-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KfPhvOoGfMNWuCwOkahHlPl3Z5CUBkeTJ1gfF+GhxA2+VH0K893SmcVrHPKt+gjF N7TrhoZ2ZnQNPBHFozG9SQ== /in/edgar/work/20000814/0000950152-00-006059/0000950152-00-006059.txt : 20000921 0000950152-00-006059.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950152-00-006059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIONEER STANDARD ELECTRONICS INC CENTRAL INDEX KEY: 0000078749 STANDARD INDUSTRIAL CLASSIFICATION: [5065 ] IRS NUMBER: 340907152 STATE OF INCORPORATION: OH FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05734 FILM NUMBER: 698577 BUSINESS ADDRESS: STREET 1: 4800 E 131ST ST CITY: CLEVELAND STATE: OH ZIP: 44105 BUSINESS PHONE: 2165873600 MAIL ADDRESS: STREET 1: 4800 E 131ST ST CITY: CLEVELAND STATE: OH ZIP: 44105 10-Q 1 e10-q.txt PIONEER-STANDARD ELECTRONICS, INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) ----- OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000. OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _________________. Commission file number 0-5734 ------ 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) 6065 Parkland Boulevard, Mayfield Heights, Ohio 44124 - -------------------------------------------------------- -------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (440) 720-8500 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ -- Indicate the number of shares outstanding of each of the issuer's classes of Common Shares, as of the latest practical date: COMMON SHARES, WITHOUT PAR VALUE, AS OF AUGUST 1, 2000: 31,551,856. (Excludes 4,056,202 Common Shares subscribed by the Pioneer Stock Benefit Trust.) 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PIONEER-STANDARD ELECTRONICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) June 30, 2000 (Unaudited) March 31, 2000 ----------- ----------- ASSETS Current assets Cash $ 28,505 $ 34,253 Accounts receivable - net 408,253 407,309 Merchandise inventory 417,710 348,120 Prepaid expenses 1,165 2,871 Deferred income taxes 10,120 9,178 ----------- ----------- Total current assets 865,753 801,731 ----------- ----------- Intangible assets - net 150,402 150,503 Investments in affiliated companies 62,568 46,030 Other assets 8,102 8,055 Property and equipment, at cost 195,887 192,626 Accumulated depreciation (92,075) (86,729) ----------- ----------- Net property and equipment 103,812 105,897 ----------- ----------- TOTAL ASSETS $1,190,637 $1,112,216 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 247,209 $ 240,229 Notes payable 18,064 26,086 Accrued liabilities 32,535 30,831 Current maturities of long-term debt 3,053 3,052 ----------- ----------- Total current liabilities 300,861 300,198 ----------- ----------- Long-term debt 378,172 320,205 Other long-term liabilities 28,250 23,998 Mandatorily redeemable convertible trust preferred securities 143,750 143,750 Shareholders' equity: Common stock, at stated value 9,384 9,323 Capital in excess of stated value 134,530 137,092 Retained earnings 248,366 238,968 Unearned employee benefits (59,831) (63,885) Unearned compensation on restricted stock (6,752) (7,526) Accumulated other comprehensive income 13,907 10,093 ----------- ----------- Total shareholders' equity 339,604 324,065 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,190,637 $1,112,216 =========== ========== See accompanying notes to consolidated financial statements 3 PIONEER-STANDARD ELECTRONICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Amounts in Thousands Except Per Share Data)
Three Months Ended June 30, 2000 1999 ---- ---- Net sales $ 675,085 $ 575,973 Cost and expenses: Cost of goods sold 572,003 486,699 Warehouse, selling and administrative expense 76,317 67,142 ----------- ----------- Operating profit 26,765 22,132 Other income (45) (188) Interest expense 7,637 6,096 ----------- ----------- Income before income taxes 19,173 16,224 Provision for income taxes 7,477 7,056 Distributions on mandatorily redeemable convertible trust preferred securities, net of tax 1,475 1,459 ----------- ----------- Net income $ 10,221 $ 7,709 =========== =========== Weighted average shares outstanding Basic 26,726 26,355 Diluted 36,752 35,818 Earnings per share: $ .38 $ .29 Basic $ .32 $ .26 Diluted Dividends per share $ .03 $ .03
See accompanying notes to consolidated financial statements. 3 4 PIONEER-STANDARD ELECTRONICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in Thousands) Three months ended June 30, 2000 1999 ---- ---- Operating activities: Net income $ 10,221 $ 7,709 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 3,637 3,691 Amortization 3,557 2,432 Increase in operating working capital (60,322) (5,337) Other 558 (3,450) -------- -------- Net cash provided by (used for) operating (42,349) 5,045 activities Investing activities: Additions to property and equipment (3,338) (3,655) Investment in affiliates (9,639) (13,029) Acquisition of business (1,500) -- -------- -------- Net cash used for investing (14,477) (16,684) Financing activities: Notes payable (8,022) 1,359 Revolving credit borrowings 58,000 3,000 Issuance of common shares under company stock option plan 1,553 -- Dividends paid (823) (791) Other (32) (111) -------- -------- Net cash provided by financing activities 50,676 3,457 Effect of exchange rate changes on cash 402 (308) -------- -------- Net decrease in cash (5,748) (8,490) Cash at beginning of period 34,253 28,898 -------- -------- Cash at end of period $ 28,505 $ 20,408 ======== ======== See accompanying notes to consolidated financial statements. 4 5 PIONEER-STANDARD ELECTRONICS, INC. Notes to Condensed Consolidated Financial Statements 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the full fiscal year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended March 31, 2000. Reclassifications: Certain 1999 amounts have been reclassified to conform with the 2000 presentation. 2. COMPREHENSIVE INCOME The components of comprehensive income for the three months ended June 30, 2000 and 1999 are as follows (amounts in thousands): Three months ended June 30, 2000 1999 ---- ---- Net income $ 10,221 $ 7,709 Unrealized gain on investments 4,195 4,295 Foreign currency translation adjustment (381) 559 ---------- ----------- Comprehensive income $ 14,035 $ 12,563 ========= ========= 3. EARNINGS PER SHARE Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted computations include dilutive common share equivalents of outstanding stock options, restricted stock and assumed conversion of company-obligated mandatorily redeemable convertible trust preferred securities and the elimination of related distributions, net of income taxes. 5 6 The computation of basic and diluted earnings per common share for the three months ended June 30, 2000 and 1999 are as follows:
Three months ended June 30, 2000 1999 ---- ---- Basic Net income applicable to common shareholders $ 10,221 $ 7,709 Weighted average shares outstanding 26,726 26,355 Basic earnings per share $ .38 $ .29 ========== ========== Diluted Net income applicable to common shareholders $ 10,221 $ 7,709 Add back: Distributions on mandatorily redeemable convertible trust preferred securities, net of tax 1,475 1,459 --------- --------- Net income applicable to common shareholders after assumed conversion $ 11,696 $ 9,168 ========== ======== Weighted average shares outstanding 26,726 26,355 Effect of diluted securities: Common share equivalents 899 336 Common shares issuable upon conversion of mandatorily redeemable convertible trust preferred securities 9,127 9,127 --------- --------- Diluted weighted average shares outstanding 36,752 35,818 ========== ======== Diluted earnings per share $ .32 $ .26 ========== ==========
4. BUSINESS SEGMENT INFORMATION The Company's operations are classified into two reporting segments: Computer Systems and Industrial Electronics. The Company's two reportable business segments are managed separately based on product and market differences. Computer Systems products include mid-range computer systems, high-end platforms, personal computers, display terminals and networking products. Industrial Electronics products include semiconductors and interconnect, passive and electromechanical products. The Company evaluates performance and allocates resources based on return on capital and profitable growth. Specifically, the Company measures segment profit or loss based on operating profit. 6 7 Business Segment Information (amounts in thousands) Three months ended June 30, 2000 1999 ---- ---- Sales Computer Systems $ 316,697 $ 278,113 Industrial Electronics 358,388 297,860 ----------- ---------- Total Sales $ 675,085 $ 575,973 =========== ========== Operating Income Computer Systems $ 4,541 $ 9,759 Industrial Electronics 22,224 12,373 ----------- ---------- Total Operating Income $ 26,765 $ 22,132 =========== ========== Reconciliation to Income Before Income Taxes Other income (45) (188) Interest expense 7,637 6,096 ------------- ----------- Income Before Income Taxes $ 19,173 $ 16,224 ============ =========== 5. COMPANY-OBLIGATED MANDORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF SUBSIDIARY TRUST In March 1998 and April 1998, Pioneer-Standard Financial Trust (the "Trust") issued a total of $143.7 million of 6 3/4% Mandatorily Redeemable Convertible Trust Preferred Securities (the "Trust Preferred Securities"). The Trust, a statutory business trust, is a wholly-owned consolidated subsidiary of the Company, with its sole asset being $148.2 million aggregate principal amount of 6 3/4% Junior Convertible Subordinated Debentures due March 31, 2028 of Pioneer-Standard Electronics, Inc. (the "Trust Debenture"). The Company has executed a guarantee with regard to the Trust Preferred Securities. The guarantee, when taken together with the Company's obligations under the Trust Debenture, the indenture pursuant to which the Trust Debenture was issued, and the applicable Trust Document provides a full and unconditional guarantee of the Trust's obligations under the Trust Preferred Securities. 6. CONTINGENCIES The Company is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. The Company provides for costs related to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on the Company's future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such matters will not have a material adverse effect on the consolidated financial position or results of operations of the Company. 7 8 PIONEER-STANDARD ELECTRONICS, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 1999 Net sales for the quarter ended June 30, 2000 of $675.1 million increased 17.2% over $576.0 million of net sales for the prior year three-month period. Both the Industrial Electronics and Computer Systems segments contributed to the increased sales with increases of 20% and 14%, respectively. Industrial Electronics, which comprised 53% of sales in the quarter, benefited from strong sales of semiconductors, which continues to be driven by a strong communication market, as well as by improved sales of interconnect, passive and electromechanical products compared with the same quarter last year. This improvement was tempered by lower year to year sales of microprocessors, resulting from vendor constraints on certain products. Computer Systems revenues, which comprised 47% of sales for the quarter, benefited from continuing demand for products that support Internet applications. Although the Company is experiencing high sales growth for these products, the sales mix has shifted towards lower margin products in the first quarter of fiscal 2001. Cost of goods sold increased 17.5% compared with the prior year quarter, resulting in a gross margin percentage of 15.3% in the current quarter compared with 15.5% a year ago. Gross margins increased slightly in the Industrial Electronics segment as pricing improved compared with last year. This improvement was offset by lower margins in the computer systems segment, caused by a sales mix shift to lower margin product and continuing competitive pricing pressures in the computer business. Warehouse, selling and administrative expenses were $76.3 million compared with $67.1 million incurred during the prior year three-month period. This resulted in a ratio of these expenses to sales of 11.3% for the current quarter compared with 11.7% a year ago. The reduced ratio of operating expenses to sales in the current year reflects a combination of the effects of cost containment programs as well as leveraging costs on higher sales volume. Operating profit of $26.8 million, or 4.0% of sales in the current period, was up 20.9% compared with $22.1 million, or 3.8% of sales a year ago. Operating profit of the Computer Systems segment was $4.5 million, or 1.4% of sales for the current quarter compared with 3.5% of a year ago. Operating profit of the Industrial Electronics segment was $22.2 million, or 6.2% of sales compared with 4.2% a year ago. Interest expense was $7.6 million in the current quarter compared with $6.1 million a year ago. The increased interest expense is a result of additional borrowings to fund increased working 8 9 capital needs and slightly higher interest rates in the current quarter compared with the same period in fiscal 2000. The effective tax rate for the current year three-month period was 39.0% compared with 43.5% for the same period a year ago. The tax rate differential was primarily due to the unrecognized tax benefit of the operating losses of the Canadian subsidiary which affected the prior year quarter. Primarily as a result of the factors above, the Company's net income for the three-month period ending June 30, 2000 increased 32.6% to $10.2 million from $7.7 million for the same period of the prior year. FINANCIAL CONDITION Current assets increased by $64.0 million and current liabilities increased by $.7 million during the three-month period ended June 30, 2000, resulting in an increase of $60.3 million in working capital. The current ratio was 2.9:1 at June 30, 2000 compared with 2.7:1 at March 31, 2000. The working capital increase related primarily to higher inventory levels, which increased to $417.7 million at June 30, 2000. These inventory increases have been necessary to support the Company's robust sales growth. During the first three months of the current year, total interest-bearing debt increased by $49.9 million reflective of the change in working capital needed to support increased sales level. The ratio of interest-bearing debt to capitalization was 45 percent at June 30, 2000 compared with 43 percent at March 31, 2000. The Company's investments in affiliates increased $16.5 million during the first quarter. The increase is attributable to the unrealized gains in the market value of investments and the Company's purchase, in May 2000, of a minority equity interest in Magirus AG, a leading European computer systems distributor. Headquartered in Stuttgart, Germany, Magirus employs more than 300 people in Germany, Austria, France, Italy, Spain and Switzerland. Management estimates that capital expenditures for the fiscal year 2001 will approximate $25 million. Capital expenditures in the first three months of the current year were $3.3 million. Under present business conditions, it is anticipated that funds from current operations and available credit facilities will be sufficient to finance both capital spending and working capital needs for the balance of the current fiscal year. The Company capitalized approximately $34.2 million in fiscal 1998 and 1999 in connection with the acquisition and installation of an enterprise-wide information technology ("IT") system. Amounts representing approximately $11.5 million of these expenditures were operational in fiscal 1999 and $8.5 million are planned to become operational in the current fiscal year. The balance of $14.2 million represents work-in-process components which are not yet operational. The Company is evaluating these components and presently has no reason to believe that they will not become operational. In addition, management believes there would be no material adverse effect on the financial condition or results of operations of the Company should such components require further modification or replacement. It is contemplated that implementation for completing the balance of the IT system installation will commence in the current fiscal year. 9 10 Portions of this report contain current management expectations which may constitute forward-looking information. All statements that address operating performance, events or developments that management anticipates will occur in the future, including statements relating to future revenue, profits, expenses, income and earnings per share or statements expressing general optimism about future results, are forward-looking statements within the meaning to Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). In addition, words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," variations of such words, and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to safe harbors created in the Exchange Act. The Company's performance may differ materially from that contemplated by such statements for a variety of reasons, including, but not limited to: competition, dependence on the computer market, inventory obsolescence and technology changes, dependence on key suppliers, effects of industry consolidation, risks and uncertainties involving acquisitions, instability in world financial markets, downward pressure on gross margins, uneven patterns of inter-quarter and intra-quarter sales, and management of growth of the business. 10 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK In the normal course of business, operations of the Company are exposed to continuing fluctuations in foreign currency values and interest rates that can affect the cost of operating and financing. Accordingly, the Company addresses a portion of these risks through a program of risk management that includes the use of derivative financial instruments. The Company's objective is to reduce earnings volatility associated with these fluctuations. The Company does not enter into any derivative transactions for speculative purposes. The Company's primary interest rate risk exposure results from the revolving credit facility's various floating rate pricing mechanisms. This interest rate exposure is managed by interest rate swaps to fix the interest rate on a portion of the debt and the use of multiple maturity dates. If interest rates were to increase 100 basis points (one percent) from June 30, 2000 rates, and assuming no changes in debt from June 30, 2000 levels, the additional annualized net expense would be approximately $1.1 million or $.03 per diluted share. The Company has investments, assets, liabilities and cash flows in foreign currencies creating foreign exchange risk. The primary foreign currencies creating foreign exchange risk are the Canadian dollar, British pound, German mark, and New Taiwan dollar. Monthly measurement, evaluation and forward exchange contracts are employed as methods to reduce this risk. At June 30, 2000, one forward exchange contract existed with a maturity of 31 days. PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Number Description ------ ----------- 27 Financial Data Schedule (b) Reports on Form 8-K - None 11 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIONEER-STANDARD ELECTRONICS, INC. Date: August 14, 2000 /S/ James L. Bayman --------------------------- --------------------------------------- James L. Bayman Chairman & CEO Date: August 14, 2000 /S/ Steven M. Billick ------------------------- --------------------------------------- Steven M. Billick Senior Vice President & CFO 12 EX-27 2 ex27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION OF THE CONDENSED CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS MAR-31-2001 JUN-30-2000 28,505 0 414,714 6,461 417,710 865,753 195,887 92,075 1,190,637 300,861 521,922 0 0 9,384 330,220 1,190,637 675,085 675,085 572,003 572,003 76,317 0 7,637 19,173 7,477 10,221 0 0 0 10,221 .38 .32
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