1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 1996.
-------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________.
Commission file number 0-5734
------
Pioneer-Standard Electronics, Inc.
----------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0907152
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4800 East 131st Street, Cleveland, OH 44105
- ------------------------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (216) 587-3600
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Shares, as of the latest practical date: COMMON SHARES, WITHOUT PAR
VALUE, AS OF NOVEMBER 1, 1996: 27,572,104.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, 1996
(Unaudited) March 31, 1996
----------- --------------
ASSETS
Current assets
Cash $ 21,446 $ 24,440
Accounts receivable - net 184,959 189,296
Merchandise inventory 256,323 238,370
Prepaid expenses 1,525 2,922
Deferred income taxes 11,454 11,454
--------- --------
Total current assets 475,707 466,482
Intangible assets 41,865 42,446
Other assets 1,385 1,503
Property and equipment, at cost 85,974 84,024
Accumulated depreciation 36,628 35,345
--------- --------
Net 49,346 48,679
--------- --------
$ 568,303 $559,110
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to banks $ 8,000 $ 21,000
Accounts payable 151,446 184,946
Accrued liabilities 30,776 32,825
Long-term debt due within
one year 2,889 2,871
--------- --------
Total current liabilities 193,111 241,642
Long-term debt 212,474 164,447
Deferred income taxes 2,328 2,328
Shareholders' equity
Common stock, at stated value 8,208 6,667
Capital in excess of stated value 72,347 17,221
Retained earnings 135,840 126,506
Deferred compensation (56,250) --
Foreign currency translation adjustment 245 299
--------- --------
Net 160,390 150,693
--------- --------
$ 568,303 $559,110
========= ========
See Accompanying notes.
2
3
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,
1996 1995 1996 1995
---- ---- ---- ----
Net sales $357,683 $234,913 $732,839 $459,637
Cost and expenses:
Cost of goods sold 296,397 189,557 605,387 370,671
Warehouse, selling and
administrative expense 48,264 32,690 99,612 63,838
-------- -------- -------- --------
Operating profit 13,022 12,666 27,840 25,128
Interest expense 4,641 1,516 8,545 2,965
Equity in earnings of
50% -owned company -- 458 -- 909
-------- -------- -------- --------
Income before income taxes 8,381 11,608 19,295 23,072
Provision for income taxes 3,848 4,903 8,611 9,551
-------- -------- -------- --------
Net income $ 4,533 $ 6,705 $ 10,684 $ 13,521
======== ======== ======== ========
Average shares outstanding 23,041,992 23,252,372 23,083,026 23,178,946
Shares outstanding at end of period 27,572,104 22,451,135 27,572,104 22,451,135
Earnings per share - primary and
fully diluted $.20 $.29 $.46 $.58
Dividends per share $.03 $.023 $.06 $.047
See accompanying notes.
3
4
PIONEER-STANDARD ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Six months ended
September 30,
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 10,684 $ 13,521
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 7,292 4,334
Undistributed earnings of affiliate --- (909)
Increase in operating working capital (47,806) (30,269)
Decrease in other assets 118 ---
Deferred taxes --- 72
------- --------
Total adjustments (40,396) (26,772)
-------- --------
Net cash used in
operating activities (29,712) (13,251)
Cash flows from investing activities:
Additions to property and equipment (7,389) (10,961)
------- --------
Net cash used in investing activities (7,389) (10,961)
Cash flows from financing activities:
Increase (decrease) in short-term financing (13,000) 10,000
Revolving credit borrowings - net (102,000) 24,000
Proceeds of senior notes 150,000 ---
Increase (decrease) in other long-term
debt obligations 55 (88)
Issuance of common shares under company
stock option plan 417 589
Dividends paid (1,351) (1,046)
------ ------
Net cash provided by financing activities 34,121 33,455
Effect of exchange rate changes on cash (14) 4
------- --------
Net increase (decrease) in cash (2,994) 9,247
Cash at beginning of period 24,440 9,598
-------- --------
Cash at end of period $ 21,446 $ 18,845
======== ========
See accompanying notes.
4
5
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, 1996 and 1995. Common share equivalents consist of
shares issuable upon exercise of stock options computed by using the treasury
stock method.
2.MANAGEMENT OPINION
The information furnished herein reflects all normal and recurring 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,
1996 and 1995. 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.
5
6
PIONEER-STANDARD ELECTRONICS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Current assets increased by $9.2 million and current liabilities decreased by
$48.5 during the six-month period ended September 30, 1996, resulting in an
increase of $57.7 million of working capital. The decrease in liabilities is
primarily attributable to a $33.5 million reduction in accounts payable levels
reflecting timing differences and to a $13.0 million reduction of short-term
bank borrowings. The current ratio was 2.5:1 at September 30, 1996 compared with
1.9:1 at year-end, March 31, 1996.
During the first six months of the current year, total interest-bearing debt
increased by $35.0 million. The increase in debt is attributable to funding
working capital requirements and capital expenditures. The ratio of
interest-bearing debt to capitalization was 58% at September 30, 1996 (51% when
including equity credit for the market value of the subscribed shares of the
Share Subscription Agreement and Trust referred to below) compared with 56% at
March 31, 1996.
Effective July 2, 1996, the Company entered into a Share Subscription Agreement
and Trust with Wachovia Bank of North Carolina, N.A., as Trustee, pursuant to
which the Trustee subscribed for 5,000,000 Common Shares of the Company which
will be paid for over the 15 year term of the Trust. The proceeds from the sale
or direct use of the Common Shares over the life of the Trust will be used to
fund Company obligations under various employee benefit plans.
On August 12, 1996, the Company completed a public offering of $150 million
principal amount of 8.50% Senior Notes due 2006. Net proceeds from the sale of
the Notes were applied to the repayment of a portion of the borrowings under the
Company's bank revolving credit facility. As of September 30, 1996, $50.0
million was borrowed under the bank revolving credit facility. Also, as of
August 12, 1996, the Company's $200 million bank revolving credit facility was
replaced with a three-year $125 million facility with the Company's banks. In
addition, the Company has unsecured short-term lines of credit aggregating $40
million available for use. At September 30, 1996, the Company had $107.0 million
available for use under these combined credit facilities. In addition to the
bank credit facilities, the Company has $50 million remaining under the Form S-3
Registration Statement filed in July, 1996 to offer to the public in the form of
either debt or equity, however, there can be no assurances that the Company will
complete such a transaction.
Management estimates that capital expenditures for the current fiscal year will
approximate $15 million ($7.4 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 credit facilities will be sufficient
to finance both capital spending and working capital needs for the balance of
the current fiscal year.
6
7
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH
THE THREE MONTHS ENDED SEPTEMBER 30, 1995
Net sales for the three-month period ended September 30, 1996 of $357.7 million
increased 52% over sales of the prior year three-month period of $234.9 million.
The current quarter sales include the sales of Pioneer-Standard of Maryland,
Inc., the Company's former 50%-owned affiliate which Pioneer acquired in
November, 1995. Including the former affiliate's sales on a pro forma basis for
the prior year period, net sales increased to $357.7 million from $315.2 million
a year ago, or a 13% increase. Semiconductor products accounted for 42% of the
Company's sales in the current quarter, compared with 36% a year ago. Computer
systems products were 37% of sales in 1996 versus 39% last year. Passive and
electromechanical products were 18% of the Company's business in 1996 compared
with 22% a year earlier. Miscellaneous products accounted for 3% in both 1996
and 1995.
Cost of goods sold increased 56% compared with the prior year quarter, resulting
in a gross margin of 17.1% in the current quarter compared with 19.3% a year
ago. A shift in product mix, particularly with respect to a higher volume of
lower gross margin products within the semiconductor line, such as
microprocessors, was a principal factor impacting current year margins.
Warehouse, selling and administrative expenses of $48.3 million increased by 48%
over the $32.7 million incurred during the prior year three-month period. This
resulted in a ratio of these expenses to sales of 13.5% for the current quarter
compared with 13.9% a year ago.
The operating profit resulting from the activity described above of $13.0
million, or 3.6% of sales, in the current period was up 3% compared with $12.7
million, or 5.4% of sales a year ago.
Interest expense was $4.6 million in the current quarter compared with $1.5
million a year ago. The higher interest expense is due to increased debt
resulting from the purchase of the Company's former 50%-owned affiliate and to
fund working capital needs to support ongoing growth needs of the business.
The consolidated statement of income for the three month period of the current
year includes the operating results of Pioneer Maryland, whereas for the prior
year three month period ended September 30, 1995, results included only the
Company's 50% equity interest in Pioneer Maryland's net earnings which amounted
to $.5 million.
The effective tax rate for the current year three-month period was 45.9%
compared with 42.2% for the same period a year ago. In the prior year, the
equity in net earnings of the Company's former 50%-owned affiliate was included
in pre-tax income in accordance with the equity basis of accounting. This is a
primary factor causing the difference in the effective tax rates for the two
periods.
Primarily as a result of the factors above, the Company's net income for the
three-month period ending September 30, 1996 of $4.5 million was $2.2 million
less than the $6.7 million earned a year earlier.
7
8
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH
THE SIX MONTHS ENDED SEPTEMBER 30, 1995
Net sales for the six-month period ended September 30, 1996 of $732.8 million
were 59% greater than sales of the prior year six-month period of $459.6
million. The current six-month sales include the sales of Pioneer-Standard of
Maryland, Inc., the Company's former 50%-owned affiliate, which Pioneer acquired
in November, 1995. Including the former affiliate's sales on a pro forma basis
for the prior year period, net sales increased to $732.8 million from $619.4
million a year ago, or a 18% increase. During the first six months of 1996,
semiconductor products accounted for 42% of the Company's sales compared with
35% in the prior year. Computer systems products accounted for 37% of the
Company's sales in 1996 and 39% in 1995. Passive and electromechanical products
accounted for 18% of the Company's sales in 1996 and 23% of sales in 1995.
Miscellaneous products accounted for 3% of sales in both 1996 and 1995.
The percentage increase in cost of goods sold of 63% resulted in a gross margin
of 17.4% in the first six months of the current year compared with 19.4% a year
ago. A shift in product mix, particularly with respect to a higher volume of
lower gross margin products within the semiconductor line was a principal factor
impacting current year margins.
Warehouse, selling and administrative expenses of $99.6 million increased by 56%
as compared with the $63.8 million incurred during the prior year six-month
period. This resulted in a ratio of these expenses to sales of 13.6% for the
current six months compared with 13.9% a year ago.
The operating profit resulting from the activity described above of $27.8
million in 1996 or 3.8% of sales was up 11% compared with $25.1 million or 5.5%
of sales a year ago.
Interest expense was $8.5 million in the current six-month period compared with
$3.0 million a year ago. The higher interest expense is due to increased debt
resulting from the purchase of the Company's former 50%-owned affiliate and to
fund working capital needs to support ongoing growth needs of the business.
The consolidated statement of income for the six month period of the current
year includes the operating results of Pioneer Maryland, whereas for the prior
six-month period ended September 30, 1995, results included only the Company's
50% equity interest in Pioneer Maryland's net earnings which amount to $.9
million.
The effective tax rate for the current six-month period was 44.6% compared with
41.4% a year ago. In the prior year, the equity in net earnings of the Company's
former 50%-owned affiliate was included in pre-tax income in accordance with the
equity basis of accounting. This is a primary factor causing the difference in
the effective tax rates for the two periods.
Primarily as a result of the factors noted above, the Company's net income for
the six-month period ending September 30, 1996 of $10.7 million was $2.8 million
lower than the $13.5 million earned a year ago.
8
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The potential litigation discussed in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1996
has been resolved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on July 23, 1996
(the "Annual Meeting"), the shareholders voted to elect
James L. Bayman, Gordon E. Heffern and Karl E. Ware each to
an additional three-year term as Directors of the Company.
Following is a summary of the voting:
James L. Gordon E. Karl E.
Votes Bayman Heffern Ware
----- ------ ------- ----
For 18,188,324 18,202,215 18,235,827
Against 81,445 67,554 33,942
The term of office of the following Directors of the Company
continued after the Annual Meeting: Frederick A. Downey;
Victor Gelb; Preston B. Heller, Jr.; Arthur Rhein; Edwin Z.
Singer; and Thomas C. Sullivan.
In addition, at the Annual Meeting, an Amendment to the
Company's Amended Articles of Incorporation to increase the
number of authorized Common Shares from 40 million to 80
million was approved by the Shareholders; 17,409,881 Common
Shares voted in favor of the Amendment, 827,164 Common
Shares were cast against the Amendment, 32,724 Common Shares
abstained from voting on the Amendment and there were no
broker non-votes.
ITEM 5. OTHER INFORMATION
The Company has entered into various agreements with respect
to its financing. See the discussion under "Financial
Condition" for a summary of these agreements. These
agreements were filed as exhibits to the Company's June 30,
1996 Form 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
------ -----------
3(a) Certificate of Amendment to Amended Articles
of Incorporation of Pioneer-Standard
Electronics, Inc.
11 Calculation of Primary Earnings Per Share
27 Financial Data Schedule
9
10
(b) FORM 8-K
A Form 8-K dated July 5, 1996 was filed for a Company press
release announcing first quarter sales and earnings.
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 13, 1996 James L. Bayman
------------------- -------------------------------------
Chairman, President and CEO
Date: November 13, 1996 John V. Goodger
------------------- -------------------------------------
Vice President & Treasurer
10