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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994.
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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 05734
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Pioneer-Standard Electronics, Inc.
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(Exact name of registrant as specified in its charter)
Ohio 34-0907152
- - ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 East 131st Street, Cleveland, OH 44105
- - --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 587-3600
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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 NOVEMBER 8, 1994: 14,910,646.
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PART I - FINANCIAL INFORMATION
PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, 1994 March 31, 1994
ASSETS (Unaudited)
Current assets
Cash $ 7,797 $ 5,954
Accounts receivable - net 106,935 81,155
Merchandise inventory 109,417 85,754
Prepaid expenses 1,312 919
Deferred income taxes 4,698 4,391
-------- --------
Total current assets 230,159 178,173
Investment in 50% - owned company 15,319 14,463
Other assets 5,532 1,831
Property and equipment, at cost 48,530 45,817
Accumulated depreciation 21,526 20,245
-------- --------
Net 27,004 25,572
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$278,014 $220,039
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to banks $ 8,500 $ 2,000
Accounts payable 83,173 68,585
Accrued liabilities 19,924 19,400
Long-term debt due within
one year 3,013 3,056
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Total current liabilities 114,610 93,041
Long-term debt 47,169 22,272
Deferred income taxes 2,054 1,986
Shareholders' equity
Common stock, at stated value 6,627 6,609
Capital in excess of stated value 16,305 15,806
Retained earnings 91,145 80,325
Currency translation adjustments 104 -
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Total shareholders' equity 114,181 102,740
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$278,014 $220,039
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PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Quarter ended Six months ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
Net sales $194,423 $137,278 $378,255 $271,787
Costs and expenses:
Cost of goods sold 156,990 109,203 305,667 216,352
Warehouse, selling and
administrative expense 27,115 20,705 52,437 41,440
------- ------- -------- --------
Operating profit 10,318 7,370 20,151 13,995
Interest expense 944 683 1,645 1,351
Equity in earnings of
50%-owned company 183 914 856 1,946
------- ------- -------- --------
Income before income taxes 9,557 7,601 19,362 14,590
Provision for income taxes 3,908 2,811 7,748 5,331
------- ------- -------- --------
Net income $ 5,649 $ 4,790 $ 11,614 $ 9,259
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Average shares outstanding 15,248,432 15,127,404 15,245,004 15,050,295
Shares outstanding at end of period 14,909,046 14,693,998 14,909,046 14,693,998
Earnings per share $.37 $.31 $.76 $.61
Dividends per share $.03 $.02 $.053 $.04
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PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Six months ended
September 30,
1994 1993
---- ----
Cash flows from operating activities:
Net income $11,614 $9,259
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,245 2,797
Undistributed earnings of affiliate (856) (1,946)
Increase in operating working capital (26,976) (11,863)
Increase in other assets (1,451) (67)
Deferred taxes (232) 91
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Total adjustments (26,270) (10,988)
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Net cash used in
operating activities (14,656) (1,729)
Cash flows from investing activities:
Acquisition of business (10,068) ---
Additions to property and equipment (4,429) (2,746)
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Net cash used in investing activities (14,497) (2,746)
Cash flows from financing activities:
Increase in short-term financing 6,500 ---
Increase in revolving credit borrowings 30,000 17,000
Decrease of revolving credit borrowings (5,000) (13,000)
Decrease in other long-term
debt obligations (146) (197)
Issuance of common shares under company
stock option plan 517 22
Dividends paid (794) (586)
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Net provided by financing activities 31,077 3,239
Effect of exchange rate changes on cash (81) ---
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Net increase (decrease) in cash 1,843 (1,236)
Cash at beginning of period 5,954 1,864
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Cash at end of period $ 7,797 $ 628
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NOTES - Pioneer-Standard Electronics, Inc.
1. PER SHARE DATA
Net income per common share is computed using the weighted average common
shares and common share equivalents outstanding during the quarters and
six-month periods ended September 30, 1994 and 1993. Common share equivalents
consist of shares exercisable of stock options computed by using the treasury
stock method.
2. STOCK SPLIT
On June 23, 1994, the Board of Directors declared a three-for-two stock split
effected in the form of a 50% share dividend of the Company's common shares
payable August 1, 1994 to shareholders of record July 6, 1994. The share and
per share data have been restated for the periods presented to reflect the
stock split.
3. MANAGEMENT OPINION
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary to provide a fair statement of the results of
operations for the quarters and six months ended September 30, 1994 and 1993.
The results of operations for the three and six month periods are not
necessarily indicative of results which may be expected for a full year.
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PIONEER-STANDARD ELECTRONICS, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION
On June 1, 1994, the Company acquired certain of the assets of the Zentronics
Division of Westburne Industrial Enterprises Ltd. ("Westburne"), a Canadian
corporation and assumed certain of Westburne's liabilities. The transaction
was completed by Pioneer Standard Canada Inc., a newly-formed Canadian
subsidiary of the Company by payment of an aggregate of approximately $13.9
million Cdn. (approximately $10.1 million U.S.) to Westburne in the first
six-month period of the current fiscal year.
Current assets increased by $52.0 million and current liabilities increased by
$21.6 million during the six-month period ended September 30, 1994, resulting
in an increase of $30.4 million of working capital. The current ratio was
2.0:1 at September 30, 1994, compared with 1.9:1 at year-end, March 31, 1994.
During the first six months of the current year, total interest-bearing debt
increased by $31.4 million. The ratio of interest-bearing debt to
capitalization was 34% at September 30, 1994 compared with 21% at March 31,
1994.
The increase in financing requirements is attributable to the working capital
needs arising from increased sales volume and the investment in the Zentronics
business described above. The most recent six-month sales are up 22% from the
trailing fiscal six-month sales volume.
Effective October 28, 1994, the Company amended its Credit Agreement with three
banks to increase the credit lines available to the Company. This amendment
provides for an increase in borrowings from $35.0 million to $45.0 million and
permits an increase in the maximum short-term borrowings outside of the Credit
Agreement to be outstanding at any one time from $15.0 million to $20.0
million. As of September 30, 1994, Credit Agreement borrowings were $29.0
million and short-term borrowings outside of the Credit Agreement were $8.5
million. In addition, pursuant to provisions of the Credit Agreement and upon
consent of the parties thereto, the maturity date of the facility was extended
for one additional year, resulting in a $45.0 million revolving credit facility
with a maturity date of January 1, 1998, to be followed by a four-year term
loan amortized in equal quarterly installments.
Management estimates that capital spending plans relating to ongoing
initiatives designed to improve efficiencies through computer enhancement of
operating processes, as well as meeting normal expansion needs of the business
for the current year, will approximate $10.0 million ($4.4 million was expended
in the first six months of the current year). Under present business
conditions, it is anticipated that funds from current operations and available
debt facilities will be sufficient to finance both capital spending and working
capital needs for the balance of the current fiscal year.
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RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH
THE SIX MONTHS ENDED SEPTEMBER 30, 1993
Net sales for the six-month period ended September 30, 1994 of $378.3 million
were 39% greater than sales of the prior year six-month period of $271.8
million. The increase in sales reflects continuing strong demand for
electronic components and computer systems and, in addition, sales of the
newly-acquired Zentronics business accounted for 5% of this increase. During
the first six months of 1994, semiconductor products accounted for 38% of the
Company's sales compared with 39% in the prior year. Computer systems products
accounted for 37% of sales in 1994 and 36% in 1993. Passive and
electromechanical products accounted for 22% of sales in 1994 and 23% in 1993.
Miscellaneous products accounted for 3% of sales in 1994 and 2% in 1993.
The percentage increase in cost of goods sold of 41% resulted in a gross margin
of 19.2% in the first six months of the current year compared with 20.4% a year
ago. A principal reason for the reduced gross margin in 1994 compared with the
prior period is attributable to the incremental increase in sales volume of
microprocessors earning a relatively low gross profit margin and which are
marketed through an efficient, low-cost sales channel.
Warehouse, selling and administrative expenses of $52.4 million increased by
27% as compared with the $41.4 million incurred during the prior year six-month
period. This resulted in a ratio of these expenses to sales of 13.9% for the
1994 period compared with 15.2% for the 1993 first six months.
The resulting operating profit of $20.2 million in 1994 was 5.3% of sales
compared with $14.0 million in 1993 which was 5.1% of sales. Current year
results reflect the increase in sales and effective cost containment.
The Company's share of net income of the affiliated company, Pioneer
Technologies Group, Inc., was $856,000 for the 1994 six-month period compared
with $1,946,000 for the same period last year; net sales of the affiliate for
the current year period of $185.9 million were 18% less than the sales of the
prior year period of $226.0 million. This reduction is attributable to a lower
volume of microprocessor sales. Notwithstanding this reduction, a significant
portion of the affiliate's sales during the six-month period was still
attributable to highly concentrated sales of certain microprocessors in large
quantities, the sales volume of which might not be sustainable in future
periods and the effect of which could result in a significant impact on net
income of the affiliate.
The effective tax rate for the current six-month period was 41.9% of income
before the Company's equity in its affiliate's earnings, compared with 42.2% a
year ago; these effective tax rates include .4% and 1.2% for accrued taxes on
the unremitted earnings of the affiliate for 1994 and 1993.
Primarily as a result of the factors noted above, the Company's net income for
the six-month period ending September 30, 1994 of $11.6 million was $2.3
million higher than the $9.3 million earned a year ago.
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THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH
THE THREE MONTHS ENDED SEPTEMBER 30, 1993
Net sales for the three-month period ended September 30, 1994 of $194.4 million
increased 42% over sales of the prior year three-month period of $137.3
million. The increase in sales reflects continuing strong demand for
electronic components and computer and peripheral products, especially for
those products tied to the rapidly growing personal computer industry. In
addition, sales of the newly-acquired Zentronics business accounted for
approximately 9% of this increase. Semiconductor products accounted for 38% of
the Company's sales during the second fiscal quarter compared with 40% in the
comparable quarter a year ago. Computer systems products were 37% during the
quarter compared with 35% a year ago. Passive and electromechanical products
were 22% during the quarter compared with 23% a year ago. Miscellaneous
products accounted for 3% of sales in 1994 and 2% in 1993.
The percentage increase in cost of goods sold of 44% resulted in a gross margin
of 19.3% in the second quarter of the current year compared with 20.5% a year
ago. A principal reason for the reduced gross margin in 1994 compared with the
prior period is attributable to the incremental increase in sales volume of
microprocessors earning a relatively low gross profit margin and which are
marketed through an efficient low cost sales channel.
Warehouse, selling and administrative expenses of $27.1 million increased by
31% over the $20.7 million incurred during the prior year three- month period.
This resulted in a ratio of these expenses to sales of 13.9% for the 1994
period compared with 15.1% for the 1993 quarter.
The Company's share of net income of the affiliated company, Pioneer
Technologies Group, Inc., was $183,000 for the 1994 three-month period compared
with $914,000 for the same period last year; net sales of the affiliate for the
three-month period ended September 30, 1994 of $90.1 million were 31% less than
the sales of the prior year three-month period of $130.6 million. This
reduction is attributable to a lower volume of microprocessor sales.
Notwithstanding this reduction, a significant portion of the affiliate's sales
during the quarter was primarily still attributable to highly concentrated
sales of certain microprocessors in large quantities, the sales volume of which
might not be sustainable in future periods and the effect of which could result
in a significant impact on net income of the affiliate.
The effective combined tax rate for the current year three-month period was
41.7% of income before the Company's equity in its affiliate's earnings
compared with 42.0% a year ago; these effective tax rates include .2% and 1.0%
for accrued taxes on the unremitted earnings of the affiliate for 1994 and
1993, respectively.
Primarily as a result of the factors above, the Company's net income for the
three-month period ending September 30, 1994 of $5.6 million was $.8 million
greater than the $4.8 million earned a year ago.
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Pioneer-Standard Electronics, Inc. owns 50% of the outstanding common stock of
Pioneer Technologies Group, Inc. The investment is accounted for by the equity
method in the Company's financial statements via the balance sheet caption of
"Investment in 50%-owned company" and via the statements of income caption of
"Equity in earnings of 50%-owned company".
PIONEER TECHNOLOGIES GROUP, INC.
BALANCE SHEETS
(Dollars in Thousands)
September 30, 1994 March 31, 1994
(Unaudited)
ASSETS
Current assets
Cash $ 9 $ 8
Accounts receivable - net 33,246 29,213
Merchandise inventory 51,613 60,690
Prepaid expenses 529 405
Deferred income taxes 2,077 2,077
Shareholder notes receivable 13 52
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Total current assets 87,487 92,445
Property and equipment, at cost 10,647 10,401
Accumulated depreciation 5,050 4,746
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Net 5,597 5,655
Shareholder notes receivable 231 231
Other assets 445 262
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$93,760 $98,593
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $33,185 $44,072
Accrued liabilities 5,739 4,895
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Total current liabilities 38,924 48,967
Long-term debt 24,195 20,698
Shareholders' equity
Common stock $.10 par value 10 10
Capital in excess of par value 90 90
Retained earnings 30,541 28,828
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Total shareholders' equity 30,641 28,928
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$93,760 $98,593
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PIONEER TECHNOLOGIES GROUP, INC.
STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Quarter ended Six months ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
Net sales $90,133 $130,636 $185,875 $225,971
Costs and expenses:
Cost of goods sold 78,331 117,341 159,683 198,823
Selling and
administrative expense 10,626 9,985 22,284 20,142
------- ------- ------- -------
Operating profit 1,176 3,310 3,908 7,006
Interest expense 554 264 1,006 518
------- ------- ------- -------
Income before
income taxes 622 3,046 2,902 6,488
Provision for
income taxes 255 1,218 1,190 2,595
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Net income $ 367 $ 1,828 $ 1,712 $ 3,893
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Average shares outstanding 100,000 100,000 100,000 100,000
Earnings per share $3.67 $18.28 $17.12 $38.93
Dividends per share --- --- --- ---
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PIONEER TECHNOLOGIES GROUP, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Six months ended
September 30,
1994 1993
---- ----
Cash flows from operating activities:
Net income $ 1,712 $ 3,893
Adjustments to reconcile net income to net cash
provided by operating activities:
Items not affecting cash 670 535
Decrease (increase) in operating working capital (5,084) 18,311
Decrease (increase) in other assets (182) 53
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Total adjustments (4,596) 18,899
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Net cash provided by (used in)
operating activities (2,884) 22,792
Cash flows from investing activities:
Additions to property and equipment (612) (919)
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Net cash used in
investing activities (612) (919)
Cash flows from financing activities:
Increase (decrease) in long-term debt 3,497 (21,873)
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Net cash provided by (used in)
financing activities 3,497 (21,873)
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Net increase in cash 1 ---
Cash at beginning of period 8 7
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Cash at end of period $ 9 $ 7
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on July 27, 1993
(the "Annual Meeting"), the shareholders voted to amend the
Company's Amended Articles of Incorporation to increase the
number of authorized Common Shares of the Company from
20,000,000 to 40,000,000 Common Shares. The proposal was
passed by a vote of 7,237,942 shares for, 1,265,042 shares
against, 17,764 shares abstained and there were no broker
non-votes.
At the Annual Meeting, shareholders also voted to elect
Preston B. Heller, Jr., Arthur Rhein and Thomas C. Sullivan
to additional three-year terms as Directors of the Company.
Following is a summary of the voting:
Preston B. Arthur Thomas C.
Votes Heller, Jr. Rhein Sullivan
----- -------------- ---------- -------------
For 8,156,269 8,158,792 8,157,819
Withheld 364,479 361,956 362,929
Broker Non-Votes 0 0 0
ITEM 5. OTHER INFORMATION
Effective October 28, 1994, the Company amended its Credit
Agreement providing for an increase in borrowings from $35.0
million to $45.0 million and permitting for an increase in
the maximum short-term borrowings outside of the Credit
Agreement to be outstanding at any one time from $15.0
million to $20.0 million. See Management's Discussion -
Financial Condition for addition details.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
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10 Consolidated Amendment No. 1 to the Credit
Agreement, dated as of October 28, 1994,
together with an Amended and Restated
Promissory Note
11 Calculation of Primary Earnings Per Share
27 Financial Data Schedule
(b) FORM 8-K There were no reports on Form 8-K filed
during the three-month period ended September 30, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities and 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: November 10, 1994 Preston B. Heller, Jr.
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Chairman of the Board and
Chief Executive Officer
Date: November 10, 1994 John V. Goodger
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Vice President, Treasurer
and Assistant Secretary
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