business and other factors
described in this prospectus, many of which are beyond its control. The Company
currently anticipates that funds from current operations, available credit
facilities and access to capital markets will provide adequate funds to finance
capital spending and working capital needs and to service its obligations as
they become due. If the Company experiences difficulty in servicing its
obligations, the Company may have to reduce or delay capital expenditures, sell
assets, restructure or refinance its indebtedness or seek additional equity
capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all.
Uneven Pattern of Quarterly Sales
In the Company's recent experience, a disproportionate percentage of
quarterly sales have occurred in the last week or last day of the fiscal
quarter. This uneven sales pattern makes the prediction of revenues, earnings
and working capital for each financial period especially
17
18
difficult, and increases the risk of unanticipated variations in quarterly
results and financial condition. The Company believes that this pattern of sales
has developed as a result of several factors. One such factor is the recent
tendency of customers to delay purchases until the end of a quarter in the hope
of receiving more favorable pricing. Another factor is that customers may not be
able to determine until close to the end of their fiscal year whether there are
available funds in their capital budgets for the purchase of industrial
electronics and computer systems products. Although the Company is unable to
predict whether this uneven sales pattern will continue over the long term, the
Company anticipates that, for the foreseeable future, the majority of its sales
will continue to occur in the final days of the quarter.
Year 2000
See the discussion above under the caption "Year 2000 Readiness
Disclosure."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
InThe Company has assets, liabilities and cash flows in foreign
currencies creating foreign exchange risk with the normal courseprimary foreign currency
being the Canadian dollar. Systems are in place for continuous measurement and
evaluation of business, operationsforeign exchange exposures so that timely action can be taken when
considered desirable. Reducing exposure to foreign currency fluctuations is an
integral part of the Company's risk management program. Financial instruments in
the form of forward exchange contracts are employed as one of the methods to
reduce such risk. At March 31, 2000, one forward exchange contract in the amount
of $2.7 million existed with a maturity of 30 days. The foreign exchange
contracts have had an immaterial impact on the Company's results of operations
for the fiscal years ended 2000, 1999 and 1998.
The Company arehas entered into several interest rate swap agreements for
purposes of serving as a hedge of the Company's variable rate credit agreement
borrowings. The effect of the swaps is to establish fixed rates on the variable
rate debt and to reduce exposure to interest rate fluctuations. At March 31,
2000, the Company had interest rate swaps with a notational amount of $70
million. Pursuant to these agreements, the Company pays interest at a weighted
average fixed rate of 5.47 percent. The weighted average LIBOR rates applicable
to these agreements were 6.11 percent at March 31, 2000. The swap agreements
have had an immaterial impact on the Company's results of operations for the
fiscal years ended 2000, 1999 and 1998.
The Company is 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 the interest rate swaps to fix the interest rate on a portion of
the debt and the use of multiple maturity 19
20
dates. If interest rates were to
increase 200100 basis points (2%)(1 percent) from March 31, 19992000 rates, and assuming no
changes in debt from the March 31, 19992000 levels, the additional annualannualized net
expense would be approximately $1.8$1.2 million on a pre-tax
basis.
The Company has assets, liabilities and cash flows in foreign
currencies creating foreign exchange risk, the primary foreign currency being
the Canadian dollar. Monthly measurement, evaluation and forward exchange
contracts are employed as methods to reduce this risk. At March 31, 1999, one
forward exchange contract existed with a maturity of thirty days.or $.02 per diluted share.
18
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth at pages 2320 through
3633 of the Company's 19992000 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item as to the Directors of the Company
appearing under the caption "Election of Directors" in the Company's Proxy
Statement to be used in connection with the Company's 19992000 Annual Meeting of
Shareholders to be held on July 27, 199925, 2000 (the "1999"2000 Proxy Statement") is
incorporated herein by reference. Information required by this Item as to the
executive officers of the Company is included in Part I of this Annual Report on
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth in the Company's
19992000 Proxy Statement under the caption "Compensation of Executive Officers,"
which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth in the Company's
19992000 Proxy Statement under the caption "Share Ownership," which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
20
21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
(1) FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company and its subsidiaries and the report of independent
auditors thereon, included in the
19
20
Company's 19992000 Annual Report to Shareholders on pages 2320 through 35,32, are
incorporated by reference in Item 8 of this Annual Report on Form 10-K:
Consolidated Balance Sheets as of March 31, 19992000 and 19981999
For the years ended March 31, 2000, 1999 1998 and 1997:1998:
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
Quarterly financial data, included in the Company's 19992000 Annual
Report to Shareholders at page 36,33, are incorporated by reference in Item 8 of
this Annual Report on Form 10-K.
(2) FINANCIAL STATEMENT SCHEDULES. The following consolidated
financial statement schedule of the Company and its subsidiaries and the report
of independent auditors thereon are filed as part of this Annual Report on Form
10-K, and should be read in conjunction with the consolidated financial
statements of the Company and its subsidiaries included in the Company's 19992000
Annual Report to Shareholders:
Report of Independent Auditors
Schedule II -- Valuation and Qualifying Accounts
for the years ended March 31, 2000, 1999 1998 and 19971998
All other schedules have been omitted since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
(3) EXHIBITS
See the Index to Exhibits at page E-1 of this Form 10-K.
21
22
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 1999.
222000.
20
2321
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Pioneer-Standard Electronics, Inc. has duly caused this
Annual Report of Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cleveland, State of Ohio, on June 29,
1999.2000.
PIONEER-STANDARD ELECTRONICS, INC.
By /S/ John V. Goodger
-----------------------------------------
John V. Goodger
Vice President, Treasurer/s/ James L. Bayman
----------------------------------
James L. Bayman
Chairman, Chief Executive Officer
and Assistant
SecretaryDirector
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities as of June 29, 2000.
SIGNATURE TITLE
/s/ James L. Bayman Chairman, Chief Executive Officer
- ------------------------------------ and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James L. Bayman Chairman, Chief Executive June 29, 1999
- --------------------------- Officer and Director (Principal
James L. Bayman Executive Officer)
/s/ Arthur Rhein President, Chief Operating June 29, 1999
- -------------------------- Officer and Director
Arthur Rhein
/s/ Gregory T. Geswein Senior Vice President and Chief June 29, 1999
- ------------------------- Financial Officer (Principal
Gregory T. Geswein Financial Officer)
/s/ John V. Googer Vice President, Treasurer and June 29, 1999
- ------------------------- Assistant Secretary (Principal
John V. Googer Accounting Officer)
/s/ Charles F. Christ Director June 29, 1999
- -------------------------
Charles F. Christ
/s/ Victor Gelb Director June 29, 1999
- -------------------------Director (Principal Executive
James L. Bayman Officer)
/s/ Arthur Rhein President, Chief Operating Officer
- ------------------------------------ and Director
Arthur Rhein
/s/ Steven M. Billick Chief Financial Officer
- ------------------------------------ (Principal Financial and Accounting
Steven M. Billick Officer)
/s/ Charles F. Christ Director
- ------------------------------------
Charles F. Christ
/s/ Victor Gelb Director
- ------------------------------------
Victor Gelb
/s/ Gordon E. Heffern Director June 29, 1999
- -------------------------
Gordon E. Heffern
/s/ Keith M. Kolerus Director June 29, 1999
- ------------------------- Keith M. Kolerus
23Director
- ------------------------------------
Keith M. Kolerus
/s/ Thomas A. Commes Director
- ------------------------------------
Thomas A. Commes
/s/ Edwin Z. Singer Director
- ------------------------------------
Edwin Z. Singer
/s/ Thomas C. Sullivan Director
- ------------------------------------
Thomas C. Sullivan
21
24
SIGNATURE TITLE DATE
--------- ----- ----
22
/s/ Edwin Z. Singer Director June 29, 1999
- ---------------------------
Edwin Z. Singer
/s/ Thomas C. Sullivan Director June 29, 1999
- ---------------------------
Thomas C. Sullivan
/s/ Karl E. Ware Director June 29, 1999
- --------------------------- Karl E. Ware
24Director
- ------------------------------------
Karl E. Ware
22
2523
REPORT OF INDEPENDENT AUDITORS
Shareholders and the Board of Directors
Pioneer-Standard Electronics, Inc.
We have audited the consolidated financial statements of Pioneer-Standard
Electronics, Inc. as of March 31, 2000 and 1999, an 1998, and for each of the three years
in the period ended March 31, 19992000 and have issued our report thereon dated May
5, 1999,8, 2000, incorporated by reference in this Annual Report (Form 10-K). Our audits
also included the consolidated financial statement schedule of Pioneer-Standard
Electronics, Inc. as of March 31, 19992000 and 19981999 and for each of the three years
in the period ended March 31, 1999,2000, listed in item 14(a) of this Annual Report
(Form 10-K). This schedule is the responsibility of the Company's management.
Our responsibility ifis to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst &and Young LLP
Cleveland, Ohio
May 5, 19998, 2000
32
2624
PIONEER-STANDARD ELECTRONICS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 2000, 1999 1998 AND 19971998
DEDUCTIONS
BALANCE AT CHARGED TO (NET WRITE-
BEGINNING OF COST AND OFFS) BALANCE AT THE
PERIOD EXPENSES NET RECOVERIES END OF PERIOD
------------ ---------- -------------- --------------
2000
Allowance for doubtful accounts $6,035,000 $ 3,269,000 $ (3,623,000) $5,681,000
Inventory valuation reserve $5,397,000 $ 3,786,000 $ (2,413,000) $6,770,000
1999
Allowance for doubtful accounts $7,798,000 $(1,277,000)$ (1,277,000) $ (486,000) $6,035,000
Inventory valuation reserve $5,661,000 $ 3,157,000 $(3,421,000)$ (3,421,000) $5,397,000
1998
Allowance for doubtful accounts $7,541,000 $ (803,000) $ 1,060,000 $7,798,000
Inventory valuation reserve $6,659,000 $ 2,031,000 $(3,029,000)$ (3,029,000) $5,661,000
1997
Allowance for doubtful accounts $6,982,000 $ 193,000 $ 366,000 $7,541,000
Inventory valuation reserve $8,777,000 $ 987,000 $(3,105,000) $6,659,000
2725
Pioneer-Standard Electronics, Inc.
Exhibit Index
Exhibit No. Description
- ----------- -----------
3(a) Amended Articles of Incorporation of Pioneer-Standard
Electronics, Inc., which is incorporated by reference to Exhibit
2 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, as amended on March 18, 1998 (File No.
0-5734).
(b) Amended Code of Regulations, as amended, of Pioneer-Standard
Electronics, Inc., which is incorporated by reference to Exhibit
3(b) to the Company's Annual Report on Form 10-K for the year
ended March 31, 1997 (File No. 0-5734).
4(a) Rights Agreement, dated as of April 27, 1999, by and between the
Company and National City Bank, which is incorporated herein by
reference to Exhibit 1 to the Company's Registration Statement on
Form 8-A ( (File No. 0-5734).
(b) (Reserved.)
(c) Note Purchase Agreement, dated as of October 31, 1990, by and
between the Company and Teachers Insurance and Annuity
Association of America, which is incorporated herein by reference
to Exhibit 4.3 to the Company's Registration Statement on Form
S-3 (Reg. No. 333-26697).
(d) Amendment No. 1 to Note Purchase Agreement, dated as of November
1, 1991, by and between the Company and Teachers Insurance and
Annuity Association of America, which is incorporated herein by
reference to Exhibit 4(d) to the Company's Annual Report on Form
10-K for the year ended March 31, 1993 (File No. 0-5734).
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26
Exhibit No. Description
- ----------- -----------
(e) Amendment No. 2 to Note Purchase Agreement, dated as of November
30, 1995, by and between the Company and Teachers Insurance and
Annuity Association of America, which is incorporated herein by
reference to Exhibit 4(a) to the Company's Annual Report on Form
10-K for the year ended March 31, 1996 (File No. 0-5734).
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28
Exhibit No. Description
----------- -----------
(f) Amendment No. 3 to Note Purchase Agreement, dated as of August
12, 1996 by and between the Company and Teachers Insurance and
Annuity Association of America, which is incorporated herein by
reference to Exhibit 4(f) to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996 (File No. 0-5734).
(g) Amendment No. 4 to Note Purchase Agreement, dated as of March 23,
1998 by and between the Company and Teachers Insurance and
Annuity Association of America, which is incorporated herein by
reference to Exhibit 4(g) to the Company's Annual Report on Form
10-K for the year ended March 31, 1998 (File No. 0-5734)..
(h) Amendment No. 5 to Note Purchase Agreement, dated as of March 23,
1998 by and between the Company and Teachers Insurance and
Annuity Association of America, which is incorporated herein by
reference to Exhibit 4(h) to the Company's Annual Report on Form
10-K for the year ended March 31, 1998 (File No. 0-5734).
(i) Amendment No. 6 to Note Purchase Agreement, dated as of March 31,
1998 by and between the Company and Teachers Insurance and
Annuity Association of America, which is incorporated herein by
reference to Exhibit 4(i) to the Company's Annual Report on Form
10-K for the year ended March 31, 1998 (File No. 0-5734).
(j) Indenture, dated as of August 1, 1996, by and between the Company
and Star Bank, N.A., as Trustee, which is incorporated herein by
reference to Exhibit 4(g) to the Company's Annual Report on Form
10-K for the year ended March 31, 1997 (File No. 0-5734).
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Exhibit No. Description
- ----------- -----------
(k) Share Subscription Agreement and Trust, effective July 2, 1996,
by and between the Company and Wachovia Bank of North Carolina,
N.A., which is incorporated herein by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-3 (Reg. No.
333-07665).
(l) Certificate of Trust of Pioneer-Standard Financial Trust, dated
March 23, 1998, which is incorporated herein by reference to
Exhibit 4(l) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1998 (File No. 0-5734).
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Exhibit No. Description
----------- -----------
(m) Amended and Restated Trust Agreement among Pioneer-Standard
Electronics, Inc., as Depositor, Wilmington Trust Company, as
Property Trustee and Delaware Trustee, and the Administrative
Trustees named therein, dated as of March 23, 1998, which is
incorporated herein by reference to Exhibit 4(m) to the Company's
Annual Report on Form 10-K for the year ended March 31, 1998
(File No. 0-5734).
(n) Junior Subordinated Indenture, dated March 23, 1998, between the
Company and Wilmington Trust, as trustee, which is incorporated
herein by reference to Exhibit 4(n) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1998 (File No.
0-5734).
(o) First Supplemental Indenture, dated March 23, 1998, between the
Company and Wilmington Trust, as trustee, which is incorporated
herein by reference to Exhibit 4(o) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1998 (File No.
0-5734).
(p) Form of 6 3/4% Convertible Preferred Securities (Included in
Exhibit 4(m), which is incorporated herein by reference to
Exhibit 4(p) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1998 (File No. 0-5734).
(q) Form of Series A 6 3/4% Junior Convertible Subordinated
Debentures (Included in Exhibit 4(o)), which is incorporated
herein by reference to Exhibit 4(q) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1998 (File No.
0-5734).
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Exhibit No. Description
- ----------- -----------
(r) Guarantee Agreement, dated March 23, 1998, between the Company
and Wilmington Trust, as guarantee trustee, which is incorporated
herein by reference to Exhibit 4(r) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1998 (File No.
0-5734).
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30
Exhibit No. Description
----------- -----------
(s) Agreement and Plan of Merger, dated as of January 15, 1998, by
and among Dickens Data Systems, Inc., the Selling Shareholders
named therein, Pioneer-Standard Electronics, Inc. and
Pioneer-Standard of Georgia, Inc., which is incorporated herein
by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K for February 27, 1998 (File No. 0-5734). (Schedules
omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company
agrees to furnish supplementally a copy of any omitted schedule
to the Commission upon request.)
*10(a) Retirement Agreement, effective March 31, 1996, by and between
the Company and Preston B. Heller, Jr., which is incorporated
herein by reference to Exhibit 10(a) to the Company's Annual
Report on Form 10-K for the year ended March 31, 1996 (File No.
0-5734).
*(b) Amended and Restated Employment Agreement, dated July 29, 1997,April 27, 1999,
by and between the Company and James L. Bayman, which is
incorporated herein by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 1997, as amended on March 18, 19981999
(File No. 0-5734).
*(c) Amended and Restated Employment Agreement, dated July 29, 1997,April 27, 1999,
by and between the Company and Arthur Rhein, which is
incorporated herein by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 1997, as amended on March 18, 19981999
(File No. 0-5734).
(d) (Reserved.)
*(e)*(d) Employment Agreement, dated JulyApril 27, 1999, by and between the
Company and Gregory T. Geswein, which is incorporated herein by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 (File No. 0-5734).
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29
1997,Exhibit No. Description
- ----------- -----------
*(e) Amended and Restated Employment Agreement, dated April 27, 1999,
by and between the Company and John V. Goodger, which is
incorporated herein by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 1997, as amended on March 18, 19981999
(File No. 0-5734).
*(f) The Company's 1982 Incentive Stock Option Plan, as amended, which
is incorporated by reference to Exhibit 3(e) to the Company's
Annual Report on Form 10-K for the year ended March 31, 1997
(File No. 0-5734).
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Exhibit No. Description
----------- -----------
*(g) The Company's Amended and Restated 1991 Stock Option Plan, which
is incorporated herein by reference to Exhibit 4.1 to the
Company's Form S-8 Registration Statement (Reg. No. 33-53329).
*(h) The Company's Amended 1995 Stock Option Plan for Outside
Directors, which is incorporated herein by reference to Exhibit
99.1 to the Company's Form S-8 Registration Statement (Reg. No.
333-07143).
(i) Credit Agreement, dated as of March 27, 1998, among
Pioneer-Standard Electronics, Inc., National City Bank, the
several lending institutions party to the agreement and National
City Bank, as Agent, which is incorporated herein by reference to
Exhibit 10(j) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1998 (File No. 0-5734).
(j) First Amendment to Credit Agreement, dated as of May 1, 1998, by
and among Pioneer-Standard Electronics, Inc., the several lending
institutions party to the agreement and National City Bank, as
Agent, which is incorporated herein by reference to Exhibit 10(k)
to the Company's Annual Report on Form 10-K for the year ended
March 31, 1998 (File No. 0-5734).
(k) Second Amendment to Credit Agreement, dated as of March 31, 1999,
by and among Pioneer-Standard Electronics, Inc., the several
lending institutions party to the agreement and National City
Bank, as Agent, which is incorporated herein by reference to
Exhibit 10(k) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1999 (File No. 0-5734).
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30
Exhibit No. Description
- ----------- -----------
(l) Third Amendment to Credit Agreement and Waiver, dated as of May
5, 2000, by and among Pioneer-Standard Electronics, Inc., the
several lending institutions party to the agreement and National
City Bank, as Agent.
(m) Pioneer-Standard Electronics, Inc. 1999 Stock Option Plan for
Outside Directors, which is incorporated herein by reference to
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 (File No. 0-5734).
(n) Pioneer-Standard Electronics, Inc. 1999 Restricted Stock Plan,
which is incorporated herein by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999 (File No. 0-5734).
(o) Pioneer-Standard Electronics, Inc. Supplemental Executive
Retirement Plan.
(p) Pioneer-Standard Electronics, Inc. Benefit Equalization Plan.
*(q) Non-Competition Agreement, dated as of February 25, 2000, between
Pioneer-Standard Electronics, Inc. and Thomas G. Pitera.
*(r) Change of Control Agreement, dated as of February 25, 2000,
between Pioneer-Standard Electronics, Inc. and Thomas G. Pitera.
*(s) Form of Option Agreement between Pioneer-Standard Electronics,
Inc. and the optionees under the Pioneer-Standard Electronics,
Inc. 1999 Stock Option Plan for Outside Directors, which is
incorporated herein by reference to Exhibit 10.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(File No. 0-5734).
13 Portions of the Company's 19992000 Annual Report to Shareholders
incorporated by reference into this Annual Report on Form 10-K.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP, Independent Auditors.
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31
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule.
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Exhibit No. Description
----------- -----------
99(a) Certificate of Insurance Policy, effective November 1, 1997,
between Chubb Group of Insurance Companies and Pioneer-Standard
Electronics, Inc., which is incorporated herein by reference to
Exhibit 99(a) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1998 (File No. 0-5734).
99(b) Forms of Amended and Restated Indemnification Agreement entered
into by and between the Company and each of its Directors and
Executive Officers, which are incorporated herein by reference to
Exhibit 99(b) to the Company's Annual Report on Form 10-K for the
year ended March 31, 1994 (File No. 0-5734).
- --------------------------------------------------------
*Denotes a management contract or compensatory plan or arrangement.
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