1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 27, 1998
--------------------
PIONEER-STANDARD ELECTRONICS, INC.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 0-5734 34-0907152
- ---------------- ----------- -------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
4800 EAST 131ST STREET, CLEVELAND, OHIO 44108
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 587-3600
-------------------------
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 15, 1998, Pioneer-Standard Electronics, Inc. (the "Company")
and Dickens Data Systems, Inc. ("Dickens Data") entered into an Agreement and
Plan of Merger (the "Merger Agreement") in which the Company agreed to acquire
all the outstanding capital stock of Dickens Data, a leading reseller,
distributor and systems integrator of products and services for mid-range
computer systems based in Roswell, Georgia. The Company anticipates that the
closing of its acquisition of Dickens Data will occur on March 31, 1998 and
will become effective April 1, 1998.
As consideration for the acquisition of Dickens Data, the Company will
pay $121 million to the shareholders of Dickens Data and assume certain of its
debts and liabilities. The purchase price and the other terms of the Merger
Agreement were determined through arms-length negotiations. There are no
material relationships between Dickens Data and the Company or any of their
affiliates, directors or officers.
The Company intends to pay the purchase price and expenses related to
the acquisition of Dickens Data with borrowings under an expanded revolving
credit facility.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Dickens Data Systems, Inc. Consolidated Financial Statements
as of December 31, 1997, 1996, and 1995
Report of Independent Public Accountants
Consolidated Balance Sheets at December 31, 1997 and
1996
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
2
3
(b) UNAUDITED PRO FORMA FINANCIAL INFORMATION.
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1997
Unaudited Pro Forma Condensed Combined Statements of
Operations for the Fiscal Year ended March 31, 1997
Unaudited Pro Forma Condensed Combined Statements of
Operations for the Nine Months ended December 31,
1997
(c) EXHIBITS.
Exhibit No. Description
----------- -----------
2.1 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.
(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.)
23.1 Consent of Arthur Andersen LLP
3
4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Dickens Data Systems, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of DICKENS DATA
SYSTEMS, INC. (a Georgia S corporation) AND SUBSIDIARIES as of December 31, 1997
and 1996 and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dickens Data Systems, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 6, 1998
5
DICKENS DATA SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS 1997 1996
--------------------------------------------------- --------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 1,114 $ 3,077
Accounts receivable, less allowance for doubtful
accounts of $908 and $801 in 1997 and 1996, 72,772 45,291
respectively
Inventories 30,959 27,927
Prepaid expenses and other current assets 654 697
------- ------
Total current assets 105,499 76,992
------- ------
PROPERTY AND EQUIPMENT:
Development equipment 688 680
Furniture and equipment 8,943 7,085
Leasehold improvements 565 258
------- ------
10,196 8,023
Less accumulated depreciation and amortization (5,742) (4,236)
------- ------
Net property and equipment 4,454 3,787
------- ------
OTHER ASSETS 269 174
------- ------
$110,222 $80,953
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
- --------------------------------------------------- --------- --------
CURRENT LIABILITIES:
Revolving lines of credit $ 0 $13,554
Accounts payable and accrued liabilities 90,337 53,081
Current portion of notes payable to shareholders 624 0
Current portion of long-term debt 110 164
------- ------
Total current liabilities 91,071 66,799
LONG-TERM OBLIGATIONS:
Long-term debt, less current portion 223 324
Notes payable to shareholders, less current portion 1,078 1,702
Other 186 233
------- ------
Total long-term obligations 1,487 2,259
------- ------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY:
Common stock, no par value; $.01 per share stated
value, 10,000,000 shares authorized, 5,040,074
shares issued and outstanding in both 1997 and 1996 50 50
Paid-in capital 91 91
Retained earnings 17,523 11,754
------- ------
Total shareholders' equity 17,664 11,895
------- ------
$110,222 $80,953
======== =======
All amounts have been restated to reflect the March 1997 acquisition of
ProAmerica, Inc. and ProAmerica Systems, Inc. in a pooling transaction.
The accompanying notes are an integral part of these consolidated
balance sheets.
5
6
DICKENS DATA SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS)
1997 1996 1995
---- ---- ----
NET SALES $347,659 $198,302 $89,538
COST OF GOODS SOLD 300,137 165,854 72,882
--------- --------- --------
GROSS MARGIN 47,522 32,448 16,656
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 34,328 22,333 14,200
--------- --------- --------
OPERATING INCOME 13,194 10,115 2,456
INTEREST EXPENSE, NET 1,191 1,102 595
OTHER INCOME (15) (1,001) (87)
--------- --------- --------
NET INCOME $ 12,018 $ 10,014 $ 1,948
========= ========= ========
All amounts have been restated to reflect the March 1997 acquisition of
ProAmerica, Inc. and ProAmerica Systems, Inc. in a pooling transaction.
The accompanying notes are an integral part of these consolidated
statements.
6
7
DICKENS DATA SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK
------------------- TOTAL
PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- -------- ------
BALANCE, DECEMBER 31, 1994 5,039,738 $50 $87 $ 2,795 $ 2,932
Distributions to shareholders 0 0 0 (361) (361)
Net income 0 0 0 1,948 1,948
--------- ------- ------- --------- ---------
BALANCE, DECEMBER 31, 1995 5,039,738 50 87 4,382 4,519
Distributions to shareholders 0 0 0 (2,642) (2,642)
Net income 0 0 0 10,014 10,014
Sale of common stock 336 0 4 0 4
--------- ------- ------- --------- ---------
BALANCE, DECEMBER 31, 1996 5,040,074 50 91 11,754 11,895
Distributions to shareholders 0 0 0 (6,249) (6,249)
Net income 0 0 0 12,018 12,018
--------- ------- ------- --------- ---------
BALANCE, DECEMBER 31, 1997 5,040,074 $50 $91 $17,523 $17,664
========= ======= ======= ========= =========
All amounts have been restated to reflect the March 1997 acquisition of
ProAmerica, Inc. and ProAmerica Systems, Inc. in a pooling transaction.
The accompanying notes are an integral part of these consolidated
statements.
7
8
DICKENS DATA SYSTEMS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS)
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $12,018 $10,014 $1,948
------- ------- ------
Adjustments to reconcile net income to net cash provided by (used in)
operations:
Depreciation and amortization 1,641 1,157 899
(Gain) loss on sale of assets (8) (1,003) 5
Changes in operating assets and liabilities:
Accounts receivable, net (27,481) (29,551) (6,959)
Inventories (3,032) (21,370) (1,890)
Prepaid expenses and other assets (52) (112) 218
Accounts payable, accrued and other liabilities 37,209 39,978 6,267
------- ------- ------
Total adjustments 8,277 (10,901) (1,460)
------- ------- ------
Net cash provided by (used in) operating activities 20,295 (887) 488
------- ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,328) (2,192) (651)
Proceeds from the sale of assets 28 1,978 31
------- ------- ------
Net cash used in investing activities (2,300) (214) (620)
------- ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (155) (1,372) (526)
Long-term debt proceeds 0 448 0
Net (repayments) borrowings from revolving lines of credit (13,554) 7,457 550
Distributions to shareholders (6,249) (2,642) (361)
Sale of common stock 0 4 0
------- ------- ------
Net cash (used in) provided by financing activities (19,958) 3,895 (337)
------- ------- ------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,963) 2,794 (469)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,077 283 752
------- ------- ------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,114 $ 3,077 $ 283
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 1,299 $ 1,092 $ 643
======== ======== =======
NONCASH INVESTING ACTIVITIES:
Equipment purchases under capital lease obligations $ 11 $ 449 $ 26
========== ========= ========
All amounts have been restated to reflect the March 1997 acquisition of
ProAmerica, Inc. and ProAmerica Systems, Inc. in a pooling transaction.
The accompanying notes are an integral part of these consolidated
statements.
8
9
DICKENS DATA SYSTEMS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
1. NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Dickens Data Systems, Inc. and its wholly owned subsidiaries (the
"Company"). All significant intercompany transactions and accounts have
been eliminated in consolidation.
The Company is a value-added systems integrator and services provider that
markets, distributes, and integrates information technology products and
services directly and indirectly (through authorized resellers) to
business institutions and governments primarily within the United States
and Canada. The technology products and services marketed and sold by the
Company include midrange computer hardware and software, workstations,
networking equipment, storage devices, systems solutions, and various
technological services, including operating system support, installation,
integration, and education. The majority of the technology products
marketed by the Company are manufactured by International Business
Machines Corporation ("IBM") (Note 9), and essentially all of the
Company's revenues are associated with the distribution of these products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out, or
average) or market. Inventories include product cost and freight in.
Market is defined as replacement cost.
9
10
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to ten years)
of the respective assets. Leasehold improvements are amortized over the
lesser of the lease term or estimated useful lives of the respective
assets.
The Company periodically reviews the values assigned to property and
equipment to determine whether any impairments are other than temporary.
Management believes that the property and equipment in the accompanying
balance sheets are appropriately valued.
REVENUE RECOGNITION
Distribution of products is recorded as revenue upon shipment. Revenues
from custom programming, training, and other services are recognized as
provided.
MARKET DEVELOPMENT FUNDS
Primary vendors provide the Company with market development funds ("MDF")
in an amount that is generally based on purchases of the vendors' products
and services. These funds typically range from 1% to 3% of such purchases
and are required to be used to market and promote the vendors' products
and services. The Company accrues these funds based on its purchases and
offsets them against direct costs of selling, general, and administrative
expenses.
INCOME TAXES
The Company's board of directors has elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Accordingly, no
provision for federal income taxes is recorded on the Company's financial
statements, and the shareholders are personally liable for individual
income taxes on their respective portions of the Company's taxable income.
The Company files income tax returns in certain states that do not
recognize the Company's status as a Subchapter S Corporation. State income
tax expense totaled approximately $217, $166, and $8 in 1997, 1996, and
1995, respectively.
Amounts are distributed to the shareholders for making applicable tax
payments. The Company estimates that distributions of approximately
$4,300 will be made during 1998 for prior tax years.
OTHER INCOME
In November 1996, the Company sold its parts and supplies distribution
division, which consisted primarily of inventory. The gain recognized on
the sale was approximately $1 million and is included in other income in
the accompanying statements of income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book values of cash, trade accounts receivable, trade accounts
payable, and financial instruments included in other current assets and
other assets approximate their fair values
10
11
principally because of the short-term maturities of these instruments.
The fair value of the Company's long-term debt is estimated based on the
current rates offered to the Company for debt of similar terms and
maturities. Under this method, the Company's fair value of long-term debt
was not significantly different from the stated value at December 31,
1997 and 1996.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year financial
statements to conform to the current year presentation.
3. ACQUISITION
On March 31, 1997, the Company acquired all of the common stock of
ProAmerica, Inc. and ProAmerica Systems, Inc. (collectively "ProAmerica")
in exchange for 2,040,074 shares of the Company's common stock. The
acquisition of ProAmerica has been accounted for under the
pooling-of-interests method of accounting, and accordingly, the Company's
historical financial statements have been restated to include the accounts
and results of operations of ProAmerica.
The results of operations previously reported by the separate companies
above and the combined amounts for the years ended December 31, 1997,
1996, and 1995 are presented below. Eliminations have been made for
intercompany sales within ProAmerica prior to the acquisition:
THREE MONTHS ENDED
MARCH 31, 1997 1996 1995
------------------------- ---------------------- --------------------
NET Net Net
REVENUES INCOME Revenues Income Revenues Income
------------ ------ -------- ------ -------- ------
(UNAUDITED)
Dickens Data Systems,
Inc. $38,097 $ 764 $112,728 $ 4,981 $50,453 $1,532
ProAmerica, Inc. 30,939 1,008 83,771 5,502 38,374 594
ProAmerica Systems, Inc. 337 (85) 1,011 (469) 1,051 (178)
Reclassification 0 0 964 0 138 0
Intercompany elimination (4) 0 (172) 0 (478) 0
------------ ----------- ------------ ------------ ------------ ---------
$69,369 $1,687 $198,302 $10,014 $89,538 $1,948
============ =========== ============ ============ ============ =========
In connection with the merger, the Company recorded a charge to selling,
general, and administrative expenses of $643 for direct and other
merger-related costs pertaining to the merger transaction. Merger
transaction costs consisted of professional fees of $236, the termination
of the stock appreciation rights plan of $257 (Note 7), federal filing
fees of $90, and other related charges of $60.
11
12
4. REVOLVING CREDIT AGREEMENTS
On December 5, 1997, the Company entered into a comprehensive credit
agreement (the "Agreement") with IBM Credit Corporation ("IBMCC"). The
Agreement amended and restated the Inventory and Working Capital Financing
Agreement dated June 12, 1996, as amended, with IBMCC. The Agreement
allows maximum outstanding advances up to $95,000, based on eligible
accounts receivable and inventory, as defined. As of December 31, 1997, $0
was outstanding under the working capital line of credit and $6,217 was
available for future borrowings. Borrowings bear interest at the prime
rate (8.5% as of December 31, 1997), as defined, or LIBOR plus 2.85% (8.6%
at December 31, 1997).
The Agreement is secured by substantially all of the Company's assets and
requires the Company to maintain certain financial ratio covenants, as
defined. As of December 31, 1997, the Company was in compliance with all
financial ratio covenants under the Agreement.
The Company also has a line-of-credit agreement with a commercial bank
that allows for maximum outstanding advances of up to $500. Borrowings are
payable on demand and bear interest at prime plus 1.5% (10% at December
31, 1997). At December 31, 1997, the balance outstanding was $0 and $500
was available for future borrowings. The line of credit is secured by
accounts receivable, inventory, and equipment of a subsidiary.
5. LONG-TERM DEBT
The Company's long-term debt at December 31, 1997 and 1996 consisted of
the following:
1997 1996
---- ----
Capital lease obligations, secured by certain property and
equipment; payable in monthly installments ranging up to $8 plus
interest at imputed rates from 3.9% to 18.9%, through
April 2001 $333 $488
Less current maturities 110 164
---- ----
$223 $324
==== ====
Future maturities of long-term debt at December 31, 1997 are as follows:
1998 $110
1999 143
2000 68
2001 12
---- ----
$333
====
12
13
6. RELATED-PARTY TRANSACTIONS
As of December 31, 1997 and 1996, the Company had receivables from certain
officers and shareholders totaling $20 and $109, respectively. The
receivables have been included in the prepaid expenses and other current
assets balance in the accompanying balance sheets.
As of December 31, 1997 and 1996, the Company has unsecured notes payable
to certain shareholders totaling $1,702. The notes bear interest at 8% to
11% and are due in various installments through 1999.
7. STOCK INCENTIVE PLANS
STOCK OPTIONS
The Company maintains a stock incentive plan ("SIP"), as amended, which
provides for the grant of incentive stock options, nonqualified stock
options, restricted stock awards, and stock appreciation rights. The
Company has reserved 400,000 shares of the Company's common stock for
issuance under the SIP. Options vest over a four-year period based on the
length of service and are exercisable upon the occurrence of certain
defined events. Options allow employees to purchase the Company's common
stock at a price which approximates the stock's estimated fair value as of
the date of the grant.
In connection with the SIP, a significant shareholder has agreed to make
200,000 shares of common stock available for redemption by the Company.
These shares are to be reissued to employees upon exercise of the stock
options.
Stock option activity for each of the three years ended December 31, 1997
is as follows:
WEIGHTED
AVERAGE PRICE
PER
SHARES SHARE
------ -----
Options outstanding at December 31, 1994 120,800 $ 4.67
Granted 40,000 5.37
Canceled (8,000) 4.67
-------- -------
Options outstanding at December 31, 1995 152,800 4.85
Granted 10,400 5.37
Canceled (4,400) 4.73
-------- -------
Options outstanding at December 31, 1996 158,800 4.89
Granted 218,850 11.90
Canceled (25,940) 10.46
-------- -------
Options outstanding at December 31, 1997 351,710 8.84
========
Exercisable at December 31, 1997 309,752 $ 8.59
========
13
14
WEIGHTED
NUMBER AVERAGE
EXERCISE OF REMAINING
PRICE SHARES CONTRACTUAL LIFE
--------------- -------------- ------------------------
(Years)
$ 4.67 107,600 7.0
5.37 45,600 8.1
11.90 198,510 9.4
The Company accounts for the stock option plan using the provisions of
Accounting Principles Board ("APB") Opinion No. 25, which requires
compensation costs to be recognized only when the option price differs
from the market price at the grant date. Statement of Financial Accounting
Standards ("SFAS") No. 123 allows a company to follow APB Opinion No. 25
with additional disclosure that shows what the Company's net income would
have been using the compensation model under SFAS No. 123.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model using the following weighted
average assumptions:
1996
1997 and 1995
-------------- -------------
Risk-free interest rate 6.7% 6.9%
Expected dividend yield 0.0 0.0
Expected lives 5 YEARS 5 years
Expected volatility 50.0% 49.0%
The total value of the options granted during the years ended December 31,
1997, 1996, and 1995 were computed as approximately $1,357, $29, and $98,
respectively, which would be amortized over the vesting period of the
options. If the Company had accounted for these options in accordance with
SFAS No. 123, the Company's reported net income for the years ended
December 31, 1997, 1996, and 1995 would have decreased to the following
pro forma amounts:
1997 1996 1995
---- ---- ----
Net income:
As reported $12,018 $10,014 $1,948
Pro forma 11,765 9,995 1,875
STOCK APPRECIATION RIGHTS PLAN
ProAmerica, Inc. maintained a stock appreciation rights plan (the
"ProAmerica Plan") under which it granted stock appreciation rights to key
employees. Such rights were granted at the estimated market price at the
date of grant. As of December 31, 1996, 355,977 shares were outstanding at
prices ranging from $1.33 to $1.77 per share, and 297,477 of these shares
were vested. In connection with the merger between the Company
14
15
and ProAmerica, all outstanding stock appreciation rights under the
ProAmerica Plan were extinguished by the Company in exchange for $919.
Expense associated with the ProAmerica Plan was $257, $652, and $10 for
the years ended December 31, 1997, 1996, and 1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain equipment and office space under noncancelable
operating leases expiring at various dates through 2002. At December 31,
1997, the future minimum payments on all noncancelable operating leases
were as follows:
1998 $1,077
1999 1,062
2000 827
2001 711
2002 245
------
$3,922
======
Total lease expense for the years ended December 31, 1997, 1996, and 1995
was approximately $967, $613, and $487, respectively.
BENEFIT PLAN
The Company has a 401(k) and profit-sharing plan (the "Plan") covering
substantially all employees. The Company makes matching contributions to
the 401(k) segment of the Plan based on employee contributions, as
defined. Profit-sharing contributions are determined annually by
resolution of the Company's board of directors. Contributions to the Plan
for the years ended December 31, 1997, 1996, and 1995 were $385, $242, and
$73, respectively.
LITIGATION
The Company is the defendant or plaintiff in lawsuits arising in the
normal course of business. In the opinion of management, the outcome of
current litigation will not have a material adverse effect on the
Company's financial position or results of operations.
9. IBM RELATIONSHIP
The Company maintains various relationships with IBM as follows.
CUSTOMER
The Company has significant sales of certain technological
products to IBM. Product sales for the years ended December 31,
1997, 1996, and 1995 were $39, $1,909, and $1,885, respectively.
Additionally, during fiscal 1996, the Company entered into a
service agreement to provide certain technological services to
IBM.
15
16
Sales of those services to IBM for the years ended December 31,
1997 and 1996 were $945 and $575, respectively.
VENDOR
The Company is a Premier IBM Business Partner and purchases
products for resale, either directly to end users as an
authorized IBM Solution Provider, first tier ("SP"), or
indirectly to end users through authorized IBM Solution
Providers, second tier ("SP2's"), as an IBM Distributor.
The Company purchases these products from IBM pursuant to an IBM
Business Partner Agreement which is renewable annually. Purchases
of these products were $303,877, $167,344, and $51,344 for the
years ended December 31, 1997, 1996, and 1995, respectively.
Cancellation of this contract could have a material adverse
effect on the Company.
Additionally, certain purchases from IBM qualify for MDF (Note
2). MDF recognized from IBM for the years ended December 31,
1997, 1996, and 1995 was $5,112, $2,761, and $808, respectively.
FINANCIER
The Company utilizes IBMCC to finance its inventory and working
capital (Note 4). Additionally, the Company markets IBMCC
financing solutions to end users. Accordingly, certain end-user
sales (sold either directly as an SP or indirectly through SP2's)
are financed and paid for by IBMCC. End-user sales financed by
IBMCC for the years ended December 31, 1997, 1996, and 1995 were
$132,982, $56,153, and $5,752, respectively. The Company receives
commissions from IBMCC for marketing IBMCC's financing solutions.
Lease commissions from IBMCC for the years ended December 31,
1997, 1996, and 1995 were $3,307, $1,555, and $143, respectively.
These commissions are included in net sales in the accompanying
statements of income.
10. SUBSEQUENT EVENT
On January 15, 1998, the Company entered into a definitive Agreement (the
"Purchase Agreement") with Pioneer-Standard Electronics, Inc. ("Pioneer").
The transaction is expected to close March 31, 1998. The Purchase
Agreement provides for the following:
- Pioneer will purchase the Company's IBM Distribution
business, which accounted for approximately 98.6% of the
Company's net sales during 1997, for approximately
$121,025 in cash.
- Pioneer and the Company's shareholders will form a
corporation ("Newco") which will provide certain
professional services, as defined. Newco will assume the
net assets of the professional services division of the
Company, estimated to be approximately $2 million as of
December 31, 1997. The
16
17
Company's professional services division accounted for
approximately .9% of the Company's net sales during
1997.
- The Company's shareholders will retain 100% of the net
assets of the Company's wholly owned subsidiary,
ProAmerica Systems, Inc., which develops and sells call
service management software. This subsidiary accounted
for approximately .5% of the Company's net sales during
1997.
- In conjunction with this transaction, the notes payable
to shareholders (Note 6) will be repaid.
17
18
PIONEER STANDARD ELECTRONICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed combined financial
statements give effect to the purchase by the Company of all of the stock of
Dickens Data Systems, Inc. ("Dickens Data"), the spin-off of certain assets and
operations to the former shareholders of Dickens Data and the acquisition of a
51% interest in a portion of the assets and operations spun off. The
accompanying unaudited pro forma condensed combined balance sheet of the Company
as of December 31, 1997 has been prepared as if all transactions had occurred as
of that date. The unaudited pro forma condensed combined statement of operations
for the year ended March 31, 1997 (which combines Dickens Data's fiscal year
ended December 31, 1996 with the Company's fiscal year ended March 31, 1997) and
the unaudited pro forma condensed combined statement of operations for the nine
months ended December 31, 1997 were prepared as if all transactions had occurred
at the beginning of each period, respectively.
This information is not necessarily indicative of future combined
operations and it should be read in conjunction with the separate historical
statements and related notes of the respective entities appearing elsewhere in
this filing or previously filed with the Securities and Exchange Commission.
18
19
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
December 31, 1997
PRO FORMA PRO FORMA
COMPANY DICKENS DATA SPIN-OFF ADJUSTMENTS AS ADJUSTED
------- ------------ -------- ----------- -----------
(3) (IN THOUSANDS)
ASSETS
Current assets
Cash $ 27,290 $ 1,114 $ (51) $ 2,500 (1) $ 30,853
Accounts receivable - net 233,175 72,772 (291) 305,656
Merchandise inventory 351,925 30,959 (1) 382,883
Prepaid expenses 6,986 654 (60) (20) (1) 7,560
Deferred income taxes 11,185 11,185
---------- ---------- ---------- ---------- -----------
Total current assets 630,561 105,499 (403) 2,480 738,137
Intangible assets 38,383 120,076 (1) 158,459
Other assets 9,054 269 9,323
Property and equipment, at cost 117,189 10,196 (412) 126,973
Accumulated depreciation 45,555 5,742 51,297
---------- ---------- ---------- ---------- -----------
Net 71,634 4,454 (412) 75,676
---------- ---------- ---------- ---------- -----------
$ 749,632 $ 110,222 $ (815) $ 122,556 $ 981,595
========== ========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Notes payable to banks $ 2,500 $ $ $ $ 2,500
Accounts payable 188,510 90,337 (628) 2,000 (1) 280,219
Accrued liabilities 36,550 36,550
Long-term debt due within one year 2,880 734 (624) (1) 2,990
---------- ---------- ---------- ---------- -----------
Total current liabilities 230,440 91,071 (628) 1,376 322,259
Long-term debt 275,707 1,487 (7) 136,868 (1) 414,055
Deferred income taxes 5,492 5,492
Minority interest 1,796 (1) 1,796
Convertible trust preferred securities
Shareholders' equity
Common stock, at stated value 9,249 50 (50) (2) 9,249
Capital in excess of stated value 134,557 91 (91) (2) 134,557
Retained earnings 167,906 17,523 (180) (17,343) (2) 167,906
Unearned compensation (72,895) (72,895)
Foreign currency translation adjustment (824) (824)
---------- ---------- ---------- ---------- -----------
Net 237,993 17,664 (180) (17,484) 237,993
---------- ---------- ---------- ---------- -----------
$ 749,632 $ 110,222 $ (815) $ 122,556 $ 981,595
========== ========== ========== ========== ===========
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(1) To record the total consideration paid for common stock of Dickens Data
including estimated transaction costs and to record the distribution of
the assets and operations of the Professional Services Business of Dickens
to a newly-formed partnership in which the Company invested $2.5 million
for a 51% ownership and to record the 49% minority interest in the
partnership which is consolidated for financial reporting purposes.
(2) To eliminate Dickens Data common stock, capital in excess of stated value
and retained earnings.
(3) To record the spin-off of the Software Business and OEM business to
Dickens Data's current shareholders.
19
20
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
COMPANY DICKENS DATA
MARCH 31, DEC. 31, PRO FORMA PRO FORMA
1997(1) 1996(1) SPIN-OFF(2) ADJUSTMENTS AS ADJUSTED
---- ---- -------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $ 1,508,709 $ 198,302 $ (2,920) $ 1,704,091
Cost and expenses:
Costs of goods sold 1,249,873 165,854 (1,254) 1,414,473
Warehouse, selling and administrative
expenses 201,449 21,332 (1,499) $ 3,002 (3) 223,042
(1,187) (7)
(55) (5)
--------- ---------- ---------- ----------- -----------
Operating profit 57,387 11,116 (167) (1,760) 66,576
Interest expense 17,066 1,102 (69) 8,858 (4) 26,957
--------- ---------- ---------- ----------- -----------
Income before taxes 40,321 10,014 (98) (10,618) 39,619
Provision for income taxes 17,067 (4,406) (6) 16,776
4,115 (6)
--------- ---------- ---------- ----------- -----------
Net income $ 23,254 $ 10,014 $ (98) $ (10,327) $ 22,843
========= ========== ========== =========== ===========
Earnings per share:
Basic $ 1.02 $ 1.00
Diluted 1.00 .98
======== ===========
Weighted average common shares
outstanding:
Basic 22,732 22,732
Diluted 23,236 23,236
20
21
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997
PRO FORMA PRO FORMA
COMPANY(1) DICKENS DATA(1) SPIN-OFF(2) ADJUSTMENTS AS ADJUSTED
------- --------------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales $1,251,696 $ 278,290 $ (1,340) $ 1,528,646
Costs and expenses:
Costs of goods sold 1,032,753 240,702 (185) 1,273,270
Warehouse, selling and administrative
expenses 164,300 26,333 (1,085) $ 2,251 (3) 190,681
(890) (7)
(228) (5)
--------- ---------- ---------- ---------- -----------
Operating profit 54,643 11,255 (70) (1,133) 64,695
Interest expense 14,809 925 (88) 6,534 (4) 22,180
--------- ---------- ---------- ---------- -----------
Income before taxes 39,834 10,330 18 (7,667) 42,515
Provision for income taxes 16,631 (3,182) (6) 17,743
4,294 (6)
---------- ---------- --------- ---------- -----------
Net income $ 23,203 $ 10,330 $ 18 $ (8,779) $ 24,772
========== ========== ========= ========== ==========
Earnings per share:
Basic $ .89 $ .95
Diluted .87 .92
========== ==========
Weighted average common shares
outstanding:
Basic 26,164 26,164
Diluted 26,783 26,783
21
22
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(1) The Pro Forma Condensed Combined Statements of Operations for the
nine-month period ended December 31, 1997 and the year ended March 31, 1997
give effect to the acquisition of Dickens Data as if it occurred at the
beginning of each of the periods by combining the nine-month period ended
December 31, 1997 of the Company with the nine-month period ended December
31, 1997 of Dickens Data and the twelve-month period ended March 31, 1997
of the Company with the twelve-month period ended December 31, 1996 of
Dickens Data to conform the different year ends.
(2) To record effects of the spin-off of the software business and OEM business
to Dickens Data's current shareholders.
(3) Represents amortization of goodwill ($120,076) resulting from the
application of purchase accounting over a 40-year period using the
straight-line method. The goodwill is tax deductible.
(4) Reflects additional interest expense which would have been incurred by the
Company assuming the acquisition of Dickens Data had occurred at the
beginning of each period.
(5) To record the 49% minority interest in the loss of the newly-formed
partnership which operates the Professional Services Business of Dickens
Data.
(6) Dickens Data was taxed under Subchapter S of the Internal Revenue Code of
1986, as amended, and did not pay taxes on behalf of itself. The income tax
recorded reflects the amounts that would have been incurred had the
acquisition occurred at the beginning of each period.
(7) Reflects net compensation of certain former shareholders of Dickens Data
who will not continue as employees and will not be replaced.
22
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PIONEER-STANDARD ELECTRONICS, INC.
Date: February 27, 1998 By /s/ John V. Goodger
--------------------------------
John V. Goodger
Vice President and Treasurer
23
24
EXHIBIT INDEX
Exhibit No. Description of Document
----------- -----------------------
2.1 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. (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.)
23.1 Consent of Arthur Andersen LLP
E-1