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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended March 31,
2002 |
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or |
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o
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TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to |
Commission File No. 0-5734
PIONEER-STANDARD ELECTRONICS, INC.
(Exact name of registrant as specified in its
charter)
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Ohio
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34-0907152 |
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(State or other jurisdiction of incorporation
or organization) |
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(I.R.S. Employer Identification No.) |
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6065 Parkland Boulevard
Mayfield Heights, Ohio
(Address of principal
executive offices) |
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44124
(Zip code) |
Registrant’s telephone number, including
area code: (440) 720-8500
Securities Registered Pursuant to
Section 12(b) of The Act: None
Securities Registered Pursuant to Section
12(g) of The Act:
Common Shares, without par value
Common Share Purchase Rights
Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days. Yes þ No o
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein and will not be
contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K Annual Report or
any amendment to this Form 10-K. [ ]
The aggregate market value of voting shares of
the Registrant held by non-affiliates was $372,414,924 as of
May 1, 2002, computed on the basis of the last reported
sale price per share ($14.16) of such shares on the NASDAQ
National Market.
As of May 1, 2002, the Registrant had the
following number of Common Shares outstanding: 31,844,601
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive
Proxy Statement to be used in connection with its Annual Meeting
of Shareholders to be held on July 30, 2002 are
incorporated by reference into Part III of this Form 10-K.
Except as otherwise stated, the information
contained in this Annual Report on Form 10-K is as of
March 31, 2002.
TABLE OF CONTENTS
pioneer-standard electronics, inc.
annual report on form 10-k
year ended march 31, 2002
table of contents
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part i
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Item 1
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Business
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Item 2
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Properties
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Item 3
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Legal Proceedings
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Item 4
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Submission of Matters to a Vote of Security
Holders
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Item 4A
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Executive Officers of the Registrant
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part ii
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Item 5
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Market for Registrant’s Common Equity and
Related Shareholder Matters
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Item 6
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Selected Consolidated Financial and Operating Data
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Item 7
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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Item 7A
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Quantitative and Qualitative Disclosures about
Market Risk
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Item 8
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Financial Statements and Supplementary Data
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Item 9
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Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
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part iii
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Item 10
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Directors and Executive Officers of the Registrant
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Item 11
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Executive Compensation
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Item 12
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Security Ownership of Certain Beneficial Owners
and Management and Related Shareholder Matters
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Item 13
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Certain Relationships and Related Transactions
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part iv
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Item 14
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Exhibits, Financial Statement Schedules and
Reports on Form 8-K
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signatures
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1
part i
Item 1. Business
General and Significant Events
Pioneer-Standard Electronics, Inc. was organized
as an Ohio corporation in 1963 and maintains its principal
office at 6065 Parkland Boulevard, Mayfield Heights, Ohio 44124
(telephone number (440) 720-8500). Except as otherwise
stated, the terms “Company” or
“Pioneer-Standard” as used herein shall mean
Pioneer-Standard Electronics, Inc. and its subsidiaries.
The Company is a broad-line distributor of
electronic components and mid-range computer products for
leading manufacturers, and strives to be the preferred strategic
link between suppliers and customers by providing rewardable
differentiated value. The Company is closely aligned with
growing high-technology markets and creates and generates demand
for its suppliers’ and manufacturers’ products and
helps customers incorporate new technology into their
businesses. The Company operates warehouse, distribution and
value added centers throughout North America. In addition, the
Company continues to increase its global presence through
strategic investments in affiliated companies. These investments
further the Company’s growth strategy by offering access to
an extensive distribution network in the Asia Pacific region and
Europe, and to additional markets within the United States.
During Fiscal 2002, the Company made an additional investment to
maintain its 20% equity interest in Magirus AG, a European
computer systems distributor headquartered in Stuttgart, Germany.
As part of the Company’s strategy to be the
best at technology distribution, Pioneer-Standard has made
strategic investments in two start-up software companies that
offer products with the potential to dramatically streamline new
product introduction and reduce product development costs.
During Fiscal 2001, the Company acquired Supplystream, Inc., a
software company specializing in supply chain decision support
tools, and invested in Aprisa, a start-up software corporation.
During Fiscal 2002, the Company acquired Aprisa and consolidated
both software initiatives into one subsidiary, Aprisa, Inc.
Through this subsidiary, the Company has developed an innovative
Web-based software solution, StraightLine, that will accelerate
customers’ design time, time to production and time to
market. The product was launched to the market on May 14,
2002.
In the fourth quarter of Fiscal 2002, the Company
committed to a restructuring plan for certain Corporate and
Industrial Electronics Division operations, which is expected to
be completed by the end of Fiscal 2003. In addition, the Company
announced certain adjustments to the carrying value of its
inventory. Due to the prolonged economic downturn and to
maintain focus on serving the broader needs for a greater
number of customers, as part of the restructuring, the Company
closed its Electronic Manufacturing Resources and Services
Center located in southern California, as well as eliminated
less profitable product lines. The inventory adjustments made
were primarily to adjust the value of the Company’s
inventory for obsolete and excess inventory, including inventory
associated with terminated supplier and customer relationships
not fully covered under the Company’s distributor
agreements.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
2
Description of Segments
Pioneer-Standard is structured into two
businesses with different business models and growth rates as a
result of their positions in the supply chain and the customers
each business serves. The operations are classified into two
reportable operating segments, the distribution of electronic
components and the distribution of mid-range computer products,
which are managed separately based on product and market
differences. In addition to being less dependent on one business
because of the fairly even split of sales, the combination
provides Pioneer-Standard opportunities to stabilize growth and
profitability.
The Company’s third reportable segment,
Corporate and Other, primarily includes investments in
affiliates, selected other assets and fixed assets, related
depreciation and goodwill amortization, certain corporate
management costs, special charges and the net assets and results
of operations of the Company’s software businesses and its
wholly owned subsidiary established for an Accounts Receivable
Securitization financing. (For further information regarding the
Accounts Receivable Securitization financing, see Note 5 to the
Consolidated Financial Statements contained in Part IV hereof.)
The segment presentation reflects how management allocates
resources, measures performance and views the overall business.
Industrial Electronics.
The Company’s Industrial
Electronics Division is a broad-line distributor of
semiconductors, interconnect, passive and electromechanical
(“IPE”) components, power supplies and embedded
computer products. Semiconductors include microprocessors,
memory and programmable logic devices, and analog and digital
integrated circuits. IPE products include capacitors,
connectors, resistors, switches and power conditioning
equipment. This segment also provides value added services
associated with industrial electronic products, such as point of
use inventory management, memory and logic device programming,
power products integration and modification to customer
specifications, and supply chain management programs. Sales of
industrial electronics products constituted 44% of the
Company’s total sales in Fiscal 2002, compared with 51% in
2001 and 52% in 2000.
The industrial electronics market has
historically been cyclical. From calendar year 1998 to calendar
year 2000, the market experienced record growth. In late
calendar year 2000, the industry showed signs of an
over-inventory situation which ultimately resulted in the most
severe drop off in demand ever experienced by the industry. This
downturn, coupled with the overall declining economy,
significantly impacted the Company’s Industrial Electronics
Division.
The electronic components market historically has
also experienced fluctuations in product supply and demand
associated with technology changes and supply capability, which
occur from time to time. At times, such as in Fiscal 2002, when
product supply has been high relative to demand, prices for
products have declined. The Company has attempted to minimize
the effect of these price fluctuations in its distribution
arrangements. The Company’s gross margins are nevertheless
negatively affected when an excess supply of electronic
components causes a general decline in prices for those
products. When there is a shortage of electronic components
supply, the Company’s results of operations will depend on
how much product it is able to obtain from suppliers and how
quickly the Company receives shipments
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
3
of those products. There can be no assurance as
to when the demand for the Company’s products will improve
in order to mitigate the supply and demand imbalance.
Computer Systems.
The Company’s Computer Systems Division is a leading
distributor and reseller of mid-range computer products,
computer systems, software and services. As a complement to
these operations, the Company provides value added services,
including systems integration and consulting services. The
Company’s systems products and value added services
accounted for 56% of the Company’s sales in Fiscal 2002
compared with 49% in 2001 and 48% in 2000.
The technology used in the products distributed
by the Computer Systems Division has changed rapidly over the
last several years, resulting in short product life cycles. In
the past, these short product life cycles were a contributing
factor to the accelerated industry growth as customers increased
capital spending to replace systems that had become
technologically obsolete in a relatively short period of time
with newer and improved models. This factor, along with the
Company’s ability to increase its share and product lines
represented, contributed to significant revenue growth. During
Fiscal 2002, as a result of the economic downturn experienced in
North America, information technology spending declined and
normal purchasing cycles elongated due to the economic
uncertainty. This resulted in lower sales for the Computer
Systems Division. A further slowdown in this market could have a
substantial negative effect on the Company’s revenues and
results of operations.
For financial information regarding the
Company’s business segments, see Note 13 to the
Consolidated Financial Statements contained in Part IV hereof.
Products Distributed and Sources of
Supply
The Company distributes products supplied by more
than 100 manufacturers. A majority of the Company’s
revenues comes from products manufactured by relatively few
suppliers. During the 2002 fiscal year, products purchased from
the Company’s three largest suppliers accounted for 64% of
the Company’s sales volume. The largest three suppliers,
IBM, Intel Corporation and Compaq, supplied 32%, 17% and 16%,
respectively, of the Company’s sales volume. The loss of
any one of the top three suppliers or a combination of certain
other suppliers could have a material adverse effect on the
Company’s business, results of operations and financial
condition unless alternative products manufactured by others are
available to the Company.
Inventory
The Company must maintain certain levels of
inventory in order to ensure that the lead times to its
customers remain competitive. However, to minimize its inventory
exposure, the majority of the products sold by the Company are
purchased pursuant to distributor agreements, which generally
provide for inventory return privileges by the Company upon
cancellation of a distributor agreement. The distributor
agreements also typically provide protection to the Company for
product obsolescence and price erosion. Although the Company
believes that its relationships with suppliers are good, there
can be no
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
4
assurance that the Company’s suppliers will
continue to supply products to the Company on terms acceptable
to the Company.
The Company’s results of operations depend
in part on successful management of the challenges of rapidly
changing technology and evolving industry standards
characteristic of the markets for industrial electronics and
computer systems products. These challenges include predicting
the nature and timing of technological changes and the direction
of evolving industry standards; identifying, obtaining and
successfully marketing new products as they emerge; and
minimizing the risk of loss due to inventory obsolescence. Some
of the Company’s competitors may be able to market products
that have perceived advantages over the products distributed by
the Company or that render the products distributed by the
Company more difficult to market. Although the Company minimizes
the effects of inventory obsolescence through its distribution
arrangements, the Company may have high inventories of unsold
product if a new technology renders a product distributed by the
Company less desirable or obsolete. In addition, customers may
be less willing, for financial or other reasons, to purchase the
new products necessary to use new technologies.
Customers
The Company serves customers in many major
markets of North America. The Company’s operating segments
have a diverse customer base which includes original equipment
manufacturers and contract manufacturers (both of which
constitute the core customer base of the Industrial Electronics
Division), value added resellers and commercial end-users (both
of which constitute the core customer base of the Computer
Systems Division). No single customer accounted for more than
ten percent of the Company’s total sales or the sales of
either operating segment during Fiscal 2002.
Backlog
The Company historically has not had a
significant backlog of orders. There was no significant backlog
at March 31, 2002.
Competition
The sale and distribution of electronic
components and computer systems products are highly competitive,
primarily with respect to price and product availability, but
also with respect to service, variety and availability of
products carried, proximity of sales locations and promptness of
service. The Company also faces intense competition with respect
to obtaining sources of supply for products distributed, and in
developing and maintaining relationships with customers. In the
case of semiconductor and computer systems products, the Company
competes for customers with other distributors as well as with
some of its suppliers. Many of the distributors with which the
Company competes are regional or local distributors. However,
several of the Company’s largest competitors have national
and international distribution businesses and have greater
financial and other resources, which may enable them to compete
more aggressively. Also, it is possible that an increasing
number of suppliers may decide to
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
5
distribute products directly to the customer,
which would further heighten competitive pressures. Due to
continuing competitive pressures, the Company’s operating
margins have declined in recent years, and the Company expects
continued pressure on margins in the foreseeable future.
Industry
Consolidation. The electronic
components distribution industry and the computer systems
distribution industry have become increasingly concentrated in
recent years as companies have combined or formed strategic
alliances. If this trend continues, new business combinations or
strategic alliances may have a competitive advantage if their
potentially greater financial, technical, marketing or other
resources allow them to negotiate relationships with suppliers
that are more favorable than the Company’s relationships
with its suppliers. If such relationships develop, these new
business combinations or strategic alliances may be able to
offer lower prices that could precipitate an industry-wide
decline in prices. This decline could have a negative impact on
the Company’s margins, and could cause a decline in the
Company’s revenues or loss of market share.
Growth through Acquisitions
The Company continually reviews acquisition
prospects and strategic alliances that could complement its
existing lines of business, augment its volume and/or geographic
coverage or provide opportunities to expand into new markets.
The Company’s continued growth depends in part on its
ability to find suitable acquisition candidates and to
consummate strategic acquisitions. To proceed, the prospect must
have an appropriate valuation based on synergies to be realized
through a combination. To fund acquisition costs, the Company
may issue equity securities, which could dilute the holdings of
existing shareholders, or incur debt, which could result in
additional leveraging. Furthermore, acquiring businesses always
entails risk and uncertainties that could have a material
adverse impact on the Company’s business and results of
operations.
Employees
As of March 31, 2002, the Company had 2,343
employees. The Company is not a party to any collective bargaining agreements,
has had no strikes or work stoppages and
considers its employee relations to be excellent.
Distribution
Pioneer-Standard distributes its products
principally in the United States and Canada. Non-U.S. sales are
not a significant portion of the Company’s sales.
Item 2. Properties
The Company owns an 87,000 square-foot facility
and a 30,000 square-foot facility, each located in Cleveland,
Ohio. The larger facility houses certain corporate, accounting
and information system functions, while the smaller building
serves as a corporate storage facility. In addition, the Company
owns a 106,000 square-foot facility, located in Twinsburg, Ohio.
The Twinsburg facility houses the Company’s Industrial
Electronics Distribution Center. Certain of the Company’s
corporate offices are
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
6
located in a 60,450 square-foot facility in
Mayfield Heights, Ohio, to which the Company entered into an
11-year lease in April 1999. The Company’s operations
occupy a total of approximately 1,404,800 square feet, with the
majority, approximately 1,263,600 square feet, devoted to
product distribution facilities and sales offices. Of the
approximately 1,404,800 square feet occupied, 223,000 square
feet are owned and 1,181,800 square feet are occupied under
operating leases. The Company’s facilities of 100,000
square feet or larger, as of March 31, 2002, are set forth
in the table below.
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Type of |
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Approximate |
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Leased or |
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Facility |
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Square Footage |
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Owned |
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Using Facility |
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Solon, Ohio
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Distribution
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225,750 |
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Leased |
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Industrial Electronics
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Solon, Ohio
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Distribution
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224,600 |
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Leased |
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Computer Systems
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Solon, Ohio
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Distribution
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102,500 |
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Leased |
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Industrial Electronics and Computer Systems
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Twinsburg, Ohio
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Distribution
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106,000 |
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Owned |
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Industrial Electronics
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The Company’s major leases contain renewal
options for periods of up to 15 years. For information
concerning the Company’s rental obligations, see Note 4 to
the Consolidated Financial Statements contained in Part IV
hereof. The Company believes that its distribution and office
facilities are well maintained, are suitable and provide
adequate space for the operations of the Company. The office
facility and storage facility located in Cleveland, Ohio, are
for sale and the Company has a pending sales contract. As part
of the sales contract, arrangements have been made for the
Company to lease back certain space, including the storage
facility, under operating leases.
Item 3. Legal
Proceedings
The Company is not a party to any material
pending legal proceedings other than ordinary routine litigation
incidental to its respective business.
Item 4. Submission of Matters
to a Vote of Security Holders
No matters were submitted to a vote of the
Company’s security holders during the last quarter of its
fiscal year ended March 31, 2002.
Item 4A. Executive Officers of
the Registrant
The information under this item is furnished
pursuant to Instruction 3 to Item 401(b) of
Regulation S-K.
The table on the following page sets forth the
name, age, current position and principal occupation and
employment during the past five years through May 20, 2002, of
the Company’s executive officers.
There is no relationship by blood, marriage or
adoption among the listed officers. Messrs. Rhein and
Billick hold office until terminated as set forth in their
employment agreements. All other executive officers serve until
his or her successor is elected and qualified.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
7
executive officers of the company
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Current Position |
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Other Positions |
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James L. Bayman
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65
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Chairman of the Board of the Company since April
1, 1996.
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From April 3, 1995, to March 31, 2002, Chief
Executive Officer of the Company.
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Arthur Rhein
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56
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President and Chief Executive Officer of the
Company since April 1, 2002.
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From 1997 to March 31, 2002, President and Chief
Operating Officer. From 1993 to April 29, 1997, Senior Vice
President of the Company.
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Robert J. Bailey
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Executive Vice President, Computer Systems
Division since May 2002.
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From March 1998 to May 2002, Senior Vice
President, Marketing of the Company’s Computer Systems
Division. From prior to 1997 to March 1998, Vice President of
Marketing of the Computer Systems Division.
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Steven M. Billick
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Executive Vice President and Chief Financial
Officer since May 2002.
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From April 2000 to May 2002, Senior Vice
President and Chief Financial Officer. From 1998 to April 2000,
Business Consultant for Management Consulting Services. From
prior to 1997 to 1998, Senior Vice President, Treasurer and
Chief Financial Officer of Signature Brands, Inc.
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Peter J. Coleman
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Executive Vice President, Computer Systems
Division since May 2002.
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From April 1998 to May 2002, Senior Vice
President, Sales of the Company’s Computer Systems
Division. From prior to 1997 to 1998, Vice President of Sales of
the Computer Systems Division.
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Edward J. Gaio
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Vice President and Controller of the Company
since April 2001.
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From January 2000 to April 2001, Controller. From
1998 to 2000, Director of Finance and Planning of the Industrial
Electronics Division. From prior to 1997 to 1998, Director of
Distribution and Logistics for Avery Denison Corporation.
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PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
8
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Age |
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Current Position |
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Other Positions |
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Jean M. Miklosko
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42
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Vice President and Treasurer since October 24,
2000.
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From 1997 to 2000, Treasurer for The Geon Company.
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James L. Sage
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Executive Vice President, Chief Information
Officer since May 2002.
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From May 2001 to May 2002, Senior Vice President
and Chief Information Officer. From April 2000 to May 2001, Vice
President and Chief Information Officer. From 1998 to April
2000, Vice President, Information Systems. From 1997 to 1998,
Director of Software Development.
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Richard A. Sayers II
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Executive Vice President, Chief Human Resources
Officer since May 2002.
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From April 2000 to May 2002, Senior Vice
President, Corporate Services. From 1998 to April 2000, Senior
Vice President, Human Resources. From 1997 to 1998, Managing
Director, Human Resources, for PricewaterhouseCoopers LLP.
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Lawrence N. Schultz
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Secretary of the Company since 1999.
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From prior to 1997 to present, Partner of the law
firm of Calfee, Halter & Griswold LLP. (1)
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Kathryn K. Vanderwist
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Vice President, General Counsel and Assistant
Secretary since April 2001.
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From April 2000 to April 2001, General Counsel
and Assistant Secretary. From July 1999 to March 2000, Corporate
Counsel. From 1998 to July 1999, Litigation Attorney for Nestle
USA, Inc. From prior to 1997 to 1999, Corporate Counsel and
Assistant Secretary for Signature Brands, Inc.
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The law firm of Calfee, Halter & Griswold LLP
serves as counsel to the Company.
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PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
9
part ii
Item 5. Market
for Registrant’s Common Equity and Related Shareholder
Matters
The Company’s Common Shares, without par
value, are traded on the NASDAQ National Market. Common Share
prices are quoted daily under the symbol “PIOS.” The
high and low market prices and dividends per share for the
Common Shares for each quarter during the past two years are
presented in the table below:
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Year Ended March 31, 2002 |
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First |
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Second |
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Third |
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Fourth |
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Quarter |
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Quarter |
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Quarter |
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Quarter |
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Year |
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Dividends declared per Common Share
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$0.03 |
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$0.03 |
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$0.03 |
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$0.03 |
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$0.12 |
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Price range per Common Share
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$9.00–$13.80 |
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$8.87–$12.52 |
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$7.40–$13.37 |
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$11.22–$14.94 |
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$7.40–$14.94 |
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Closing price on last day of period
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$12.80 |
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$9.02 |
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|
|
$12.70 |
|
|
|
$14.15 |
|
|
|
$14.15 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2001 |
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
|
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Year |
|
|
|
Dividends declared per Common Share
|
|
|
$0.03 |
|
|
|
$0.03 |
|
|
|
$0.03 |
|
|
|
$0.03 |
|
|
|
$0.12 |
|
|
Price range per Common Share
|
|
$11.38–$15.88 |
|
|
$12.50–$16.13 |
|
|
$9.13–$14.50 |
|
|
$10.50–$14.73 |
|
|
$9.13–$16.13 |
|
|
Closing price on last day of period
|
|
|
$14.75 |
|
|
|
$13.56 |
|
|
|
$11.00 |
|
|
|
$12.25 |
|
|
|
$12.25 |
|
|
As of May 1, 2002, there were 31,844,601
Common Shares (including 3,965,740 subscribed Common Shares) of
Pioneer-Standard Electronics, Inc. outstanding, and there were
2,818 shareholders of record. The closing price of the Common
Shares on May 1, 2002, was $14.16.
Cash dividends on Common Shares are payable
quarterly upon authorization by the Board of Directors. Regular
payment dates are the first day of August, November, February
and May. The Company also makes quarterly distributions on its
6.75% Mandatorily Redeemable Convertible Trust Preferred
Securities (the “Trust preferred securities”) to
shareholders of record on the fifteenth day preceding the
distribution date. Regular payment dates for these distributions
are on the last day of March, June, September and December. The
Company expects to pay comparable cash dividends on its Common
Shares and continue to make the distributions on its Trust
preferred securities in the foreseeable future. The Company
maintains a Dividend Reinvestment Plan whereby cash dividends
and additional monthly cash investments up to a maximum of
$5,000 per month may be invested in the Company’s Common
Shares at no commission cost.
On April 27, 1999, the Company adopted a
Shareholder Rights Plan. For further information about the
Common Share Purchase Rights Plan, see Note 10 to the
Consolidated Financial Statements contained in Part IV hereof.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
10
Item 6. Selected
Consolidated Financial and Operating Data
The following selected consolidated financial and
operating data has been derived from the audited Consolidated
Financial Statements of the Company and should be read in
conjunction with the Company’s Consolidated Financial
Statements and the Notes thereto, and Item 7 –
Management’s Discussion and Analysis of Financial Condition
and Results of Operations, which are included in this Annual
Report on Form 10-K.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended March 31 |
|
|
|
|
|
|
| (Dollars in Thousands, Except Per Share Data) |
|
2002 |
|
2001 |
|
2000 |
|
1999 |
|
1998 |
|
|
|
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net sales
|
|
$ |
2,323,593 |
|
|
$ |
2,901,353 |
|
|
$ |
2,560,711 |
|
|
$ |
2,267,615 |
|
|
$ |
1,693,168 |
|
| |
Income (loss) before income
taxes (1) (2)
|
|
|
(3,049 |
) |
|
|
67,084 |
|
|
|
77,225 |
|
|
|
60,668 |
|
|
|
52,233 |
|
| |
Provision (benefit) for income taxes
|
|
|
(1,256 |
) |
|
|
26,124 |
|
|
|
31,210 |
|
|
|
24,018 |
|
|
|
21,624 |
|
| |
Income (loss) before extraordinary
charge (1) (2)
|
|
|
(7,047 |
) |
|
|
35,046 |
|
|
|
40,145 |
|
|
|
30,809 |
|
|
|
30,497 |
|
| |
Extraordinary charge
|
|
|
— |
|
|
|
(470 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
Net income (loss) (1) (2)
|
|
$ |
(7,047 |
) |
|
$ |
34,576 |
|
|
$ |
40,145 |
|
|
$ |
30,809 |
|
|
$ |
30,497 |
|
|
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Working capital
|
|
$ |
393,794 |
|
|
$ |
596,413 |
|
|
$ |
500,832 |
|
|
$ |
475,485 |
|
|
$ |
460,482 |
|
| |
Investments in affiliated companies
|
|
|
45,670 |
|
|
|
58,057 |
|
|
|
46,030 |
|
|
|
13,964 |
|
|
|
6,531 |
|
| |
Total assets
|
|
|
916,937 |
|
|
|
1,183,610 |
|
|
|
1,113,835 |
|
|
|
947,507 |
|
|
|
957,099 |
|
| |
Long-term debt
|
|
|
179,000 |
|
|
|
390,999 |
|
|
|
320,205 |
|
|
|
313,240 |
|
|
|
336,234 |
|
| |
Mandatorily redeemable convertible trust
preferred securities
|
|
|
143,675 |
|
|
|
143,750 |
|
|
|
143,750 |
|
|
|
143,750 |
|
|
|
125,000 |
|
| |
Shareholders’ equity
|
|
$ |
340,697 |
|
|
$ |
354,257 |
|
|
$ |
324,065 |
|
|
$ |
271,503 |
|
|
$ |
244,996 |
|
| |
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Basic
|
|
|
27,040 |
|
|
|
26,793 |
|
|
|
26,409 |
|
|
|
26,351 |
|
|
|
26,205 |
|
| |
|
Diluted
|
|
|
27,040 |
|
|
|
36,616 |
|
|
|
36,178 |
|
|
|
35,711 |
|
|
|
26,949 |
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic net income (loss) per
share (1) (2)
|
|
$ |
(0.26 |
) |
|
$ |
1.29 |
|
|
$ |
1.52 |
|
|
$ |
1.17 |
|
|
$ |
1.16 |
|
| |
Diluted net income (loss) per
share (1) (2)
|
|
|
(0.26 |
) |
|
|
1.11 |
|
|
|
1.27 |
|
|
|
1.03 |
|
|
|
1.14 |
|
| |
Cash dividends per share
|
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.12 |
|
|
|
0.12 |
|
| |
Book value per share
|
|
$ |
12.56 |
|
|
$ |
13.18 |
|
|
$ |
12.20 |
|
|
$ |
10.30 |
|
|
$ |
9.30 |
|
| |
Price range of common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
High
|
|
$ |
14.94 |
|
|
$ |
16.13 |
|
|
$ |
18.75 |
|
|
$ |
13.19 |
|
|
$ |
18.25 |
|
| |
|
Low
|
|
$ |
7.40 |
|
|
$ |
9.13 |
|
|
$ |
6.50 |
|
|
$ |
5.63 |
|
|
$ |
11.38 |
|
|
Other Comparative Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sales per employee
|
|
$ |
944 |
|
|
$ |
1,137 |
|
|
$ |
1,042 |
|
|
$ |
883 |
|
|
$ |
770 |
|
| |
Gross margin percent of sales (1)
|
|
|
13.6 |
% |
|
|
14.9 |
% |
|
|
15.2 |
% |
|
|
15.4 |
% |
|
|
17.5 |
% |
| |
Operating expense percent of sales
|
|
|
12.6 |
% |
|
|
11.0 |
% |
|
|
11.3 |
% |
|
|
11.7 |
% |
|
|
13.2 |
% |
| |
Net income (loss) percent of
sales (1) (2)
|
|
|
(0.3 |
)% |
|
|
1.2 |
% |
|
|
1.6 |
% |
|
|
1.4 |
% |
|
|
1.8 |
% |
| |
Working capital as a percent of sales (3)
|
|
|
19.5 |
% |
|
|
20.6 |
% |
|
|
18.5 |
% |
|
|
21.2 |
% |
|
|
27.2 |
% |
| |
Debt to total capital (4)
|
|
|
27.0 |
% |
|
|
44.0 |
% |
|
|
40.9 |
% |
|
|
43.2 |
% |
|
|
47.8 |
% |
| |
Return on equity (1) (2) (5)
|
|
|
(0.3 |
)% |
|
|
8.3 |
% |
|
|
10.5 |
% |
|
|
9.3 |
% |
|
|
10.5 |
% |
| |
Average number of employees
|
|
|
2,462 |
|
|
|
2,551 |
|
|
|
2,457 |
|
|
|
2,568 |
|
|
|
2,199 |
|
|
|
|
| (1) |
During the fourth quarter of Fiscal 2002, the
Company recorded $12.4 million ($7.3 million, after tax) in
special charges consisting of inventory adjustments of
$8.6 million and a restructuring charge of $3.8 million.
|
| |
| (2) |
During the fourth quarter of Fiscal 2001, the
Company recognized a non-cash write-down of $14.2 million
($8.7 million, after tax) for the abandonment of certain
information technology system assets.
|
| |
| (3) |
Working capital as a percent of sales is the
period ending working capital divided by the annualized rolling
quarter sales.
|
| |
| (4) |
Debt to total capital is calculated as current
and long-term debt divided by current and long-term debt plus
shareholders’ equity and the Trust preferred securities.
|
| |
| (5) |
Return on equity is calculated as net income
(loss) plus distributions on the Trust preferred securities
divided by average shareholders’ equity and average Trust
preferred securities. The 2002 and 2001 return on equity
adjusted for the special charges of $12.4 million and
information technology system asset write-down of
$14.2 million are 1.2% and 10.1%, respectively.
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
11
Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Pioneer-Standard Electronics, Inc. and its
subsidiaries (the “Company” or
“Pioneer-Standard”) distribute a broad range of
electronic components and mid-range computer products
manufactured by others. The Company is closely aligned with
growing high-technology markets and creates and generates demand
for its suppliers’ and manufacturers’ products and
helps customers incorporate new technology into their
businesses. These products are sold to original equipment
manufacturers, contract manufacturers, value added resellers and
commercial end-users. The Company has operations in North
America and strategic investments in Europe and the Asia-Pacific
region. The Company’s operations have been classified into
three reportable segments, the distribution of electronic
components, the distribution of mid-range computer products,
both of which are managed separately based on product and market
differences, and Corporate and Other. The Industrial Electronics
Division is a broad-line distributor of semiconductors,
interconnect, passive and electromechanical components, power
supplies and embedded computer products. The Computer Systems
Division is a leading distributor and reseller of mid-range
computer products, computer systems, software and services.
Corporate and Other primarily includes investments in
affiliates, selected other assets and fixed assets, related
depreciation and goodwill amortization, certain corporate
management costs, special charges and the net assets and results
of operations of the Company’s software businesses and its
wholly owned subsidiary established for an Accounts Receivable
Securitization financing.
For an understanding of the significant factors
that influenced the Company’s performance during the past
three fiscal years, the following discussion should be read in
conjunction with the Company’s Consolidated Financial
Statements, including the related notes. Reference herein to any
particular year or quarter generally refers to the
Company’s fiscal year periods ending March 31. Certain
amounts in the prior periods have been reclassified to conform
to the current period’s presentation.
OVERVIEW OF FISCAL 2002
Pioneer-Standard entered Fiscal 2002 with a
conservative view due to the slowdown in the electronic
components market, the uncertainty of the U.S. economy and the
threat of slowdown in information technology (“IT”)
spending. During the year the slowdown in the electronics market
evolved into a severe downturn. The threat of a slowdown in IT
spending became a reality in the second quarter of Fiscal 2002
as the economic environment further deteriorated. By managing
working capital and taking aggressive actions to reduce
expenses, the Company achieved break-even operating results for
the year, before special charges, on a 20% sales decline.
Although financial results declined, and despite the economic
environment, both of the Company’s operating divisions were
able to gain or maintain market share with key suppliers. In
addition, the Company’s Computer Systems Division was
successful in increasing its operating income and operating
margin compared with Fiscal 2001.
In Fiscal 2002, the Company continued its focus
on cost and expense management, successfully reduced expenses
throughout the Company, and effectively managed working capital
in this difficult environment. Consolidated operating expenses
for the year decreased 8% to $294 million from
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
12
$318 million in 2001 and the Company was
able to reduce inventory by 34% compared with the prior year.
During the fourth quarter of 2002, the Company recorded
$12.4 million in pre-tax special charges, $7.3 million
after tax, or $0.27 per share. These special charges consisted
of inventory adjustments made in response to the severe downturn
and duration of the downturn in the electronic component markets
and a restructuring charge taken to better position the Company
operationally going into Fiscal 2003. Including special charges,
the Company reported a net loss of $7.0 million, or $0.26
per share, for Fiscal 2002, compared with net income in Fiscal
2001 of $34.6 million, or $1.11 diluted earnings per share.
During Fiscal 2002, Pioneer-Standard announced
new initiatives in the rapidly growing storage market by
expanding solutions and creating a business unit dedicated to
storage. The Company also acquired a software start-up
corporation, Aprisa. All of these initiatives improve the
Company’s future growth prospects.
CURRENT ECONOMIC ENVIRONMENT
The Company’s focus on aspects of the
business that it could immediately impact during the current
difficult economic environment and the initiatives it
implemented within the past year well position Pioneer-Standard
to capitalize on future opportunities. The Company’s vision
is to achieve recognition for introducing and utilizing the most
sophisticated distribution technology combined with a highly
skilled workforce to improve its customers’ products and
business and create superior demand for its suppliers. The
Company’s focus on distinct, innovative, technology-based
solutions that provide rewardable differentiated value supports
Pioneer-Standard’s goal to achieve growth at more
sustainable, higher levels of profitability. The Company’s
balanced business as well as its new business unit, expanded
services position, and increased Web-based initiatives are a
winning combination that solidly position the Company relative
to its competitors.
Uncertainties in Fiscal 2003 about the duration
of the downturn in the electronics markets and the overall
economic recovery remain. With the cost-cutting measures taken
during Fiscal 2002, the Company is well positioned for the
current economic environment, as well as the impending recovery.
The long-term fundamentals of the industries Pioneer-Standard
serves are strong. Electronic components and computer systems
are increasingly pervasive. The Company is aligned with
fast-growing high-technology markets that provide long-term
growth opportunities. The Company is at the forefront of
technology distribution and has been recognized by leading
suppliers, manufacturers and industry experts for innovative
products and services and working collaboratively with suppliers
and customers, which demonstrates the advantage of customized
solutions.
CRITICAL ACCOUNTING POLICIES AND
ESTIMATES
Pioneer-Standard’s discussion and analysis
of its financial condition and results of operations are based
upon the Company’s Consolidated Financial Statements, which
have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of
these financial statements requires the Company to make
significant estimates and judgments that affect the reported
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
13
amounts of assets, liabilities, revenues, and
expenses and related disclosure of contingent assets and
liabilities. On an ongoing basis, the Company evaluates its
estimates, including those related to bad debts, inventories,
investments, intangible assets, income taxes, restructuring, and
contingencies and litigation. The Company bases its estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources.
The policies discussed below are considered by
management to be critical to an understanding of
Pioneer-Standard’s Consolidated Financial Statements
because their application places the most significant demands on
management’s judgment, with financial reporting results
relying on estimation about the effect of matters that are
inherently uncertain. Specific risks for these critical
accounting policies are described in the following paragraphs.
For all of these policies, management cautions that future
events rarely develop exactly as forecast, and the best
estimates routinely require adjustment.
Revenue
Recognition. Revenue
from product sales is generally recognized upon shipment
provided that persuasive evidence of an arrangement exists, the
sales price is fixed or determinable, collectibility is
reasonably assured and title and risk of loss have passed to the
customer. Sales are recorded net of discounts, rebates and
returns. A reserve is provided for product returns based on the
Company’s historical experience. A portion of products sold
are estimated to be returned due to reasons such as product
failure and excess inventory stocked by the customer, which
subject to certain terms and conditions, the Company will agree
to accept. The Company records estimated reductions to revenues
at the time of sale based on this historical experience. If
future trends were to change significantly from those
experienced in the past, incremental reductions to revenues may
result based on this new experience.
Allowance for Doubtful
Accounts. The
Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make
required payments. These allowances are based on both recent
trends of certain customers estimated to be a greater credit
risk as well as general trends of the entire customer pool. If
the financial condition of the Company’s customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. To mitigate
this credit risk the Company performs periodic credit
evaluations of its customers and obtains credit insurance in
certain circumstances to protect its interests.
Inventories. Inventories
are stated at the lower of cost (first-in, first-out basis) or
market, net of related reserves. The Company’s inventory is
constantly monitored to ensure appropriate valuation.
Adjustments of inventories to market value are based upon
contractual provisions governing price protection, stock
rotation (right of return status), and technical obsolescence,
as well as turnover and assumptions about future demand and
market conditions. If assumptions about future demand change
and/or actual market conditions are less favorable than those
projected by management, additional adjustments to inventory
valuations may be required. Because of the large number of
transactions and the complexity of managing the process around
price protections and stock rotations, estimates are
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
14
made regarding adjustments to the cost of
inventories. Actual amounts could be different from those
estimated.
Investments. The
Company holds marketable equity securities that are carried at
fair value. Impairment of investment securities results in a
charge to operations when a market decline below cost is deemed
other than temporary. Management regularly reviews each
investment security for impairment based on criteria that
include the extent to which cost exceeds market value, the
duration of the market decline and the financial condition of
and specific prospects of the issuer. Pioneer-Standard also
evaluates available information such as published financial
reports and market research and analyzes cyclical trends within
the industry segments in which the various companies operate to
determine whether market declines should be considered other
than temporary.
Deferred
Taxes. The
carrying value of the Company’s deferred tax assets is
dependent upon the Company’s ability to generate sufficient
future taxable income in certain tax jurisdictions. Should the
Company determine that it would not be able to realize all or
part of its deferred tax assets in the future, an adjustment to
the deferred tax assets would be expensed in the period such
determination was made. The Company presently records a
valuation allowance to reduce its deferred tax assets to the
amount that is more likely than not to be realized. While the
Company has considered future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for
the valuation allowance, in the event that the Company were to
determine that it would be able to realize its deferred tax
assets in the future in excess of its net recorded amount
(including the valuation allowance), an adjustment to the
deferred tax asset would increase income in the period such
determination was made.
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 can be reasonably
estimated. The Company assesses the likelihood of adverse
judgments or outcomes to these matters, as well as the range of
potential losses. A determination of the reserves required, if
any, is made after careful analysis. The required reserves may
change in the future due to new developments.
Restructuring and Other Special
Charges. The
Company has recorded a reserve in connection with restructuring
its business. This reserve principally includes estimates
related to employee separation costs, the consolidation of
facilities, contractual obligations, and the valuation of
inventories. Actual amounts could be different from those
estimated.
Intangible and Long-Lived
Assets. In
assessing the recoverability of the Company’s goodwill and
other long-lived assets, significant assumptions regarding the
estimated future cash flows and other factors to determine the
fair value of the respective assets must be made, as well as the
related estimated useful lives. If these estimates or their
related assumptions change in the future as a result of changes
in strategy and/or market conditions, the Company may be
required to record impairment charges for these assets.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
15
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting
Standards Board (the “FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 141,
“Business Combinations,” and SFAS No. 142,
“Goodwill and Other Intangible Assets.” In
October 2001, the FASB issued SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived
Assets.” The Company will account for all current and
future business combinations under SFAS No. 141. The
Company adopted SFAS Nos. 142 and 144 effective
April 1, 2002, as required. A discussion of these new
standards is included in Note 1 to the Consolidated Financial
Statements.
RESULTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Dollars in Thousands) |
|
2002 |
|
2001 |
|
2000 |
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Industrial Electronics
|
|
$ |
1,029,271 |
|
|
|
44.3 |
% |
|
$ |
1,469,515 |
|
|
|
50.7 |
% |
|
$ |
1,341,222 |
|
|
|
52.4 |
% |
| |
Computer Systems
|
|
|
1,294,322 |
|
|
|
55.7 |
% |
|
|
1,431,838 |
|
|
|
49.3 |
% |
|
|
1,219,489 |
|
|
|
47.6 |
% |
|
| |
|
Consolidated Net Sales
|
|
|
2,323,593 |
|
|
|
100.0 |
% |
|
|
2,901,353 |
|
|
|
100.0 |
% |
|
|
2,560,711 |
|
|
|
100.0 |
% |
|
Cost of Goods Sold
|
|
|
2,007,618 |
|
|
|
86.4 |
% |
|
|
2,468,571 |
|
|
|
85.1 |
% |
|
|
2,170,684 |
|
|
|
84.8 |
% |
|
| |
|
Gross Margin
|
|
|
315,975 |
|
|
|
13.6 |
% |
|
|
432,782 |
|
|
|
14.9 |
% |
|
|
390,027 |
|
|
|
15.2 |
% |
|
Operating Expenses
|
|
|
293,903 |
|
|
|
12.6 |
% |
|
|
318,400 |
|
|
|
11.0 |
% |
|
|
289,631 |
|
|
|
11.3 |
% |
|
Restructuring Charge
|
|
|
3,796 |
|
|
|
0.2 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Write-down of IT System Assets
|
|
|
— |
|
|
|
— |
|
|
|
14,200 |
|
|
|
0.5 |
% |
|
|
— |
|
|
|
— |
|
|
| |
|
Operating Income
|
|
$ |
18,276 |
|
|
|
0.8 |
% |
|
$ |
100,182 |
|
|
|
3.5 |
% |
|
$ |
100,396 |
|
|
|
3.9 |
% |
|
The following table identifies the Company’s
Operating Income and Operating Income margins by segment:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Dollars in Thousands) |
|
2002 |
|
2001 |
|
2000 |
|
|
|
Industrial Electronics
|
|
$ |
(3,582 |
) |
|
|
(0.4 |
)% |
|
$ |
85,921 |
|
|
|
5.9 |
% |
|
$ |
72,254 |
|
|
|
5.4 |
% |
|
Computer Systems
|
|
|
47,783 |
|
|
|
3.7 |
% |
|
|
46,531 |
|
|
|
3.3 |
% |
|
|
45,088 |
|
|
|
3.7 |
% |
|
Corporate and Other
|
|
|
(25,925 |
) |
|
|
(1.1 |
)% |
|
|
(32,270 |
) |
|
|
(1.1 |
)% |
|
|
(16,946 |
) |
|
|
(0.7 |
)% |
|
| |
Consolidated Operating Income
|
|
$ |
18,276 |
|
|
|
0.8 |
% |
|
$ |
100,182 |
|
|
|
3.5 |
% |
|
$ |
100,396 |
|
|
|
3.9 |
% |
|
Fiscal 2002 consolidated net sales decreased
approximately $600 million or 20% from consolidated net
sales in 2001 as a result of the sales volume decline in the
markets served by the Company’s Industrial Electronics
Division (“IED”) and the Computer Systems Division
(“CSD”). More than 75% of the decline in consolidated
net sales for the year was attributable to IED as a result of
the downturn in the electronic components market.
Fiscal 2002 IED net sales decreased 30% from
Fiscal 2001 compared with an increase in sales of 10% in 2001
over 2000. The 2002 decline in IED sales was a result of
significant volume declines and lower average selling prices and
can be attributed to the most severe downturn ever experienced
in the
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
16
electronic component industry, caused by excess
inventory throughout the supply chain and the lower level of
end-user demand in the markets the Company serves. Sales
increased in 2001 as a result of record growth in the electronic
components markets fueled by the strong end-user demand in the
communications and Internet markets, which began in Fiscal 2000.
The increase was offset by a dramatic reduction in sales growth
in the last half of 2001, caused by the beginning of an
industry-wide market slowdown. Looking forward, the Company is
confident the markets will return, but with the lack of
visibility regarding the timing of any meaningful recovery, the
Company is anticipating another difficult year.
Fiscal 2002 CSD net sales decreased 10% from 2001
and increased 17% in 2001 compared with 2000. The weak U.S.
economy, manifested by a slowdown in information technology
spending, has been the primary factor in the 2002 decrease in
net sales compared with 2001. The increase in 2001 sales
compared with 2000 was the result of strong demand for mid-range
servers, storage products and software throughout 2001. Even
though the challenging sales environment is expected to
continue, CSD will continue to benefit from the broad
diversification of the customers it serves, as well as its
concentration in the mid-to-large-sized customer segment.
Gross Margin
Consolidated gross margin decreased to 13.6% for
2002 from 14.9% in 2001. A portion of this decrease, 0.4%, is
due to an inventory adjustment associated with the closing of an
IED business line as part of the fourth quarter restructuring,
discussed below, combined with other inventory adjustments for
obsolete and excess inventory, including inventory associated
with terminated supplier and customer relationships. The
decrease excluding the effect of the inventory adjustments is
attributable to the shift in the divisional sales mix and
reduced sales volume along with lower average selling prices
affecting IED. Management anticipates that the reduction in
gross margins is temporary and margins will recover when the
market returns to normal levels.
Consolidated gross margin for 2001 was 14.9%
compared with 15.2% in 2000. Despite the pricing pressures
experienced in the fourth quarter of Fiscal 2001, IED had an
overall increase in gross margin for 2001 primarily attributable
to higher average selling prices and long lead times experienced
during the first eight months of the fiscal year as a result of
the demand for certain products. This gross margin improvement
was more than offset by the sales mix caused by a higher
proportion of the Computer System Division’s sales of
relatively lower-margin products.
Operating Costs
Warehouse, selling and administrative expenses
decreased $24.5 million, or 8.0%, in Fiscal 2002 from
$318.4 million in Fiscal 2001. The decrease in operating
expense can primarily be attributed to the expense reduction
initiatives implemented in the fourth quarter of Fiscal 2001 and
in the third quarter of Fiscal 2002 in order to improve
operating margins in this difficult sales environment. However,
due to the significant volume declines in sales, operating costs
as a percentage of sales increased to 12.6% for Fiscal
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
17
2002, up from 11.0% for the prior year. The
overall dollar decrease in operating expenses can be
specifically attributed to lower compensation and benefits due
to personnel reductions and lower incentives associated with
current financial performance, combined with the reduction in
discretionary spending demonstrated through decreased
advertising and promotion expense, travel and entertainment
expense, communications expense and contract labor. The overall
decrease in operating expenses was slightly offset by an
increase in bad debt expense and additional expenses related to
the Company’s start-up software businesses. The
Company’s bad debt expense increased $8.4 million from
Fiscal 2001. This increase is the result of additional reserve
requirements at IED and CSD for accounts that filed for
Chapter 11 bankruptcy protection as a result of the
economic downturn, an increase to the reserve for accounts
denied credit insurance, and the prolonged weakness in the
technology marketplace.
The improvement in operating expenses as a
percentage of sales when comparing 2001 and 2000 is the result
of leveraging expenses on higher sales volume, coupled with the
effects of implementing cost control initiatives. The overall
dollar increase in operating expenses between Fiscal 2001 and
Fiscal 2000 was the result of higher compensation and fringes
attributable to favorable operating results, an increase in
outside services, repairs and maintenance expense and bad debt
expense, offset by a decrease in contract labor costs.
Special Charges
Beginning in the fourth quarter of Fiscal 2001
and continuing through Fiscal 2002, the Company took a number of
significant actions, including reductions in its workforce,
salary freezes and furloughs, cutbacks in discretionary
spending, deferral of non-strategic projects, and other cost
containment and cost reduction actions, to mitigate, in part,
the impact of significantly reduced revenues. Due to the
duration of the severe downturn in the electronic components
market, during the fourth quarter of Fiscal 2002, management
committed to a restructuring plan for certain Corporate and IED
operations. As a result of this action, the Company recognized a
restructuring charge and other special charges totaling
approximately $12.4 million, pre-tax, of which
$8.6 million is included in “Cost of Goods Sold”
in the 2002 Consolidated Statement of Operations and
$3.8 million is classified in the Fiscal 2002 Consolidated
Statement of Operations as “Restructuring Charge.” The
restructuring charge includes $1.9 million related to
qualifying exit costs for one service center and eleven regional
office facilities and $1.9 million related to severance and
other employee benefits to be paid to approximately 100
personnel. The Company estimates annual pre-tax cost savings
beginning in Fiscal 2003 of approximately $8.2 million.
These estimates of future costs and benefits are subject to
change during the execution of the restructuring plan. As of
March 31, 2002, no payments had been made for any of these
expenses. In addition to costs associated with personnel
reductions and the consolidation of certain facilities, the
special charges included provisions related to inventory
valuation adjustments for excess and obsolete inventory
primarily associated with the Company’s decision, as part
of the restructuring plan, to close its Electronics
Manufacturing Resources and Services facility and to terminate
certain supplier and customer relationships.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
18
In the fourth quarter of 2001, the Company
recognized a $14.2 million pre-tax charge for a non-cash
write-down for the abandonment of certain IT system assets.
Corporate and Other
The operating loss for the Corporate and Other
segment was $25.9 million for Fiscal 2002 compared with
$32.3 million in Fiscal 2001, an improvement of
$6.3 million. The improvement is primarily the result of
the $14.2 million write-down of IT system assets recognized
in the prior year, that did not recur in Fiscal 2002. This
improvement was offset by an increase in expenses between years
predominantly associated with operating losses recognized for
the Company’s software businesses and the Corporate portion
of the restructuring charge, as well as an increase in other
professional expenses.
The operating loss for Corporate and Other
increased in Fiscal 2001 from Fiscal 2000 due to the
$14.2 million write-down of IT system assets during the
fourth quarter and an overall increase in compensation
attributable to increased head count and normal inflationary
increases.
Other (Income) Expense, Interest Expense and
Income Taxes
| |
|
|
|
|
|
|
|
|
|
|
|
|
| (Dollars in Thousands) |
|
2002 |
|
2001 |
|
2000 |
|
|
|
Other Income
|
|
$ |
(721 |
) |
|
$ |
(480 |
) |
|
$ |
(1,058 |
) |
|
Gain on Sale of Assets
|
|
|
— |
|
|
|
— |
|
|
$ |
(1,845 |
) |
|
Interest Expense
|
|
$ |
22,046 |
|
|
$ |
33,578 |
|
|
$ |
26,074 |
|
|
Effective Tax Rate
|
|
|
(41.2 |
)% |
|
|
38.9 |
% |
|
|
40.4 |
% |
|
Other income in 2002 primarily consisted of
$1.8 million of equity and dividend income earned from the
Company’s investments in affiliates, combined with
$0.7 million of foreign currency exchange gains and other
income. This income was offset by $1.8 million of other
expense consisting of an investment write-off of
$0.8 million and a charge of $1.0 million recognized
when the Company reclassified $1.0 million from the
“Accumulated other comprehensive income (loss)”
section of equity into earnings to realize the deferred loss
from a previously effective interest rate hedge, which became
ineffective during the year. Other income in 2001 consisted of
foreign currency exchange losses of $0.5 million offset by
$0.9 million of equity and dividend income earned from
investments in affiliates, while other income in 2000 consisted
of foreign currency gains of $0.7 million and dividend
income of $0.4 million. In addition, in Fiscal 2000, the
Company recognized a pre-tax gain of $1.8 million related
to the sale and disposal of assets no longer required in the
business.
Interest expense decreased $11.5 million in
2002 compared with 2001. This decrease resulted from reduced
levels of debt, lower interest rates resulting from the Accounts
Receivable Securitization financing the Company completed in
October 2001, and favorable overall market interest rates.
The increased interest expense in 2001 over 2000
is primarily attributable to higher average levels of
outstanding borrowings on the Company’s revolving credit
agreement, as well as an increase in the effective borrowing
rates. Average outstanding borrowings increased in order to fund
working capital
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
19
needs and capital expenditures needed to support
the ongoing growth of the business. In addition, interest
expense increased in 2001 due to a 1.0% increase in the interest
rate on the Company’s public debt.
The effective tax rate for 2002 was 41.2%
compared with 38.9% in 2001 and was primarily the result of the
utilization of previously reserved tax loss carryforwards. When
comparing 2001 to 2000, the effective tax rate decrease was due
to the change in the valuation allowance associated with the
operating loss carryforwards from the Company’s Canadian
subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was
$209.8 million in Fiscal 2002 compared with
$17.6 million in Fiscal 2001. The increase can primarily be
attributed to the reduction in inventories combined with the
decline in accounts receivable, offset by a decrease in accounts
payable. In Fiscal 2002, $193.1 million of cash provided by
operations related to cash provided for working capital items.
Overall, current assets, including cash and cash equivalents,
decreased by $241.6 million and current liabilities
decreased $39.0 million, resulting in a net working capital
decrease of $202.6 million in 2002 compared with 2001.
These results are attributable to the fact that the Company is
working capital intensive and, therefore, generates cash during
periods of contraction and utilizes cash during periods of
expansion. The decrease generated in cash provided by operating
activities when comparing Fiscal 2001 with Fiscal 2000 is the
result of the strong sales environment in 2001 and thus the
trends seen when comparing these years is opposite of the trends
seen in Fiscal 2002, as explained by the Company’s
utilization of working capital.
The decrease in current assets in Fiscal 2002 is
a result of lower levels of business activity and the decrease
in accounts receivable and inventory. The inventory decrease of
$136.2 million is attributed to management’s continued
efforts to reduce the high levels of inventory on hand, which
had been created from the backlogs that were experienced during
the peak sales periods in Fiscal 2001. Accounts receivable
decreased due to reduced sales during March 2002 compared
with sales in March 2001, combined with an increased
allowance in doubtful accounts to respond to higher levels of
credit risk resulting from the current economic environment.
The decrease in current liabilities is primarily
due to a decrease in accounts payable attributable to reduced
purchases of inventory as a result of lower sales in the fiscal
year combined with the focus on managing down inventory levels.
The Company’s current ratio was 2.7 to 1 and 3.2 to 1 at
March 31, 2002 and 2001, respectively. Working capital as a
percentage of sales at March 31, 2002 was 19.5% compared
with 20.6% at March 31, 2001. In the first half of Fiscal
2002, the Company wrote off its $0.8 million investment in
a privately-held Internet based start-up company, which ceased
business operations. This investment was unrelated to the
Company’s other software businesses and was not critical to
the Company’s eBusiness strategy. Its discontinuation will
not have a material impact on those initiatives.
For the three years ended March 31, 2002,
net cash used for investing activities was $12.4 million,
$49.3 million and $47.2 million, respectively. This
cash was used for capital expenditures of $7.4 million,
$22.2 million and $36.0 million in 2002, 2001 and
2000, respectively. In addition, the Company used cash in 2002
to make an additional investment of $1.0 million to
maintain its 20% interest in an equity
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
20
investee, Magirus AG, a German computer systems
distributor. The original Magirus investment was acquired in
2001 for $9.6 million. During 2001, the Company acquired a
majority interest in Supplystream, Inc., a software company
specializing in supply chain decision support tools, acquired
the remaining 49% interest of Dickens Services Group and
invested $2.5 million in Aprisa, a start-up software
corporation, of which it subsequently acquired the majority
interest in 2002. In addition, during 2001 and 2000, the Company
increased its existing investments in World Peace Industrial
Co., Ltd. (“WPI”) and Eurodis Electron PLC
(“Eurodis”), as well as invested in two other
investments within the United States in 2000.
These investments further the Company’s
growth strategy by offering access to an extensive distribution
network in the Asia-Pacific region and Europe and to markets
within the United States. The Company does not currently attempt
to reduce or eliminate the inherent market risks or the foreign
currency risk associated with its investments. As of
March 31, 2002, the value of the Company’s investment
in Eurodis had decreased $2.5 million, net of tax, below
the Company’s cost in the investment. Based on an
evaluation of information available on Eurodis, as well as an
analysis of the cyclical trends in the industry segment in which
that company operates, management has determined that the
decline is temporary and as such, changes in market value have
been included in “Accumulated other comprehensive income
(loss)” in the equity section of the accompanying
Consolidated Balance Sheets.
On September 15, 2000, the Company entered
into a five-year Revolving Credit Agreement (the
“Revolver”) and a 364-day Credit Agreement, with a
group of commercial banks. Subject to certain conditions and
prior to maturity, the 364-day agreement was convertible by the
Company to a two-year term loan. These agreements provided the
Company with the ability to borrow, on an unsecured basis, up to
$275 million and $100 million, respectively, limited
to certain borrowing base calculations. As of September 14,
2001, there were no borrowings outstanding on the
$100 million 364-day Credit Agreement, which expired
unused. The Revolver can be extended for a one-year period and
increased by $50 million with the consent of the bank group.
In October 2001, the Company completed a
three-year Accounts Receivable Securitization financing (the
“Asset Securitization”) that provides for borrowings
up to $150 million, limited to certain borrowing base
calculations, and is secured by certain trade accounts
receivable. Under the terms of the agreement, the Company
transfers receivables to a wholly owned consolidated subsidiary
that in turn utilizes the receivables to secure the borrowings,
which are funded through a vehicle that issues commercial paper
in the short-term market. This subsidiary has been classified as
Corporate and Other for segment presentation purposes. The yield
on the commercial paper is considered a financing cost and
included in “Interest expense” in the accompanying
Consolidated Statement of Operations. With the completion of the
Asset Securitization and subsequent amendments to the Revolver
that provide the Company with, among other provisions, the
ability to increase its Asset Securitization agreement to
$200 million in the future, the Company’s available
borrowings on the Revolver were reduced from $275 million
to $150 million.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
21
Subsequent to March 31, 2002, the Company
further amended the Revolver to modify the covenant requirements
and redefine covenant calculations so that the recognition of
the non-cash inventory adjustments in the fourth quarter of
Fiscal 2002 did not cause a violation of covenants under the
Revolver. These modifications were effective as of
March 31, 2002. In addition, the amendment reduced the
Company’s ability to borrow, on an unsecured basis, from
$150 million to $100 million, effective May 6, 2002.
As of May 6, 2002, the Company has the ability to borrow,
before borrowing base limitations, a total of $250 million
between the Revolver and the Asset Securitization (the
“Facilities”).
During 2001, in connection with obtaining the
Revolver and 364-day Credit Agreement, the Company repaid, prior
to its maturity date, the amount outstanding under the
previously existing revolving credit facility and recognized an
extraordinary charge for early extinguishment of debt. The
extraordinary charge of $0.5 million, net of
$0.3 million tax benefit, was the result of expensing
financing fees associated with the former credit facility.
The Company is exposed to interest rate risk
primarily from the Revolver’s various floating-rate pricing
mechanisms and the Asset Securitization’s variable
short-term market interest rates. The interest rate exposure is
managed by an interest rate swap used to fix the interest on a
portion of the Revolver debt and borrowing mainly from the Asset
Securitization with its lower market rates. During Fiscal 2002,
total interest-bearing debt decreased by $212.0 million.
The decrease primarily represents the repayment of borrowings
against the Revolver with cash generated from working capital
and borrowings from the Asset Securitization. The lower
borrowing level can be primarily attributed to lower working
capital needs. The ratio of debt to total capital was 27% at
March 31, 2002 compared with 44% one year ago. The Company
fully anticipates that borrowings on the Facilities will
increase when the electronic components market recovers and
working capital needs increase.
In addition to the Facilities, the Company has
$150 million principal amount of 9.5% Senior Notes (the
“Notes”) due August 2006 and $143.7 million
of 6.75% Mandatorily Redeemable Convertible Trust Preferred
Securities. In December 2000, the interest rate on the
Notes increased from 8.5% to 9.5% to comply with the terms of
the Notes. In March and April 1998, the Company’s
wholly owned subsidiary, the Pioneer-Standard Financial Trust
(the “Pioneer-Standard Trust”), issued a total of
$143.7 million of 6.75% mandatorily redeemable convertible
trust preferred equity securities (the “Trust preferred
securities”). The sole asset of the Pioneer-Standard Trust
is $148.2 million aggregate principal amount of 6.75%
Junior Convertible Subordinated Debentures due March 31,
2028. The Company has executed a guarantee providing a full and
unconditional guarantee of the Pioneer-Standard Trust’s
obligations under the Trust preferred securities. A portion of
the Company’s cash flow from operations is dedicated to
servicing these aggregate obligations and is not available for
other purposes. However, the Company may cause the
Pioneer-Standard Trust to delay payment of these servicing
obligations for 20 consecutive quarters. During such deferral
periods, distributions, to which holders of the Trust preferred
securities are entitled, will compound quarterly, and the
Company may not declare or pay any dividends on its Common
Shares. The Company does not currently anticipate suspending
these obligations. In June 2001, 4,761 shares of the Trust
preferred securities were converted at an exercise price of
$15.75 increasing equity by $0.1 million. After March 31,
2002, the Trust preferred securities are redeemable, at
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
22
the option of the Company, for a redemption price
of 104.05% of par reduced annually by .675% to a minimum $50 per
Trust preferred security. The Company does not currently
anticipate redeeming these Trust preferred securities.
A summary of the contractual obligations of the
Company follows. As noted, the Company has no borrowings
outstanding on its Revolver. The Facilities’ borrowings are
limited by borrowing base calculations and compliance with
stated financial and non-financial covenants. At March 31,
2002, the Company had a total of $18.4 million available
under these Facilities, based on the limitations previously
described. There are no unfavorable credit rating triggers in
any of the Company’s financing agreements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Fiscal Period |
|
|
|
|
|
|
| (Dollars in Thousands) |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
Thereafter |
|
Total |
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Securitization
|
|
|
— |
|
|
|
— |
|
|
$ |
29,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
29,000 |
|
|
Revolver
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
9.5% Senior Notes
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
150,000 |
|
|
|
— |
|
|
$ |
150,000 |
|
|
Capital Lease Obligations
|
|
$ |
59 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
59 |
|
|
Operating Lease Obligations
|
|
$ |
9,494 |
|
|
$ |
8,202 |
|
|
$ |
6,828 |
|
|
$ |
5,153 |
|
|
$ |
3,611 |
|
|
$ |
25,910 |
|
|
$ |
59,198 |
|
|
| |
Total contractual cash obligations
|
|
$ |
9,553 |
|
|
$ |
8,202 |
|
|
$ |
35,828 |
|
|
$ |
5,153 |
|
|
$ |
153,611 |
|
|
$ |
25,910 |
|
|
$ |
238,257 |
|
|
Capital expenditures were $7.4 million in
2002 and primarily reflected ongoing initiatives designed to
improve efficiencies through computer enhancement of operating
systems and improvements to facilities. Management estimates
that capital expenditures will be approximately
$10.0 million in Fiscal 2003.
The Company anticipates that funds from current
operations, the Facilities and access to capital markets will
provide adequate funds to finance capital spending and working
capital needs and to service its obligations and other
commitments arising during the foreseeable future. The Company
does not maintain any off-balance sheet financings.
RISK CONTROL AND EFFECTS OF FOREIGN CURRENCY
AND INFLATION
The Company extends credit based on
customers’ financial conditions and, generally, collateral
is not required. The Company obtains credit insurance in certain
circumstances to protect its interests. Credit losses are
provided for in the Consolidated Financial Statements when
collections are in doubt.
The Company operates internationally and enters
into transactions denominated in foreign currencies. As a
result, the Company is subject to the variability that arises
from exchange rate movements. The Company reduces its exposure
to foreign currency risk through hedging. The effects of foreign
currency on operating results have had an immaterial impact on
the Company’s results of operations for the three years
ended March 31, 2002.
The Company believes that inflation has had a
nominal effect on its results of operations in 2002, 2001 and
2000 and does not expect inflation to be a significant factor in
2003.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
23
FORWARD-LOOKING INFORMATION
Portions of this report contain current
management expectations, which may constitute forward-looking
information. When used in this Management’s Discussion and
Analysis of Financial Condition and Results of Operations and
elsewhere throughout this Annual Report on Form 10-K, the
words “believes,” “anticipates,”
“plans,” “expects” and similar expressions
are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933,
Section 21E of the Securities Exchange Act of 1934 and the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect management’s current
opinions and are subject to certain risks and uncertainties that
could cause actual results to differ materially from those
stated or implied.
Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof. Risks and
uncertainties include, but are not limited to: competition,
dependence on the computer and semiconductor markets, softening
in the computer network and platform market, fluctuations in
semiconductor supply and demand, rapidly changing technology and
inventory obsolescence, dependence on key suppliers, effects of
industry consolidation, risks and uncertainties involving
acquisitions, instability in world financial markets, downward
pressure on gross margins, the ability to meet financing
obligations based on the impact of previously described factors
and uneven patterns of quarterly sales.
The Company experiences a disproportionate
percentage of quarterly sales in the last week or last day of
the fiscal quarters. This uneven sales pattern makes the
prediction of revenues, earnings and working capital for each
financial period particularly difficult and increases the risk
of unanticipated variations in quarterly results and financial
condition. The Company believes that this pattern of sales has
developed industry-wide as a result of customer demand. Although
the Company is unable to predict whether this uneven sales
pattern will continue over the long term, the Company
anticipates that this trend will remain the same in the
foreseeable future.
Item 7A. Quantitative and
Qualitative Disclosures about Market Risk
The Company has assets, liabilities and cash
flows in foreign currencies, primarily the Canadian dollar and
the Euro, creating foreign exchange risk. Systems are in place
for continuous measurement and evaluation of foreign exchange
exposures so that timely action can be taken when considered
desirable. Reducing exposure to foreign currency fluctuations is
an integral part of the Company’s risk management program.
Financial instruments in the form of forward exchange contracts
are employed as one of the methods to reduce such risk. The
Company held one forward foreign exchange contract in the amount
of $2.5 million, with a maturity of 30 days, at
March 31, 2002 and 2001. The foreign exchange contracts
have had an immaterial impact on the Company’s results of
operations for the three years ended March 31, 2002.
The Company’s primary interest rate risk
exposure results from the Revolver’s various floating rate
pricing mechanisms and the Asset Securitization’s variable
short-term market interest rates. This interest
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
24
rate exposure is managed by an interest rate swap
to fix the interest on a portion of the Revolver debt and
borrowing mainly from the Asset Securitization with its lower
market rates. The Company has entered into interest rate swap
agreements for purposes of serving as a hedge of the
Company’s variable rate Revolver borrowings. The effect of
the swaps is to establish fixed rates on the variable rate debt
and to reduce exposure to interest rate fluctuations. At
March 31, 2002, the Company had one interest rate swap with
a notional amount of $25 million. At March 31, 2001,
the Company held two interest rate swaps, each with notional
amounts of $25 million. Pursuant to these agreements, the
Company paid interest at a weighted-average fixed rate of 5.34%
and 5.25% at March 31, 2002 and 2001, respectively. The
weighted-average LIBOR rates applicable to these agreements were
1.91% and 5.10% at March 31, 2002 and 2001, respectively.
In December 2001, one $25 million swap
expired. The remaining interest rate swap is not currently
effectively hedging any interest rate risk, resulting in
increased exposure to fluctuating market rates. In Fiscal 2002,
a charge of $1.0 million was recognized when the Company
reclassified $1.0 million from the “Accumulated other
comprehensive income (loss)” section of equity into
earnings to realize the deferred loss from the previously
effective interest rate hedge, which became ineffective during
the year. The swap agreements had an immaterial impact on the
Company’s results of operations for the fiscal years ended
2001 and 2000. If interest rates were to increase 100 basis
points (1.0%) from March 31, 2002 and 2001 rates, and
assuming no changes in debt at March 31, 2002 and 2001
levels, the additional annualized net expense would be
approximately $0.2 million or $.01 per share and
$1.2 million or $.03 per diluted share, respectively.
The Company is exposed to credit loss in the
event of nonperformance by the other party to the derivative
financial instruments. The Company limits this exposure by
entering into agreements with high-quality financial
institutions that are expected to satisfy fully their
obligations under the contracts. No collateral is held in
relationship to the derivative instruments and the Company does
not hold or issue derivative financial instruments for trading
purposes.
Item 8. Financial
Statements and Supplementary Data
The information required by this item is set
forth beginning at page 29 of this Annual Report on
Form 10-K.
|
|
| Item 9. |
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure |
None.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
25
part iii
Item 10. Directors
and Executive Officers of the Registrant
Information required by this Item as to the
Directors of the Company appearing under the caption
“Election of Directors” in the Company’s Proxy
Statement to be used in connection with the Company’s 2002
Annual Meeting of Shareholders to be held on July 30, 2002,
(the “2002 Proxy Statement”) is incorporated herein by
reference. Information with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 by the
Company’s Directors, executive officers, and holders of
more than five percent of the Company’s equity securities
will be set forth in the 2002 Proxy Statement under the heading
“Section 16 (a) Beneficial Ownership Reporting
Compliance.” Information required by this Item as to the
executive officers of the Company is included as Item 4A in
Part I of this Annual Report on Form 10-K as permitted by
Instruction 3 to Item 401(b) of Regulation S-K.
Item 11. Executive
Compensation
The information required by this Item is set
forth in the Company’s 2002 Proxy Statement under the
captions, “Compensation of Executive Officers,”
“Information Regarding Meetings and Committees of the Board
of Directors and Compensation of Directors,”
“Supplemental Executive Retirement Plan,”
“Employment Agreements,” “Compensation Committee
Report on Executive Compensation,” and “Shareholder
Return Performance Presentation,” which information is
incorporated herein by reference.
|
|
| Item 12. |
Security Ownership of Certain Beneficial
Owners and Management and Related Shareholder Matters |
The information required by this Item is set
forth in the Company’s 2002 Proxy Statement under the
caption “Share Ownership,” and “Equity
Compensation Plan Information” which information is
incorporated herein by reference.
Item 13. Certain
Relationships and Related Transactions
Not applicable.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
26
part iv
Item 14. Exhibits,
Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are filed as
part of this Annual Report on Form 10-K:
|
|
| |
(1) and (2) Financial Statements and
Financial Statement Schedules. The following Consolidated
Financial Statements of the Company and its subsidiaries, the
Financial Statement Schedule and the Report of Independent
Auditors thereon, are included in this Annual Report on
Form 10-K beginning on page 29:
|
|
|
|
Report of Independent Auditors
|
|
Consolidated Statements of Operations for the
years ended March 31, 2002, 2001 and 2000
|
|
Consolidated Balance Sheets as of March 31,
2002 and 2001
|
|
Consolidated Statements of Shareholders’
Equity for the years ended March 31, 2002, 2001 and 2000
|
|
Consolidated Statements of Cash Flows for the
years ended March 31, 2002, 2001 and 2000
|
|
Notes to Consolidated Financial Statements
|
|
Quarterly financial data (Unaudited)
|
|
Schedule II — Valuation and
Qualifying Accounts for the years ended March 31, 2002, 2001
and 2000
|
All other schedules have been omitted since the
required information is not present or not present in amounts
sufficient to require submission of the schedule, or because the
information required is included in the Consolidated Financial
Statements or the notes thereto.
|
|
| |
(3) Listing of Exhibits
|
| |
See the Index to Exhibits beginning at page 55 of
this Annual Report on Form 10-K.
|
(b) Reports on Form 8-K
The Company did not file any reports on
Form 8-K during the fourth quarter of Fiscal 2002.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
27
signatures
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934,
Pioneer-Standard Electronics, Inc. has duly caused this Annual
Report on Form 10-K to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on June 14, 2002.
|
|
| |
PIONEER-STANDARD ELECTRONICS, INC.
|
| |
| |
/s/ ARTHUR RHEIN
|
|
| |
Arthur Rhein
|
| |
President, Chief Executive Officer and
Director |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the
capacities as of June 14, 2002.
| |
|
|
| Signature |
|
Title |
|
|
| |
/s/ ARTHUR RHEIN
Arthur Rhein
|
|
President, Chief Executive Officer and
Director
(Principal Executive Officer)
|
| |
/s/ STEVEN M. BILLICK
Steven M. Billick
|
|
Executive Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
|
| |
/s/ JAMES L. BAYMAN
James L. Bayman
|
|
Chairman of the Board and Director
|
| |
/s/ CHARLES F. CHRIST
Charles F. Christ
|
|
Director
|
| |
/s/ THOMAS A. COMMES
Thomas A. Commes
|
|
Director
|
| |
/s/ KEITH M. KOLERUS
Keith M. Kolerus
|
|
Director
|
| |
/s/ ROBERT A. LAUER
Robert A. Lauer
|
|
Director
|
| |
/s/ ROBERT G. MCCREARY, III
Robert G. McCreary, III
|
|
Director
|
| |
/s/ THOMAS C. SULLIVAN
Thomas C. Sullivan
|
|
Director
|
| |
/s/ KARL E. WARE
Karl E. Ware
|
|
Director
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
28
pioneer-standard electronics, inc.
annual report on form 10-k
year ended march 31, 2002
index to consolidated financial statements
| |
|
|
|
|
|
|
Page |
|
|
|
Report of Independent Auditors
|
|
|
29 |
|
| |
|
Consolidated Statements of Operations for the
years ended March 31, 2002, 2001 and 2000
|
|
|
30 |
|
| |
|
Consolidated Balance Sheets as of March 31,
2002 and 2001
|
|
|
31 |
|
| |
|
Consolidated Statements of Shareholders’
Equity for the years ended March 31, 2002, 2001
and 2000
|
|
|
32 |
|
| |
|
Consolidated Statements of Cash Flows for the
years ended March 31, 2002, 2001 and 2000
|
|
|
33 |
|
| |
|
Notes to Consolidated Financial Statements
|
|
|
34 |
|
| |
|
Quarterly Financial Data (Unaudited)
|
|
|
53 |
|
| |
|
Schedule II — Valuation and
Qualifying Accounts for the years ended March 31, 2002,
2001 and 2000
|
|
|
54 |
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
29
report of independent auditors
Shareholders and the Board of Directors of
Pioneer-Standard Electronics, Inc. and
Subsidiaries
We have audited the accompanying Consolidated
Balance Sheets of Pioneer-Standard Electronics, Inc. and
Subsidiaries as of March 31, 2002 and 2001, and the related
Consolidated Statements of Operations, Shareholders’ Equity
and Cash Flows for each of the three years in the period ended
March 31, 2002. Our audits also included the financial
statement schedule listed in the index at Item 14(a). These
financial statements and schedule 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
auditing standards generally accepted in the United States.
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
consolidated financial position of Pioneer-Standard Electronics,
Inc. and Subsidiaries at March 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended March 31,
2002, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
As discussed in Note 1 to the Consolidated
Financial Statements, in Fiscal 2002 the Company changed its
method of accounting for derivative instruments and hedging
activities.
Cleveland, Ohio
May 6, 2002
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
30
consolidated statements of operations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31 |
|
|
|
|
|
|
| (Dollars In Thousands, Except Share and Per Share Data) |
|
2002 |
|
2001 |
|
2000 |
|
|
|
Net Sales
|
|
$ |
2,323,593 |
|
|
$ |
2,901,353 |
|
|
$ |
2,560,711 |
|
|
Cost of goods sold
|
|
|
2,007,618 |
|
|
|
2,468,571 |
|
|
|
2,170,684 |
|
|
| |
Gross margin
|
|
|
315,975 |
|
|
|
432,782 |
|
|
|
390,027 |
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Warehouse, selling and
administrative expenses
|
|
|
293,903 |
|
|
|
318,400 |
|
|
|
289,631 |
|
| |
Restructuring charge
|
|
|
3,796 |
|
|
|
— |
|
|
|
— |
|
| |
Write-down of information technology
system assets
|
|
|
— |
|
|
|
14,200 |
|
|
|
— |
|
|
| |
|
Operating Income
|
|
|
18,276 |
|
|
|
100,182 |
|
|
|
100,396 |
|
|
Other (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other income
|
|
|
(721 |
) |
|
|
(480 |
) |
|
|
(1,058 |
) |
| |
Gain on sale of assets
|
|
|
— |
|
|
|
— |
|
|
|
(1,845 |
) |
| |
Interest expense
|
|
|
22,046 |
|
|
|
33,578 |
|
|
|
26,074 |
|
|
|
Income (Loss) Before Income Taxes
|
|
|
(3,049 |
) |
|
|
67,084 |
|
|
|
77,225 |
|
| |
Provision (benefit) for income taxes
|
|
|
(1,256 |
) |
|
|
26,124 |
|
|
|
31,210 |
|
|
| |
|
|
(1,793 |
) |
|
|
40,960 |
|
|
|
46,015 |
|
| |
Minority interest income
|
|
|
(450 |
) |
|
|
— |
|
|
|
— |
|
| |
Distributions on mandatorily redeemable
convertible trust preferred securities, net of tax
|
|
|
5,704 |
|
|
|
5,914 |
|
|
|
5,870 |
|
|
|
Income (Loss) Before Extraordinary Charge
|
|
$ |
(7,047 |
) |
|
$ |
35,046 |
|
|
$ |
40,145 |
|
| |
Extraordinary charge for early extinguishment of
debt, net of $0.3 million tax benefit
|
|
|
— |
|
|
|
(470 |
) |
|
|
— |
|
|
|
Net Income (Loss)
|
|
$ |
(7,047 |
) |
|
$ |
34,576 |
|
|
$ |
40,145 |
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Extraordinary
Charge — Basic
|
|
$ |
(0.26 |
) |
|
$ |
1.31 |
|
|
$ |
1.52 |
|
| |
Extraordinary charge
|
|
|
— |
|
|
|
(0.02 |
) |
|
|
— |
|
|
|
Net Income (Loss) — Basic
|
|
$ |
(0.26 |
) |
|
$ |
1.29 |
|
|
$ |
1.52 |
|
|
|
Income (Loss) Before Extraordinary
Charge — Diluted
|
|
$ |
(0.26 |
) |
|
$ |
1.12 |
|
|
$ |
1.27 |
|
| |
Extraordinary charge
|
|
|
— |
|
|
|
(0.01 |
) |
|
|
— |
|
|
|
Net Income (Loss) – Diluted
|
|
$ |
(0.26 |
) |
|
$ |
1.11 |
|
|
$ |
1.27 |
|
|
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
27,040,171 |
|
|
|
26,793,457 |
|
|
|
26,409,156 |
|
| |
Diluted
|
|
|
27,040,171 |
|
|
|
36,615,950 |
|
|
|
36,178,307 |
|
See accompanying Notes to Consolidated Financial
Statements.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
31
consolidated balance sheets
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 |
|
|
|
|
|
|
| (Dollars In Thousands) |
|
2002 |
|
2001 |
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
23,452 |
|
|
$ |
41,812 |
|
| |
Accounts receivable, net of allowance of $8,037
in 2002 and $3,752 in 2001
|
|
|
315,292 |
|
|
|
410,261 |
|
| |
Inventories, net
|
|
|
267,160 |
|
|
|
403,327 |
|
| |
Deferred income taxes
|
|
|
16,493 |
|
|
|
8,660 |
|
| |
Prepaid expenses
|
|
|
1,870 |
|
|
|
1,778 |
|
|
| |
|
Total current assets
|
|
|
624,267 |
|
|
|
865,838 |
|
|
Investments and Other Assets
|
|
|
|
|
|
|
|
|
| |
Goodwill & intangible assets, net
|
|
|
155,564 |
|
|
|
155,036 |
|
| |
Investments in affiliated companies
|
|
|
45,670 |
|
|
|
58,057 |
|
| |
Other assets
|
|
|
10,831 |
|
|
|
10,834 |
|
|
Property and Equipment, at cost
|
|
|
|
|
|
|
|
|
| |
Land
|
|
|
572 |
|
|
|
572 |
|
| |
Buildings
|
|
|
9,033 |
|
|
|
9,024 |
|
| |
Furniture and equipment
|
|
|
111,080 |
|
|
|
109,606 |
|
| |
Software
|
|
|
61,189 |
|
|
|
56,761 |
|
| |
Leasehold improvements
|
|
|
24,926 |
|
|
|
22,199 |
|
|
| |
|
|
206,800 |
|
|
|
198,162 |
|
| |
Less accumulated depreciation
and amortization
|
|
|
126,195 |
|
|
|
104,317 |
|
|
| |
|
Property and
equipment, net
|
|
|
80,605 |
|
|
|
93,845 |
|
|
| |
|
|
Total Assets
|
|
$ |
916,937 |
|
|
$ |
1,183,610 |
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
| |
Accounts payable
|
|
$ |
201,116 |
|
|
$ |
236,227 |
|
| |
Accrued salaries, wages, commissions
and benefits
|
|
|
9,489 |
|
|
|
15,625 |
|
| |
Other accrued liabilities
|
|
|
19,809 |
|
|
|
17,384 |
|
| |
Current maturities of long-term debt
|
|
|
59 |
|
|
|
189 |
|
|
| |
|
Total
current liabilities
|
|
|
230,473 |
|
|
|
269,425 |
|
|
Long-Term Debt
|
|
|
179,000 |
|
|
|
390,999 |
|
|
Deferred Income Taxes
|
|
|
17,812 |
|
|
|
22,489 |
|
|
Other Long-Term Liabilities
|
|
|
5,280 |
|
|
|
2,690 |
|
|
Mandatorily Redeemable Convertible Trust
Preferred Securities
|
|
|
143,675 |
|
|
|
143,750 |
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
| |
Serial preferred shares, without par value;
authorized 5,000,000; issued and outstanding — none
|
|
|
— |
|
|
|
— |
|
| |
Common shares, without par value, at $0.30 stated
value: authorized 80,000,000 shares; 31,781,671 and 31,668,411
shares outstanding in 2002 and 2001, respectively, including
3,965,740 and 4,056,202, subscribed-for shares, in 2002 and
2001, respectively
|
|
|
9,452 |
|
|
|
9,419 |
|
| |
Capital in excess of stated value
|
|
|
133,932 |
|
|
|
125,595 |
|
| |
Retained earnings
|
|
|
259,876 |
|
|
|
270,246 |
|
| |
Unearned employee benefits
|
|
|
(56,115 |
) |
|
|
(49,688 |
) |
| |
Unearned compensation on restricted stock
|
|
|
(3,289 |
) |
|
|
(5,280 |
) |
| |
Accumulated other comprehensive income (loss)
|
|
|
(3,159 |
) |
|
|
3,965 |
|
|
| |
|
Total
shareholders’ equity
|
|
|
340,697 |
|
|
|
354,257 |
|
|
| |
|
Total Liabilities and
Shareholders’ Equity
|
|
$ |
916,937 |
|
|
$ |
1,183,610 |
|
|
See accompanying Notes to Consolidated Financial
Statements.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
32
consolidated statements of shareholders’
equity
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated |
|
Capital in |
|
|
|
|
|
Unearned |
|
Accumulated |
|
|
|
|
|
|
value of |
|
excess of |
|
|
|
Unearned |
|
compensation |
|
other |
|
|
|
|
Common |
|
Common |
|
stated |
|
Retained |
|
employee |
|
on restricted |
|
comprehensive |
|
|
| (Dollars in Thousands) |
|
shares |
|
shares |
|
value |
|
earnings |
|
benefits |
|
stock |
|
income (loss) |
|
Total |
|
|
|
Balance at March 31, 1999
|
|
|
31,135 |
|
|
$ |
9,258 |
|
|
$ |
93,324 |
|
|
$ |
202,056 |
|
|
$ |
(31,369 |
) |
|
|
— |
|
|
|
$ (1,766 |
) |
|
$ |
271,503 |
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,145 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,145 |
|
|
Unrealized translation adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
833 |
|
|
|
833 |
|
|
Unrealized gain on securities, net of
$7.1 million tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,026 |
|
|
|
11,026 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
$11,859 |
|
|
$ |
52,004 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares transferred from trust
|
|
|
(724 |
) |
|
|
(217 |
) |
|
|
(9,553 |
) |
|
|
— |
|
|
|
9,770 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Value change in subscribed-for shares
|
|
|
— |
|
|
|
— |
|
|
|
42,286 |
|
|
|
— |
|
|
|
(42,286 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Cash dividends ($0.12 per share)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,233 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,233 |
) |
|
Shares issued upon exercise of stock options
|
|
|
215 |
|
|
|
65 |
|
|
|
1,186 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,251 |
|
|
Tax benefit related to exercise of
stock options
|
|
|
— |
|
|
|
— |
|
|
|
296 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
296 |
|
|
Restricted stock awards
|
|
|
724 |
|
|
|
217 |
|
|
|
9,553 |
|
|
|
— |
|
|
|
— |
|
|
|
$ (9,770 |
) |
|
|
— |
|
|
|
— |
|
|
Amortization on unearned compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,244 |
|
|
|
— |
|
|
|
2,244 |
|
|
|
Balance at March 31, 2000
|
|
|
31,350 |
|
|
|
9,323 |
|
|
|
137,092 |
|
|
|
238,968 |
|
|
|
(63,885 |
) |
|
|
(7,526 |
) |
|
|
10,093 |
|
|
|
324,065 |
|
|
Net income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34,576 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
34,576 |
|
|
Unrealized translation adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,940 |
) |
|
|
(1,940 |
) |
|
Unrealized loss on securities, net of
$2.6 million tax benefit
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,188 |
) |
|
|
(4,188 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
$ (6,128 |
) |
|
$ |
28,448 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value change in subscribed-for shares
|
|
|
— |
|
|
|
— |
|
|
|
(14,197 |
) |
|
|
— |
|
|
|
14,197 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Cash dividends ($0.12 per share)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,298 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,298 |
) |
|
Shares issued upon exercise of stock options
|
|
|
318 |
|
|
|
96 |
|
|
|
2,422 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,518 |
|
|
Tax benefit related to exercise of
stock options
|
|
|
— |
|
|
|
— |
|
|
|
278 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
278 |
|
|
Amortization on unearned compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,246 |
|
|
|
— |
|
|
|
2,246 |
|
|
|
Balance at March 31, 2001
|
|
|
31,668 |
|
|
|
9,419 |
|
|
|
125,595 |
|
|
|
270,246 |
|
|
|
(49,688 |
) |
|
|
(5,280 |
) |
|
|
3,965 |
|
|
|
354,257 |
|
|
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,047 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(7,047 |
) |
|
Cumulative effect of change in accounting for
derivatives and hedging, net of $0.1 million tax benefit
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(218 |
) |
|
|
(218 |
) |
|
Current period cash flow hedging activity, net of
$0.6 million tax benefit
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(889 |
) |
|
|
(889 |
) |
|
Reclassification of hedging activity into
earnings, net of $0.7 million tax
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,107 |
|
|
|
1,107 |
|
|
Unrealized translation adjustment
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,188 |
) |
|
|
(1,188 |
) |
|
Unrealized loss on securities, net of
$3.8 million tax benefit
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,936 |
) |
|
|
(5,936 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
$ (7,124 |
) |
|
$ |
(14,171 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares transferred from trust
|
|
|
— |
|
|
|
— |
|
|
|
(149 |
) |
|
|
— |
|
|
|
1,268 |
|
|
|
— |
|
|
|
— |
|
|
|
1,119 |
|
|
Value change in subscribed-for shares
|
|
|
— |
|
|
|
— |
|
|
|
7,695 |
|
|
|
— |
|
|
|
(7,695 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Cash dividends ($0.12 per share)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,323 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,323 |
) |
|
Shares issued upon exercise of stock options
|
|
|
109 |
|
|
|
32 |
|
|
|
543 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
575 |
|
|
Tax benefit related to exercise of
stock options
|
|
|
— |
|
|
|
— |
|
|
|
174 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
174 |
|
|
Converted Trust preferred securities
|
|
|
5 |
|
|
|
1 |
|
|
|
74 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
75 |
|
|
Amortization on unearned compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,991 |
|
|
|
— |
|
|
|
1,991 |
|
|
|
Balance at March 31, 2002
|
|
|
31,782 |
|
|
$ |
9,452 |
|
|
$ |
133,932 |
|
|
$ |
259,876 |
|
|
$ |
(56,115 |
) |
|
|
$ (3,289 |
) |
|
|
$ (3,159 |
) |
|
$ |
340,697 |
|
|
See accompanying Notes to Consolidated Financial
Statements.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
33
consolidated statements of cash flows
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31 |
|
|
|
|
|
|
| (Dollars in Thousands) |
|
2002 |
|
2001 |
|
2000 |
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income (loss)
|
|
$ |
(7,047 |
) |
|
$ |
34,576 |
|
|
$ |
40,145 |
|
| |
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Extraordinary charge, net of tax
|
|
|
— |
|
|
|
470 |
|
|
|
— |
|
| |
|
|
Write-down of information technology
system assets
|
|
|
— |
|
|
|
14,200 |
|
|
|
— |
|
| |
|
|
Write-off of investment in affiliate
|
|
|
750 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Depreciation
|
|
|
13,309 |
|
|
|
14,187 |
|
|
|
14,661 |
|
| |
|
|
Amortization
|
|
|
15,663 |
|
|
|
12,857 |
|
|
|
11,682 |
|
| |
|
|
Gain on sale of assets
|
|
|
— |
|
|
|
— |
|
|
|
(1,845 |
) |
| |
|
|
Deferred income taxes
|
|
|
(8,713 |
) |
|
|
2,185 |
|
|
|
1,229 |
|
| |
|
|
Changes in working capital, excluding effect of
acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Accounts receivable
|
|
|
94,853 |
|
|
|
(5,568 |
) |
|
|
(83,010 |
) |
| |
|
|
|
Inventory
|
|
|
136,065 |
|
|
|
(52,978 |
) |
|
|
(32,640 |
) |
| |
|
|
|
Accounts payable
|
|
|
(35,028 |
) |
|
|
(8,109 |
) |
|
|
81,552 |
|
| |
|
|
|
Accrued salaries and wages
|
|
|
(5,051 |
) |
|
|
(3,780 |
) |
|
|
6,573 |
|
| |
|
|
|
Other accrued liabilities
|
|
|
587 |
|
|
|
9,445 |
|
|
|
(6,231 |
) |
| |
|
|
|
Other working capital
|
|
|
1,660 |
|
|
|
240 |
|
|
|
(43 |
) |
| |
|
|
Other
|
|
|
2,791 |
|
|
|
(116 |
) |
|
|
(270 |
) |
|
| |
|
|
|
Total adjustments
|
|
|
216,886 |
|
|
|
(16,967 |
) |
|
|
(8,342 |
) |
|
| |
|
|
Net cash provided by operating activities
|
|
|
209,839 |
|
|
|
17,609 |
|
|
|
31,803 |
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Additions to property and equipment
|
|
|
(7,389 |
) |
|
|
(22,153 |
) |
|
|
(36,030 |
) |
| |
Acquisitions of businesses
|
|
|
(4,074 |
) |
|
|
(11,172 |
) |
|
|
— |
|
| |
Investments in affiliates
|
|
|
(951 |
) |
|
|
(16,021 |
) |
|
|
(13,908 |
) |
| |
Proceeds from sale of assets
|
|
|
— |
|
|
|
— |
|
|
|
2,712 |
|
|
| |
|
|
Net cash used for investing activities
|
|
|
(12,414 |
) |
|
|
(49,346 |
) |
|
|
(47,226 |
) |
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(Payments) borrowings on notes payable
|
|
|
(137 |
) |
|
|
(26,086 |
) |
|
|
16,412 |
|
| |
Revolving credit borrowings
|
|
|
664,950 |
|
|
|
1,311,350 |
|
|
|
1,065,000 |
|
| |
Revolving credit payments
|
|
|
(905,890 |
) |
|
|
(1,240,410 |
) |
|
|
(1,055,000 |
) |
| |
Accounts receivable securitization
financing borrowings
|
|
|
248,290 |
|
|
|
— |
|
|
|
— |
|
| |
Accounts receivable securitization
financing payments
|
|
|
(219,290 |
) |
|
|
— |
|
|
|
— |
|
| |
Principal payments under
long-term obligations
|
|
|
(189 |
) |
|
|
(3,009 |
) |
|
|
(3,087 |
) |
| |
Debt financing costs paid
|
|
|
(666 |
) |
|
|
(1,463 |
) |
|
|
— |
|
| |
Issuance of common shares under company stock
option plan
|
|
|
575 |
|
|
|
2,518 |
|
|
|
1,251 |
|
| |
Dividends paid
|
|
|
(3,323 |
) |
|
|
(3,298 |
) |
|
|
(3,233 |
) |
|
| |
|
|
Net cash provided by (used for)
financing activities
|
|
|
(215,680 |
) |
|
|
39,602 |
|
|
|
21,343 |
|
|
Effect of Exchange Rate Changes on Cash
|
|
|
(105 |
) |
|
|
(306 |
) |
|
|
(565 |
) |
|
|
Net Increase (Decrease) in Cash
|
|
|
(18,360 |
) |
|
|
7,559 |
|
|
|
5,355 |
|
|
Cash at Beginning of Year
|
|
|
41,812 |
|
|
|
34,253 |
|
|
|
28,898 |
|
|
|
Cash at End of Year
|
|
$ |
23,452 |
|
|
$ |
41,812 |
|
|
$ |
34,253 |
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash payments for interest
|
|
$ |
22,975 |
|
|
$ |
32,973 |
|
|
$ |
26,013 |
|
| |
|
Cash payments for income taxes
|
|
$ |
2,392 |
|
|
$ |
25,493 |
|
|
$ |
27,636 |
|
| |
|
Distributions on convertible trust
preferred securities
|
|
$ |
9,703 |
|
|
$ |
9,703 |
|
|
$ |
9,703 |
|
| |
|
Change in value of available-for-sale securities,
net of tax
|
|
$ |
(5,936 |
) |
|
$ |
(4,188 |
) |
|
$ |
11,026 |
|
See accompanying Notes to Consolidated Financial
Statements.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
34
notes to consolidated financial statements
Note
1. Operations and Summary of
Significant Accounting Policies
Operations
Pioneer-Standard Electronics, Inc. and its
subsidiaries (the “Company” or
“Pioneer-Standard”) distribute a broad range of
electronic components and mid-range computer products
manufactured by others. These products are sold to original
equipment manufacturers, contract manufacturers, value added
resellers and commercial end-users. The Company has operations
in North America and strategic investments in Europe and the
Asia-Pacific region.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its subsidiaries. Investments in
affiliated companies in which the Company does not have control,
but has the ability to exercise significant influence over
operating and financial policies are accounted for using the
equity method. Other investments are accounted for using the
cost method. All significant inter-company transactions and
accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles in the
United States requires management to make estimates and
assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from
those estimates.
Revenue Recognition
Revenue from product sales is generally
recognized upon shipment provided that persuasive evidence of an
arrangement exists, the sales price is fixed or determinable,
collectibility is reasonably assured and title and risk of loss
have passed to the customer. Sales are recorded net of
discounts, rebates and returns. The Company provides for product
returns and bad debts. Shipping and handling fees billed to
customers are recognized as revenue and the related costs are
recognized in “Cost of Goods Sold” in the accompanying
Consolidated Statements of Operations.
Advertising and Promotion Cost
All costs associated with advertising and
promoting products are expensed in the year incurred and
amounted to $1.9 million, $4.4 million and
$2.7 million in 2002, 2001 and 2000, respectively.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
35
Income Taxes
Income tax expense includes U.S. and foreign
income taxes and is based on reported income before income
taxes. Deferred income taxes reflect the effect of temporary
differences between assets and liabilities that are recognized
for financial reporting purposes and the amounts that are
recognized for income tax purposes. These deferred taxes are
measured by applying currently enacted tax laws. Valuation
allowances are recognized to reduce the deferred tax assets to
the amount that is more likely than not to be realized.
Foreign Currency
The functional currency of the Company’s
foreign subsidiaries is the applicable local currency. For those
foreign operations, the assets and liabilities are translated
into U.S. dollars at the exchange rates in effect at the balance
sheet dates. Income statement accounts are translated at the
monthly average exchange rates prevailing during the year. The
gains or losses resulting from these translations are recorded
as a separate component of “Accumulated other comprehensive
income (loss)” in Shareholders’ Equity. Gains or
losses resulting from realized foreign currency transactions are
included in net income (loss).
Cash and cash equivalents
The Company considers all highly liquid
investments purchased with an original maturity or remaining
maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company’s
financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and notes payable
approximate fair value because of their short-term maturities.
The fair values of the Company’s public debt financial
instruments were determined using quoted market prices. Other
financial instruments held by the Company are investments in
affiliated companies, interest rate swap agreements and forward
foreign currency exchange contracts. The Company does not hold
or issue financial instruments or derivative financial
instruments for trading purposes.
Investments in Affiliated Companies
The Company enters into certain investments for
the promotion of business and strategic objectives, and
typically does not attempt to reduce or eliminate the inherent
market risks on these investments. The Company has investments
in affiliates accounted for using the equity method and equity
and debt securities accounted for using the cost method. For
those investments accounted for under the equity method, the
Company’s proportionate share of income or losses from
affiliated companies is recorded in “Other (Income)
Expense” on the Consolidated Statements of Operations.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
36
The Company’s convertible debt securities
and marketable equity securities are classified as
“available-for-sale” as of the balance sheet dates and
are carried at fair value, with unrealized gains and losses, net
of tax, recorded in “Accumulated other comprehensive income
(loss)” included in the Shareholders’ Equity section
of the Consolidated Balance Sheets. Non-marketable equity
securities are carried at cost, as there are no quoted market
prices available for these securities.
As a matter of policy, management continually
monitors the change in the value of its investments and
regularly reviews each investment security for impairment based
on criteria that include the extent to which cost exceeds market
value, the duration of the market decline and the financial
condition of and specific prospects of the issuer. In
determining whether or not impairment exists, the Company
evaluates available information such as published financial
reports and market research and analyzes cyclical trends within
the industry segments in which the various companies operate.
Impairment of investment securities would result in a non-cash,
pre-tax charge to “Other (Income) Expense” in the
accompanying Consolidated Statement of Operations if a market
decline below cost is deemed other than temporary.
Derivatives
The Company’s primary objective for holding
derivative financial instruments is to manage risks associated
with fluctuations in foreign currency and interest rates. The
Company’s derivative instruments are recorded at fair value
and are included in “Other Assets” and “Other
Accrued Liabilities” in the accompanying March 31,
2002 Consolidated Balance Sheet. The fair value of these
derivative contracts was obtained through independent brokers.
The Company’s accounting policies for these instruments are
based on whether they meet the Company’s criteria for
designation as hedging transactions, either as cash flow or fair
value hedges. The criteria for designating a derivative as a
hedge include the instrument’s effectiveness in risk
reduction and one-to-one matching of the derivative instrument
to its underlying transaction. If the derivative is designated
as a cash flow hedge, the effective portions of changes in the
fair value of the derivative are recorded in “Accumulated
other comprehensive income (loss)” in the
Shareholders’ Equity section of the Consolidated Balance
Sheet and are recognized in the Statement of Operations when the
hedged item affects earnings. Ineffective portions of changes in
the fair value of cash flow hedges are recognized in earnings.
Gains and losses on derivatives that are not designated as
hedges for accounting purposes are recognized currently in
earnings, and generally offset changes in the values of assets
and liabilities. The Company does not currently hold any
non-derivative instruments designated as hedges or any
derivatives designated as fair value hedges as defined by
Statement of Financial Accounting Standard (“SFAS”)
No. 133.
Foreign Currency Exchange Contracts
The Company uses forward foreign currency
exchange contracts to partially reduce risks related to
transactions denominated in foreign currencies. These contracts
are used to hedge short-term firm commitments and transactions
denominated in currencies other than the subsidiaries’
functional currency. These contracts are not designated as
hedging instruments. The gains and losses from changes in
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
37
the market value of these contracts are
recognized in “Other (Income) Expense” and offset the
foreign exchange gains and losses on the underlying
transactions. At March 31, 2002 and 2001, the Company held
one thirty-day forward foreign currency exchange contract,
denominated in Canadian dollars, in the notional amount of
$2.5 million. Fair value equals the notional amount as
these contracts were entered into on the last day of each fiscal
year.
Interest Rate Swaps
The Company uses interest rate swap agreements to
partially reduce risks related to floating-rate financing
agreements, which are subject to changes in the market rate of
interest. These are designated as cash flow hedges. Prior to
December 2001, the Company held two interest rate swaps,
each with notional amounts of $25 million. The terms of the
interest rate swap agreements require the Company to receive a
variable interest rate and pay a fixed interest rate. Cash flows
related to these interest rate swap agreements are included in
“Interest expense” over the term of the agreements.
During December 2001, one of these swaps expired. The
remaining term of the outstanding interest rate swap agreement
extends through December 2003. The Company’s interest
rate swap agreements and its variable rate financing are
predominantly based upon three-month LIBOR. Prior to the third
quarter of Fiscal 2002, both interest rate swaps qualified as
fully effective cash flow hedges against the Company’s
floating interest rate risk and hedge effectiveness was measured
by offsetting the change in fair value of the long-term debt
with the change in fair value of the interest rate swap. During
the third quarter, the Company reclassified $1.0 million
from “Accumulated other comprehensive income (loss)”
into earnings to realize the deferred loss from the remaining
previously effective interest rate hedge, which became
ineffective during the quarter. This swap is not expected to be
an effective hedge through the expiration of the swap agreement.
Concentrations of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally
of accounts receivable and derivatives. Concentration of credit
risk on accounts receivable is mitigated by the Company’s
large number of customers and their dispersion across many
different industries and geographies. The Company extends credit
based on customers’ financial conditions and generally,
collateral is not required. To further reduce
credit risk associated with accounts receivable, the Company
also performs periodic credit evaluations of its customers and
obtains credit insurance in certain circumstances to protect its
interests. The Company enters into derivative contracts with
high-quality financial institutions. No collateral is held in
relationship to the derivative instruments.
Inventories
Inventories are stated at the lower of cost
(first-in, first-out basis) or market, net of related reserves.
The Company’s inventory is constantly monitored to ensure
appropriate valuation. Adjustments of inventories to market
value are based upon contractual provisions governing price
protection, stock rotation
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
38
(right of return status), and technological
obsolescence, as well as turnover and assumptions about future
demand and market conditions. Reserves for slow-moving and
obsolete inventory were $19.9 million and $7.9 million at
March 31, 2002, and 2001, respectively.
Goodwill and Intangible Assets
Goodwill represents the excess purchase price
paid over the fair value assigned to the net assets of acquired
companies. The amortization of goodwill is provided on a
straight-line basis over periods of 15 to 40 years.
Intangible asset values are provided by third-party valuations
and include technology, a finite life intangible asset. The
amortization of finite life intangible assets is provided on a
straight-line basis over a period of five years. Accumulated
amortization of goodwill and intangible assets was
$19.6 million and $15.0 million as of March 31, 2002
and 2001, respectively. Management regularly evaluates its
accounting for goodwill and intangible assets, considering such
factors as historical and future profitability, and believes
that the assets are recoverable and the amortization periods
remain appropriate. On April 1, 2002, the Company adopted
SFAS No. 142 relating to goodwill acquired prior to
June 30, 2001, as required. Beginning in Fiscal 2003,
goodwill will no longer be amortized and the Company will begin
testing goodwill for impairment in accordance with SFAS
No. 142.
Long-Lived Assets
Property and equipment are recorded at cost.
Major renewals and improvements are capitalized, as are interest
costs on capital projects. Minor replacements, maintenance,
repairs and reengineering costs are expensed as incurred. When
assets are sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and
any resulting gain or loss is recognized in income.
Depreciation and amortization are provided in
amounts sufficient to amortize the cost of the assets, including
assets recorded under capital leases, over their estimated
useful lives using the straight-line method. The estimated
useful lives for depreciation and amortization are as follows:
buildings – 10 to 40 years; furniture – 7 to
10 years; equipment – 3 to 10 years; software – 3
to 10 years; and leasehold improvements over the applicable
lease periods. Internal use software costs are expensed or
capitalized depending on the project stage. Amounts capitalized
are amortized over the estimated useful lives of the software,
ranging from 3 to 10 years, beginning with the
project’s completion. Total depreciation and amortization
expense on property and equipment was $22.2 million,
$20.2 million and $20.0 million during 2002, 2001 and
2000, respectively.
The Company evaluates the recoverability of its
long-lived assets and related goodwill whenever changes in
circumstances or events may indicate that the carrying amounts
may not be recoverable. An impairment loss is recognized in the
event the net book value of the assets exceed the future
undiscounted cash flows attributable to such assets.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
39
Stock-Based Compensation
The Company measures compensation expense for its
stock-based employee compensation plans using the intrinsic
value method.
Earnings Per Share
Basic earnings (loss) per share is computed
by dividing net income (loss) by the weighted average
number of Common Shares outstanding. Diluted earnings
(loss) per share is computed using the weighted average
number of common and dilutive common equivalent shares
outstanding during the period. Securities or other contracts to
issue common shares are included in the per share calculations
where the effect of their inclusion would be dilutive.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as Net
Income (Loss) plus the aggregate change in Shareholders’
Equity, excluding changes in ownership interests, referred to as
accumulated other comprehensive income (loss). At March 31,
2002 and 2001, “Accumulated other comprehensive income
(loss)” included in the Shareholders’ Equity section
of the accompanying Consolidated Balance Sheets consisted of
foreign currency translation losses of $4.1 million and
$2.9 million, respectively, and unrealized losses and gains
on securities of $0.9 million and $6.8 million,
respectively.
New Accounting Standards
On April 1, 2001, Pioneer-Standard adopted
SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” as amended by SFAS
No. 138, “Accounting for Certain Derivative
Instruments and Certain Hedging Activities.” SFAS
No. 133 and 138 establish accounting and reporting
standards for derivative instruments and for hedging activities.
They require companies to recognize all derivatives on the
balance sheet as assets and liabilities, measured at fair value.
The adoption of SFAS No. 133 resulted in a charge to
“Accumulated other comprehensive income (loss)” of
$0.2 million, net of $0.1 million tax benefit for a
change in accounting relating to the Company’s derivative
instruments.
In July 2001, the Financial Accounting
Standards Board (“FASB”) issued SFAS No. 141,
“Business Combinations.” SFAS No. 141 requires
all business combinations completed after June 30, 2001 to
be accounted for under the purchase method. SFAS No. 141
also establishes, for all business combinations made after
June 30, 2001, specific criteria for the recognition of
intangible assets separately from goodwill. The Company adopted
this Statement effective with its acquisition of Aprisa in
December 2001. The intangible assets acquired were
accounted for under SFAS No. 142, “Goodwill and Other
Intangible Assets,” issued by the FASB in July 2001,
effective for all acquisitions after June 30, 2001.
In September 2000, the Emerging Issues Task
Force (“EITF”) reached a consensus on Issue
No. 00-10, “Accounting for Shipping and Handling Fees
and Costs,” which requires shipping and handling amounts
billed to a customer to be classified as revenue. In addition,
the EITF’s preference is to classify shipping and handling
costs as “cost of sales.” In the fourth quarter of
Fiscal 2001, the Company
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
40
changed its method of reporting to comply with
EITF Issue No. 00-10. As a result of this implementation,
the Company reclassified these amounts from “Operating
Expenses,” where they had previously been shown
“net,” into the appropriate revenue and cost of goods
sold captions. All prior periods were reclassified for
consistency.
Accounting Standards Not Yet Adopted
In July 2001, the FASB issued SFAS
No. 142, “Goodwill and Other Intangible Assets.”
SFAS No. 142 addresses the accounting for goodwill and
other intangible assets after an acquisition. Goodwill and other
intangibles that have indefinite lives will no longer be
amortized, but will be subject to annual impairment tests. All
other intangible assets will continue to be amortized over their
estimated useful lives, which is no longer limited to
40 years. The Company adopted certain provisions of this
Statement with its acquisition of Aprisa in December 2001
and adopted the remaining provisions of this Statement effective
April 1, 2002, as required. At that time, amortization of
existing goodwill ceased on the unamortized portion associated
with acquisitions and certain investments accounted for under
the equity method. This is expected to have a favorable annual
impact of approximately $3.0 million, after tax, beginning
in Fiscal 2003.
SFAS No. 142 also requires a new methodology
for the testing of impairment of goodwill and other intangibles
that have indefinite lives. During Fiscal 2003, the Company will
begin testing goodwill for impairment under the new rules,
applying a fair-value-based test. The transition adjustment, if
any, resulting from the adoption of the new approach to
impairment testing as required by SFAS No. 142 will be
reported as a cumulative effect of a change in accounting
principle. At this time, the Company has not determined what
impact, if any, the change in the required approach to
impairment testing will have on either its financial position or
results of operations. The Company expects to complete its
evaluation of goodwill by the end of the second quarter of
Fiscal 2003 and will restate its first quarter of Fiscal 2003
results to include this one-time charge related to the change in
accounting principle.
In October 2001, the FASB issued SFAS
No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets.” SFAS No. 144 addresses the
financial accounting and reporting for the impairment or
disposal of long-lived assets. This Statement supersedes SFAS
No. 121, “Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of.” This
Statement is effective for fiscal years beginning after
December 15, 2001, with early adoption encouraged. The
Company adopted this Statement effective April 1, 2002, as
required. The adoption of this Statement did not result in an
adjustment to the Company’s financial statements.
Reclassifications
Certain amounts in the prior periods’
Consolidated Financial Statements have been reclassified to
conform to the current period’s presentation.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
41
Note 2. Special
Charges
During the fourth quarter of Fiscal 2002,
management committed to a restructuring plan for certain
Corporate and Industrial Electronics Division operations. As a
result of this action, the Company recognized a restructuring
charge and other special charges totaling approximately
$12.4 million, pre-tax, of which $8.6 million is
included in “Cost of Goods Sold” in the 2002
Consolidated Statement of Operations and $3.8 million is
classified in the Fiscal 2002 Consolidated Statement of
Operations as “Restructuring Charge.” The
restructuring charge includes $1.9 million related to
qualifying exit costs for one service center and eleven regional
office facilities and $1.9 million related to severance and
other employee benefits to be paid to approximately 100
personnel. As of March 31, 2002, no payments had been made
for any of these expenses. In addition to costs associated with
personnel reductions and the consolidation of certain
facilities, the special charges included provisions related to
inventory valuation adjustments for excess and obsolete
inventory primarily associated with the Company’s decision,
as part of the restructuring plan, to close its Electronics
Manufacturing Resources and Services facility and to terminate
certain supplier and customer relationships.
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 scheduled for
completion and implementation during 2001. Amounts representing
approximately $11.5 million of these expenditures were
operational in Fiscal 1999. In the fourth quarter of Fiscal
2001, an additional $8.5 million of these expenditures
became operational in conjunction with the completion of the
financial software system implementation. In addition, the
Company concluded a review of IT system assets during the fourth
quarter of 2001 and determined that the remaining
$14.2 million of work-in-process components would not be
integrated and were thus abandoned. These assets were charged to
expense in the fourth quarter of 2001.
Note
3. Acquisitions and Investments in
Affiliated Companies
In December 2001, the Company formed a
subsidiary, Aprisa Holdings, Inc. (“AHI”), in which
Pioneer-Standard holds a majority interest. AHI was formed to
consolidate Pioneer-Standard’s software businesses, and is
classified in Corporate and Other for segment presentation
purposes. AHI has two wholly owned subsidiaries, Aprisa, Inc.
(“Aprisa”) and Supplystream, Inc. In December 2001,
Pioneer acquired Aprisa, a software start-up corporation, in
which Pioneer-Standard previously held a $2.5 million cost
investment acquired in 2001. The purchase price, which included
cash, investments previously made in Aprisa and AHI stock, was
approximately $7.6 million. The results of operations of
Aprisa have been included in the accompanying Consolidated
Statement of Operations from the date of acquisition. The
preliminary purchase price allocation resulted in goodwill and
intangible assets of approximately $5.2 million, which is
included in “Goodwill and Intangible Assets” in the
accompanying Consolidated Balance Sheet.
In 2001, the Company acquired a majority interest
in Supplystream, Inc., a software company specializing in supply
chain decision support tools. In addition, the Company acquired
the remaining
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
42
49% interest of Dickens Services Group, an
affiliate of Dickens Data Systems acquired in 1998. The combined
purchase price for these acquisitions was $8.7 million.
These acquisitions were accounted for as purchase transactions
and, accordingly, the assets and liabilities of the acquired
entities were recorded at their estimated fair value at the date
of acquisition. The Consolidated Statements of Operations
include these companies from their respective dates of
acquisition. The cost in excess of the net assets acquired is
included in “Goodwill and Intangible Assets” in the
accompanying Consolidated Balance Sheets and is being amortized
on a straight-line basis over 40 years and 15 years,
respectively.
The Company holds publicly traded equity
securities in World Peace Industrial Co. Ltd. (“WPI”),
an Asian distributor of electronics headquartered in Taipei,
Taiwan; and Eurodis Electron PLC (“Eurodis”), a
European distributor of electronic components headquartered in
London, England. The Company increased its investments in these
entities in total during Fiscal 2001 by $6.4 million. Both
investments are accounted for under the cost method.
As of March 31, 2002, the market value of
the Company’s investment in Eurodis was below cost.
Following the Company’s policy as set forth in Note 1 to
the Consolidated Financial Statements, management has determined
that the decline is temporary and as such, changes in market
value have been included in “Accumulated other
comprehensive income (loss)” in the Shareholders’
Equity section of the accompanying Consolidated Balance Sheets.
During 2002, the Company wrote off an
$0.8 million investment in a privately-held Internet based
start-up company, which ceased business operations.
In May 2000, the Company acquired an equity
interest in Magirus AG, a privately-owned European computer
systems distributor headquartered in Stuttgart, Germany. The
purchase price for this equity interest was $9.6 million. This
investment is accounted for under the equity method. In January
2002, the Company invested an additional $1.0 million in
Magirus AG to maintain its 20% equity interest.
At March 31, 2002 and 2001, Investments in
Affiliated Companies consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
| (Dollars in Thousands) |
|
2002 |
|
2001 |
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
| |
Equity securities — at market
|
|
|
|
|
|
|
|
|
| |
|
Eurodis ($16.7 million cost at
March 31, 2002 and 2001)
|
|
$ |
12,604 |
|
|
$ |
13,650 |
|
| |
|
WPI ($11.8 million cost at March 31,
2002 and 2001)
|
|
|
17,501 |
|
|
|
26,186 |
|
| |
Aprisa
|
|
|
— |
|
|
|
2,500 |
|
|
Other equity investments
|
|
|
15,565 |
|
|
|
15,721 |
|
|
| |
|
$ |
45,670 |
|
|
$ |
58,057 |
|
|
Note 4. Lease
Commitments
The Company leases certain office and warehouse
facilities and equipment under non-cancelable operating leases,
which expire at various dates through 2010. Certain facilities
and equipment leases contain renewal options for periods up to
15 years. Future minimum lease payments for operating
leases at March 31, 2002 are: $9.5 million in 2003;
$8.2 million in 2004; $6.8 million in 2005;
$5.2 million in 2006; $3.6 million in 2007; and
$25.9 million thereafter.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
43
Rental expense for all operating leases amounted
to $13.2 million, $12.4 million and $11.7 million for
2002, 2001 and 2000, respectively.
Note 5. Financing
Arrangements
Long-term debt at March 31, 2002 and 2001,
consisted of the following:
| |
|
|
|
|
|
|
|
|
|
| (Dollars in Thousands) |
|
2002 |
|
2001 |
|
|
|
Revolving Credit Agreement
|
|
|
— |
|
|
$ |
240,940 |
|
|
Accounts Receivable Securitization financing
|
|
$ |
29,000 |
|
|
|
— |
|
|
Senior Notes, due August 2006
|
|
|
150,000 |
|
|
|
150,000 |
|
|
Other
|
|
|
59 |
|
|
|
248 |
|
|
| |
|
|
179,059 |
|
|
|
391,188 |
|
|
Less current maturities of long-term debt
|
|
|
59 |
|
|
|
189 |
|
|
| |
|
$ |
179,000 |
|
|
$ |
390,999 |
|
|
|
Revolving Credit Agreement — Weighted
average stated interest rate
|
|
|
— |
|
|
|
6.45 |
% |
|
Accounts Receivable Securitization financing
– Weighted average stated interest rate
|
|
|
1.86 |
% |
|
|
— |
|
|
Interest rate swap agreements
|
|
|
|
|
|
|
|
|
| |
Notional amounts
|
|
$ |
25,000 |
|
|
$ |
50,000 |
|
| |
Fair market value — net payable
|
|
$ |
(728 |
) |
|
$ |
(358 |
) |
| |
Weighted average LIBOR rates applicable to
interest rate swaps
|
|
|
1.91 |
% |
|
|
5.10 |
% |
| |
Weighted average effective interest rate paid
under interest rate swap agreements
|
|
|
5.34 |
% |
|
|
5.25 |
% |
|
Prior to September 2000, the Company had a
revolving credit facility with various banks providing for up to
an aggregate amount of $260 million of unsecured borrowings
on a revolving credit basis.
On September 15, 2000, the Company entered
into a five-year Revolving Credit Agreement (the
“Revolver”) and a 364-day Credit Agreement, with a
group of commercial banks. Subject to certain conditions and
prior to maturity, the 364-day agreement was convertible by the
Company to a two-year term loan. These agreements provided the
Company with the ability to borrow, on an unsecured basis, up to
$275 million and $100 million, respectively, limited
to certain borrowing base calculations. As of September 14,
2001, there were no borrowings outstanding on the
$100 million 364-day Credit Agreement, which expired
unused. The Revolver can be extended for a one-year period and
increased by $50 million with the consent of the bank group.
In October 2001, the Company completed a
three-year Accounts Receivable Securitization financing (the
“Asset Securitization”) that provides for borrowings
up to $150 million, limited to certain borrowing base
calculations, and is secured by certain trade accounts
receivable. Under the terms of the agreement, the Company
transfers receivables to a wholly owned consolidated subsidiary
that in turn utilizes the receivables to secure the borrowings,
which are funded through a vehicle that issues commercial paper
in the short-term market. This subsidiary has been classified as
Corporate and Other for segment presentation purposes. The yield
on the commercial paper, which is the commercial paper rate plus
program fees, is considered a financing cost and included in
“Interest expense” in the
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
44
accompanying Consolidated Statement of
Operations. With the completion of the Asset Securitization and
subsequent amendments to the Revolver that provide the Company
with, among other provisions, the ability to increase its Asset
Securitization agreement to $200 million in the future, the
Company’s available borrowings on the Revolver were reduced
from $275 million to $150 million. At March 31,
2002, the Company had a total of $18.4 million available
under the Revolver and Asset Securitization (the
“Facilities”), based on the limitations previously
described.
Subsequent to March 31, 2002, the Company
further amended the Revolver to modify the covenant requirements
and redefine covenant calculations so that the recognition of
the non-cash inventory adjustments in the fourth quarter of
Fiscal 2002 did not cause a violation of covenants under the
Revolver. These modifications were effective as of
March 31, 2002. In addition, the amendment reduced the
Company’s ability to borrow, on an unsecured basis, from
$150 million to $100 million, effective May 6, 2002.
As of May 6, 2002, the Company has the ability to borrow,
before borrowing base limitations, a total of $250 million under
the Facilities.
There is a facility fee on the Revolver based on
the level of debt to EBITDA and there is no pre-payment penalty.
The Revolver contains standard pricing terms and conditions for
companies with similar credit ratings, including limitations on
other borrowings and capital, investment expenditures and the
maintenance of certain financial ratios, among other
restrictions. The Asset Securitization also has a facility fee
based on a percentage of the weighted average daily commitment
and the Company is subject to certain non-financial covenants.
The Company was in compliance with the covenants in all of its
agreements as of March 31, 2002. The fair values of the
Facilities approximated carrying value at March 31, 2002
and 2001.
During 2001, in connection with obtaining the
Revolver and 364-day Credit Agreement, the Company repaid, prior
to its maturity date, the amount outstanding under the
previously existing revolving credit facility and recognized an
extraordinary charge for early extinguishment of debt. The
extraordinary charge of $0.5 million, net of
$0.3 million tax benefit, was the result of expensing
financing fees associated with the former credit facility.
The Company has $150 million principal
amount of 9.5% Senior Notes (the “Notes”) due
August 2006. Interest is payable semi-annually. In
December 2000, the interest rate on the Notes increased
from 8.5% to 9.5% to comply with the terms of the Notes. The
indenture under which the Notes were issued limits the creation
of liens, sale and leaseback transactions, consolidations,
mergers and transfers of all or substantially all of the
Company’s assets, and indebtedness of the Company’s
restricted subsidiaries. The Notes are subject to mandatory
repurchase by the Company at the option of the holders in the
event of a change in control of the Company. The fair value of
the Notes was $141.0 million and $146.7 million at
March 31, 2002 and 2001, respectively.
Aggregate maturities of long-term debt are:
$0.1 million in 2003; zero in 2004; $29 million in
2005; zero in 2006 and $150 million in 2007.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
45
Note 6. Income
Taxes
Significant components of the Provision
(benefit) for income taxes for the years ended
March 31 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Dollars in Thousands) |
|
2002 |
|
2001 |
|
2000 |
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
6,963 |
|
|
$ |
21,098 |
|
|
$ |
26,302 |
|
| |
State
|
|
|
494 |
|
|
|
2,841 |
|
|
|
3,679 |
|
|
| |
|
Total current
|
|
|
7,457 |
|
|
|
23,939 |
|
|
|
29,981 |
|
|
Deferred
|
|
|
(8,713 |
) |
|
|
2,185 |
|
|
|
1,229 |
|
|
|
Provision (benefit) for
income taxes
|
|
$ |
(1,256 |
) |
|
$ |
26,124 |
|
|
$ |
31,210 |
|
|
A reconciliation of the federal statutory rate to
the Company’s effective income tax rate for the years ended
March 31 follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
2001 |
|
2000 |
|
|
|
Statutory rate
|
|
|
(35.0 |
)% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
Provision (benefit) for state taxes
|
|
|
(4.4 |
) |
|
|
3.0 |
|
|
|
3.1 |
|
|
Change in valuation allowance
|
|
|
(5.1 |
) |
|
|
(0.4 |
) |
|
|
1.1 |
|
|
Non-deductible goodwill
|
|
|
4.2 |
|
|
|
0.8 |
|
|
|
0.5 |
|
|
Other
|
|
|
(0.9 |
) |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
Effective rate
|
|
|
(41.2 |
)% |
|
|
38.9 |
% |
|
|
40.4 |
% |
|
Deferred tax assets and liabilities as of
March 31, 2002 and 2001 are presented below:
| |
|
|
|
|
|
|
|
|
|
| (Dollars in Thousands) |
|
2002 |
|
2001 |
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Capitalized inventory costs
|
|
$ |
1,780 |
|
|
$ |
2,753 |
|
| |
Accrued expenses
|
|
|
3,590 |
|
|
|
1,795 |
|
| |
Allowance for doubtful accounts
|
|
|
2,614 |
|
|
|
1,175 |
|
| |
Inventory valuation reserve
|
|
|
6,795 |
|
|
|
2,615 |
|
| |
Restructuring reserve
|
|
|
1,111 |
|
|
|
— |
|
| |
Foreign
|
|
|
998 |
|
|
|
1,836 |
|
| |
Capital loss carryforward and other
|
|
|
791 |
|
|
|
322 |
|
|
| |
|
|
17,679 |
|
|
|
10,496 |
|
|
Less valuation allowance
|
|
|
(1,186 |
) |
|
|
(1,836 |
) |
|
|
Total net deferred tax assets
|
|
|
16,493 |
|
|
|
8,660 |
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Depreciation expense
|
|
|
726 |
|
|
|
787 |
|
| |
Software amortization
|
|
|
9,049 |
|
|
|
10,936 |
|
| |
Goodwill amortization
|
|
|
6,963 |
|
|
|
5,169 |
|
| |
Available-for-sale securities
|
|
|
696 |
|
|
|
4,493 |
|
| |
Other
|
|
|
378 |
|
|
|
1,104 |
|
|
|
Total deferred tax liabilities
|
|
|
17,812 |
|
|
|
22,489 |
|
|
|
Net deferred
tax liabilities
|
|
$ |
1,319 |
|
|
$ |
13,829 |
|
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
46
At March 31, 2002, the Company had
$0.8 million of capital loss carryforwards that expire, if
unused, on March 31, 2007. In 2002, the Company fully
utilized $1.9 million of foreign operating loss
carryforwards available as of March 31, 2001.
Note 7. Employee
Retirement Plans
The Company maintains various profit-sharing and
thrift plans for all employees meeting certain service
requirements. Generally, the plans allow eligible employees to
contribute a portion of their compensation, with the Company
matching a percentage thereof. The Company may also make
contributions each year for the benefit of all eligible
employees under the plans. Total profit sharing and Company
matching contributions were $2.2 million, $4.9 million and
$4.9 million for 2002, 2001 and 2000, respectively.
Pioneer-Standard also has a Supplemental
Executive Retirement Plan (the “SERP”), implemented
during Fiscal 2001, which is a non-qualified plan designed to
provide retirement benefits and life insurance for certain
officers. Retirement benefits are based on compensation and
length of service. The benefits under the SERP are provided from
a combination of the benefits to which the officers are entitled
under Pioneer-Standard’s profit-sharing and thrift plans
and from life insurance policies that are owned by certain
officers who have assigned the corporate interest
(Pioneer-Standard’s share of the premiums paid) in the
policies to the Company. The Company’s cash surrender value
of the policies was $1.3 million and $0.5 million at
March 31, 2002 and 2001, respectively, and is included in
“Other Assets” in the accompanying Consolidated
Balance Sheets. The accrued and unfunded liability for the SERP
was $1.2 million and $0.6 million at March 31,
2002 and 2001, respectively, and is included in “Other
Long-Term Liabilities” in the accompanying Consolidated
Balance Sheets.
Note
8. 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
can be reasonably estimated. 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.
Note
9. Mandatorily Redeemable
Convertible Trust Preferred Securities
In March and April 1998,
Pioneer-Standard Financial Trust (the “Pioneer-Standard
Trust”) issued $143.7 million of 6.75% Mandatorily
Redeemable Convertible Trust Preferred Securities (the
“Trust preferred securities”). The Pioneer-Standard
Trust, a statutory business trust, is a wholly owned
consolidated subsidiary of the Company, with its sole asset
being $148.2 million aggregate principal
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
47
amount of 6.75% Junior Convertible Subordinated
Debentures due March 31, 2028 of Pioneer-Standard
Electronics, Inc. (the “Trust Debentures”).
The Trust preferred securities are non-voting
(except in limited circumstances), pay quarterly distributions
at an annual rate of 6.75%, carry a liquidation value of $50 per
share and are convertible into the Company’s Common Shares
at any time prior to the close of business on March 31,
2028, at the option of the holder. The Trust preferred
securities are convertible into Common Shares at the rate of
3.1746 Common Shares for each Trust preferred security
(equivalent to a conversion price of $15.75 per Common Share).
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 Debentures, the
indenture pursuant to which the Trust Debentures were issued and
the applicable trust document, provide a full and unconditional
guarantee of the Pioneer-Standard Trust’s obligations under
the Trust preferred securities. The Company may cause the
Pioneer-Standard Trust to delay payment of distributions on the
Trust preferred securities for 20 consecutive quarters. During
such deferral periods, distributions, to which holders of the
Trust preferred securities are entitled, will compound
quarterly, and the Company may not declare or pay any dividends
on its Common Shares.
After March 31, 2002, the Trust preferred
securities are redeemable, at the option of the Company, for a
redemption price of 104.05% of par reduced annually by .675% to
a minimum of $50 per Trust preferred security. The Trust
preferred securities are subject to mandatory redemption on
March 31, 2028, at a redemption price of $50 per Trust
preferred security. In June 2001, 4,761 shares of the Trust
preferred securities were converted at an exercise price of
$15.75 increasing equity by $0.1 million. At March 31,
2002 and 2001, the fair market value of the Trust preferred
securities was $121.5 million and $127.9 million,
respectively.
Note
10. Shareholders’
Equity
Capital Stock
Holders of Common Shares are entitled to one vote
for each share held of record on all matters to be submitted to
a vote of the shareholders. At March 31, 2002 and 2001,
there were no shares of Preferred Stock outstanding.
Subscribed-for Shares
The Company has a Share Subscription Agreement
and Trust (the “Trust”) with Wachovia Bank of North
Carolina, N.A., as Trustee, whereby 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
are used to fund Company obligations under various compensation
and benefit plans. For financial reporting purposes, the Trust
is consolidated with the Company. The shares subscribed for by
the Trust are recorded in the contra equity account,
“Unearned employee benefits,” and adjusted to market
value at each reporting period, with an offsetting adjustment to
“Capital in excess of stated value.” There were
943,798 shares released from the Trust
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
48
prior to Fiscal 2001. In Fiscal 2002, 90,462
shares were transferred from the trust to fund a portion of the
Company’s 2001 profit sharing.
The following details the fair market value of
the 3,965,740 and 4,056,202 Common Shares subscribed for by the
Trust, reflected in Shareholders’ Equity at March 31:
| |
|
|
|
|
|
|
|
|
| (In Thousands, Except Share and Per Share Data) |
|
2002 |
|
2001 |
|
|
|
Common Shares at stated value (3,965,740
@ $0.30 in 2002 and 4,056,202 @ $0.30 in 2001)
|
|
$ |
1,190 |
|
|
$ |
1,217 |
|
|
Capital in excess of stated value (3,965,740
shares in 2002 and 4,056,202 shares in 2001)
|
|
|
54,925 |
|
|
|
48,471 |
|
|
Unearned employee benefits (3,965,740 shares
@ $14.15 in 2002 and 4,056,202 shares @ $12.25 in
2001)
|
|
|
(56,115 |
) |
|
|
(49,688 |
) |
|
|
Net effect on shareholders’ equity
|
|
$ |
— |
|
|
$ |
— |
|
|
Restricted Stock
During 2000, restricted stock awards for 723,798
shares of the Company’s Common Shares were granted at a
market value of $13.50 per share to certain officers under the
1999 Restricted Stock Plan. All eligible shares under this plan
have been granted and, subject to certain terms and conditions,
vest over a three-year period commencing upon termination of
employment. Unvested shares are restricted as to disposition and
subject to forfeiture under certain circumstances. The cost of
these awards, determined as the market value of the shares at
the date of grant, is being amortized over the restriction
periods. In Fiscal 2002, 2001 and 2000, $2.0 million, $2.2
million and $2.2 million, respectively, was charged to
expense for these restricted stock awards. There were 74,820 and
37,410 shares vested as of March 31, 2002 and 2001,
respectively.
Shareholder Rights Plan
On April 27, 1999, the Company’s Board
of Directors approved a new Shareholder Rights Plan, which
became effective upon expiration of the existing plan on
May 10, 1999. A dividend of one Right per Common Share was
distributed to shareholders of record as of May 10, 1999.
Each Right, upon the occurrence of certain events, entitles the
holder to buy from the Company one-tenth of a Common Share at a
price of $4.00, or $40.00 per whole share, subject to
adjustment. The Rights may be exercised only if a person or
group acquires 20% or more of the Company’s Common Shares,
or announces a tender offer for at least 20% of the
Company’s Common Shares. Each Right will entitle its holder
(other than such acquiring person or members of such acquiring
group) to purchase, at the Right’s then-current exercise
price, a number of the Company’s Common Shares having a
market value of twice the Right’s then-exercise price. The
Rights trade with the Company’s Common Shares until the
Rights become exercisable.
If the Company is acquired in a merger or other
business combination transaction, each Right will entitle its
holder to purchase, at the Right’s then-exercise price, a
number of the acquiring company’s common shares (or other
securities) having a market value at the time of twice the
Right’s then-current
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
49
exercise price. Prior to the acquisition by a
person or group of beneficial ownership of 20% or more of the
Company’s Common Shares, the Rights are redeemable for
$.001 per Right at the option of the Company’s Board of
Directors. The Rights will expire May 10, 2009.
Note 11. Earnings (Loss) Per
Share
The following table sets forth the computation of
basic and diluted earnings (loss) per share:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended March 31 |
|
|
|
|
|
|
| (In Thousands, Except Per Share Data) |
|
2002 |
|
2001 |
|
2000 |
|
|
|
Weighted average number of shares
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
|
27,040 |
|
|
|
26,793 |
|
|
|
26,409 |
|
| |
|
Common Shares issuable upon conversion of Trust
preferred securities
|
|
|
— |
|
|
|
9,127 |
|
|
|
9,127 |
|
| |
|
Common equivalent shares
|
|
|
— |
|
|
|
696 |
|
|
|
642 |
|
|
| |
Diluted
|
|
|
27,040 |
|
|
|
36,616 |
|
|
|
36,178 |
|
|
|
Net income (loss) on which basic earnings
(loss) per share is calculated
|
|
$ |
(7,047 |
) |
|
$ |
34,576 |
|
|
$ |
40,145 |
|
| |
|
Distributions on Trust preferred securities
|
|
|
— |
|
|
|
5,914 |
|
|
|
5,870 |
|
|
|
Net income (loss) on which diluted earnings
(loss) per share is calculated
|
|
$ |
(7,047 |
) |
|
|
40,490 |
|
|
|
46,015 |
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
(0.26 |
) |
|
$ |
1.29 |
|
|
$ |
1.52 |
|
| |
Diluted
|
|
$ |
(0.26 |
) |
|
$ |
1.11 |
|
|
$ |
1.27 |
|
|
For the year ended March 31, 2002, 9,123,396
Common Shares issuable upon conversion of the Trust preferred
securities and 3,861,534 stock options that could potentially
dilute earnings per share in the future were not included in the
computation of diluted earnings per share because to do so would
have been antidilutive. For the years ended March 31, 2001
and March 31, 2000, 1,167,000 and 281,500 stock options,
respectively, that could potentially dilute earnings per share
in the future were not included in the computation of diluted
earnings per share because to do so would have been
antidilutive. Due to the application of the treasury stock
method, shares subscribed for by the Trust, which is more fully
described in Note 10 to the Consolidated Financial Statements,
have no effect on earnings per share until they are released
from the Trust.
Note 12. Stock
Options
The Company has stock option plans, which provide
for the granting of options to employees and directors to
purchase its Common Shares. These plans provide for nonqualified
and incentive stock options. Stock options are granted to
employees at an exercise price equal to the fair market value of
the Company’s Common Shares at the date of grant. Options
expire 10 years from the date of grant. Vesting periods are
established by the Compensation Committee of the Board of
Directors and vary.
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
50
The following tables summarize option activity
under the Plans during 2002, 2001 and 2000:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
2001 |
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of |
|
Wtd. |
|
No. of |
|
Wtd. |
|
No. of |
|
Wtd. |
|
|
Shares |
|
Avg. |
|
Shares |
|
Avg. |
|
Shares |
|
Avg. |
|
|
Under |
|
Exercise |
|
Under |
|
Exercise |
|
Under |
|
Exercise |
|
|
Option |
|
Price |
|
Option |
|
Price |
|
Option |
|
Price |
|
|
|
Balance at April 1
|
|
|
3,137,821 |
|
|
|
$11.54 |
|
|
|
2,658,101 |
|
|
|
$10.20 |
|
|
|
2,761,211 |
|
|
|
$ 9.91 |
|
|
Options granted
|
|
|
947,500 |
|
|
|
12.91 |
|
|
|
981,500 |
|
|
|
13.78 |
|
|
|
142,500 |
|
|
|
9.39 |
|
|
Options exercised
|
|
|
(108,499 |
) |
|
|
6.25 |
|
|
|
(318,655 |
) |
|
|
7.91 |
|
|
|
(215,010 |
) |
|
|
5.81 |
|
|
Options cancelled/expired
|
|
|
(18,354 |
) |
|
|
11.63 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Options forfeited
|
|
|
(96,934 |
) |
|
|
12.39 |
|
|
|
(183,125 |
) |
|
|
10.37 |
|
|
|
(30,600 |
) |
|
|
10.89 |
|
|
|
Balance at March 31
|
|
|
3,861,534 |
|
|
|
$12.00 |
|
|
|
3,137,821 |
|
|
|
$11.54 |
|
|
|
2,658,101 |
|
|
|
$10.20 |
|
|
|
Exercisable at March 31
|
|
|
2,020,508 |
|
|
|
$11.36 |
|
|
|
1,448,692 |
|
|
|
$10.66 |
|
|
|
1,394,398 |
|
|
|
$10.18 |
|
|
|
Available for Grant at March 31
|
|
|
1,076,211 |
|
|
|
|
|
|
|
1,926,777 |
|
|
|
|
|
|
|
620,152 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wtd. Avg. |
|
|
|
|
|
|
Wtd. |
|
Remaining |
|
|
|
Wtd. |
|
|
Number |
|
Avg. |
|
Contractual |
|
Number |
|
Avg. |
|
|
of |
|
Exercise |
|
Life |
|
of |
|
Exercise |
| Exercise Price Range |
|
Options |
|
Price |
|
(in years) |
|
Options |
|
Price |
|
|
|
|
|
|
|
$ 5.50 - $ 8.00
|
|
|
236,836 |
|
|
|
$ 6.20 |
|
|
|
1.7 |
|
|
|
227,836 |
|
|
|
$ 6.21 |
|
|
$ 8.00 - $10.50
|
|
|
582,166 |
|
|
|
$ 8.75 |
|
|
|
6.8 |
|
|
|
399,766 |
|
|
|
$ 8.75 |
|
|
$10.50 - $13.00
|
|
|
1,019,232 |
|
|
|
$12.18 |
|
|
|
4.9 |
|
|
|
827,834 |
|
|
|
$12.18 |
|
|
$13.00 - $15.50
|
|
|
2,023,300 |
|
|
|
$13.53 |
|
|
|
8.3 |
|
|
|
565,072 |
|
|
|
$14.11 |
|
|
| |
|
|
3,861,534 |
|
|
|
|
|
|
|
|
|
|
|
2,020,508 |
|
|
|
|
|
|
The Company does not recognize expense for stock
options granted under its stock option plans because options are
granted at exercise prices equal to the fair market value of the
Company’s stock at the date of grant, and does not
recognize the options in the financial statements until they are
exercised. The proforma amounts that are disclosed in the table
below reflect the portion of the estimated fair value of awards
that was earned for the years ended March 31, 2002, 2001 and
2000. Because the proforma expense determined under the fair
value method relates only to stock options that were granted as
of March 31, 2002, 2001 and 2000, the impact of applying the
fair value method is not indicative of future amounts.
Additional grants in future years are anticipated, which will
increase the proforma compensation expense and thus reduce and
increase future proforma net income (loss), respectively.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
2001 |
|
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As |
|
Pro |
|
As |
|
Pro |
|
As |
|
Pro |
| (In Thousands, Except Per Share Data) |
|
Reported |
|
Forma |
|
Reported |
|
Forma |
|
Reported |
|
Forma |
|
|
|
Net income (loss)
|
|
$ |
(7,047 |
) |
|
$ |
(10,568 |
) |
|
$ |
34,576 |
|
|
$ |
31,387 |
|
|
$ |
40,145 |
|
|
$ |
38,557 |
|
|
Diluted earnings (loss) per share
|
|
$ |
(0.26 |
) |
|
$ |
(0.39 |
) |
|
$ |
1.11 |
|
|
$ |
1.02 |
|
|
$ |
1.27 |
|
|
$ |
1.23 |
|
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
51
The fair market value of stock option grants is
estimated using the Black-Scholes option-pricing model with the
following assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
2001 |
|
2000 |
|
|
|
Dividend yield
|
|
|
1.0 |
% |
|
|
1.0 |
% |
|
|
1.0 |
% |
|
Expected volatility
|
|
|
48.6 |
% |
|
|
45.7 |
% |
|
|
46.6 |
% |
|
Risk-free interest rate
|
|
|
5.28 |
% |
|
|
4.80 |
% |
|
|
6.25 |
% |
|
Expected life
|
|
|
8 years |
|
|
|
8 years |
|
|
|
7.5 years |
|
|
Weighted average fair value of
options granted
|
|
|
$7.04 |
|
|
|
$7.12 |
|
|
|
$5.05 |
|
|
Note 13. Business
Segment Information
The Company’s operations have been
classified into two operating segments, the distribution of
electronic components and the distribution of mid-range computer
products, which are managed separately based on product and
market differences. The Industrial Electronics Division is a
broad-line distributor of semiconductors, interconnect, passive
and electromechanical components, power supplies and embedded
computer products. The Computer Systems Division is a leading
distributor and reseller of mid-range computer products,
computer systems, software and services. The Company’s
third reportable segment, Corporate and Other, primarily
includes investments in affiliates, selected other assets and
fixed assets, related depreciation and goodwill amortization,
certain corporate management costs, special charges and the net
assets and results of operations of the Company’s software
businesses and its wholly owned subsidiary established for the
Asset Securitization. The segment presentation reflects how
management allocates resources, measures performance and views
the overall business.
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. The accounting policies of the reportable
segments are the same as those described in the Summary of
Significant Accounting Policies. Geographic sales are reported
by shipping origin.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31 |
|
|
|
|
|
|
| (Dollars In Thousands) |
|
2002 |
|
2001 |
|
2000 |
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Industrial Electronics
|
|
$ |
1,029,271 |
|
|
$ |
1,469,515 |
|
|
$ |
1,341,222 |
|
| |
Computer Systems
|
|
|
1,294,322 |
|
|
|
1,431,838 |
|
|
|
1,219,489 |
|
|
| |
|
Total Net Sales
|
|
$ |
2,323,593 |
|
|
$ |
2,901,353 |
|
|
$ |
2,560,711 |
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Industrial Electronics
|
|
$ |
(3,582 |
) |
|
$ |
85,921 |
|
|
$ |
72,254 |
|
| |
Computer Systems
|
|
|
47,783 |
|
|
|
46,531 |
|
|
|
45,088 |
|
| |
Corporate & Other
|
|
|
(25,925 |
) |
|
|
(32,270 |
) |
|
|
(16,946 |
) |
|
| |
|
Operating Income
|
|
$ |
18,276 |
|
|
$ |
100,182 |
|
|
$ |
100,396 |
|
|
|
(continued)
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
Note 13. — continued
52
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31 |
|
|
|
|
|
|
| (Dollars In Thousands) |
|
2002 |
|
2001 |
|
2000 |
|
|
|
Reconciliation to Income (Loss) Before Income
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Other (income) expense
|
|
|
(721 |
) |
|
|
(480 |
) |
|
|
(1,058 |
) |
| |
Gain on sale of assets
|
|
|
— |
|
|
|
— |
|
|
|
(1,845 |
) |
| |
Interest expense
|
|
|
22,046 |
|
|
|
33,578 |
|
|
|
26,074 |
|
|
| |
|
Income (Loss) before
Income Taxes
|
|
$ |
(3,049 |
) |
|
$ |
67,084 |
|
|
$ |
77,225 |
|
|
|
Identifiable Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Industrial Electronics
|
|
$ |
374,680 |
|
|
$ |
559,842 |
|
|
$ |
521,701 |
|
| |
Computer Systems
|
|
|
465,027 |
|
|
|
531,289 |
|
|
|
535,874 |
|
| |
Corporate & Other
|
|
|
77,230 |
|
|
|
92,479 |
|
|
|
56,260 |
|
|
| |
|
Total Assets
|
|
$ |
916,937 |
|
|
$ |
1,183,610 |
|
|
$ |
1,113,835 |
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Industrial Electronics
|
|
$ |
1,542 |
|
|
$ |
12,687 |
|
|
$ |
14,154 |
|
| |
Computer Systems
|
|
|
1,970 |
|
|
|
8,612 |
|
|
|
21,626 |
|
| |
Corporate & Other
|
|
|
3,877 |
|
|
|
854 |
|
|
|
250 |
|
|
| |
|
Total Capital Expenditures
|
|
$ |
7,389 |
|
|
$ |
22,153 |
|
|
$ |
36,030 |
|
|
|
Depreciation and Amortization
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Industrial Electronics
|
|
$ |
11,247 |
|
|
$ |
10,235 |
|
|
$ |
9,191 |
|
| |
Computer Systems
|
|
|
10,197 |
|
|
|
9,686 |
|
|
|
10,774 |
|
| |
Corporate & Other
|
|
|
7,528 |
|
|
|
7,123 |
|
|
|
6,378 |
|
|
| |
|
Total Depreciation
and Amortization
|
|
$ |
28,972 |
|
|
$ |
27,044 |
|
|
$ |
26,343 |
|
|
|
Geographic Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States
|
|
$ |
2,212,798 |
|
|
$ |
2,779,377 |
|
|
$ |
2,391,305 |
|
| |
|
Foreign
|
|
|
110,795 |
|
|
|
121,976 |
|
|
|
169,406 |
|
|
| |
|
Total Net Sales
|
|
$ |
2,323,593 |
|
|
$ |
2,901,353 |
|
|
$ |
2,560,711 |
|
|
| |
Long-Lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
United States
|
|
$ |
136,351 |
|
|
$ |
161,721 |
|
|
$ |
160,001 |
|
| |
|
Foreign
|
|
|
755 |
|
|
|
1,015 |
|
|
|
730 |
|
|
| |
|
Total Long-Lived Assets
|
|
$ |
137,106 |
|
|
$ |
162,736 |
|
|
$ |
160,731 |
|
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
53
QUARTERLY FINANCIAL DATA (UNAUDITED)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2002 |
|
|
|
|
|
|
|
|
|
|
Fourth |
|
|
|
|
First |
|
Second |
|
Third |
|
Quarter |
|
|
| (Dollars in Thousands, Except Per Share Data) |
|
Quarter |
|
Quarter |
|
Quarter |
|
(a) |
|
Year |
|
|
|
Net sales
|
|
$ |
595,394 |
|
|
|
$589,117 |
|
|
$ |
633,709 |
|
|
|
$505,373 |
|
|
$ |
2,323,593 |
|
|
Gross margin
|
|
|
85,579 |
|
|
|
80,593 |
|
|
|
81,726 |
|
|
|
68,077 |
|
|
|
315,975 |
|
|
Net income (loss)
|
|
$ |
1,696 |
|
|
|
$ (4,699 |
) |
|
$ |
2,233 |
|
|
|
$ (6,277 |
) |
|
$ |
(7,047 |
) |
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.06 |
|
|
|
$ (0.17 |
) |
|
$ |
0.08 |
|
|
|
$ (0.23 |
) |
|
$ |
(0.26 |
) |
| |
Diluted
|
|
$ |
0.06 |
|
|
|
$ (0.17 |
) |
|
$ |
0.08 |
|
|
|
$ (0.23 |
) |
|
$ |
(0.26 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2001 |
|
|
|
|
|
|
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
| (Dollars in Thousands, Except Per Share Data) |
|
Quarter |
|
Quarter (b) |
|
Quarter |
|
Quarter (c) |
|
Year |
|
|
|
Net sales
|
|
$ |
677,857 |
|
|
|
$ 717,439 |
|
|
$ |
781,297 |
|
|
|
$ 724,760 |
|
|
$ |
2,901,353 |
|
|
Gross margin
|
|
|
101,864 |
|
|
|
108,230 |
|
|
|
116,195 |
|
|
|
106,493 |
|
|
|
432,782 |
|
|
Income before extraordinary charge
|
|
|
10,221 |
|
|
|
11,715 |
|
|
|
13,044 |
|
|
|
66 |
|
|
|
35,046 |
|
|
Extraordinary charge
|
|
|
— |
|
|
|
(470 |
) |
|
|
— |
|
|
|
— |
|
|
|
(470 |
) |
|
|
Net income
|
|
$ |
10,221 |
|
|
|
$ 11,245 |
|
|
$ |
13,044 |
|
|
|
$ 66 |
|
|
$ |
34,576 |
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic
|
|
$ |
0.38 |
|
|
|
$ 0.42 |
|
|
$ |
0.49 |
|
|
|
$ 0.00 |
|
|
$ |
1.29 |
|
| |
Diluted
|
|
$ |
0.32 |
|
|
|
$ 0.35 |
|
|
$ |
0.40 |
|
|
|
$ 0.00 |
|
|
$ |
1.11 |
|
|
|
|
| (a) |
Included in the results of the fourth quarter of
Fiscal 2002 are special charges of $12.4 million
($7.3 million, after tax or $0.27 per share) consisting of
inventory adjustments and a restructuring charge.
|
| |
| (b) |
Included in the results of the second quarter of
Fiscal 2001 was an extraordinary charge from early
extinguishment of debt of $0.5 million, net of tax benefit
of $0.3 million ($.01 per share – diluted).
|
| |
| (c) |
During the fourth quarter of Fiscal 2001, the
Company recognized a non-cash write-down of $14.2 million
for the abandonment of certain information technology system
assets. The charge after tax was $8.7 million or $0.24 per
diluted share.
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
54
pioneer-standard electronics, inc.
schedule ii — valuation and qualifying
accounts
years ended march 31, 2002, 2001 and 2000
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Dollars in Thousands) |
|
|
Balance at |
|
Charged to |
|
Deductions- |
|
Balance at |
|
|
Beginning |
|
Cost and |
|
Net |
|
End of |
| Description |
|
of Period |
|
Expenses |
|
Write-Offs |
|
Period |
|
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
$3,752 |
|
|
|
$19,549 |
|
|
|
$(15,264 |
) |
|
|
$ 8,037 |
|
|
Inventory valuation reserve
|
|
|
$7,856 |
|
|
|
$17,694 |
|
|
|
$ (5,613 |
) |
|
|
$19,937 |
|
| |
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
$ 5,681 |
|
|
|
$ 11,118 |
|
|
|
$ (13,047 |
) |
|
|
$ 3,752 |
|
|
Inventory valuation reserve
|
|
|
$ 6,770 |
|
|
|
$ 7,876 |
|
|
|
$ (6,790 |
) |
|
|
$ 7,856 |
|
| |
|
2000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
$ 6,035 |
|
|
|
$ 3,269 |
|
|
|
$ (3,623 |
) |
|
|
$ 5,681 |
|
|
Inventory valuation reserve
|
|
|
$ 5,397 |
|
|
|
$ 3,786 |
|
|
|
$ (2,413 |
) |
|
|
$ 6,770 |
|
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
55
exhibit index
| |
|
|
|
|
| Exhibit No. |
|
Description |
|
|
|
| |
3(a |
) |
|
Amended Articles of Incorporation of
Pioneer-Standard Electronics, Inc., which is incorporated by
reference to Exhibit 2 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997, as
amended on March 18, 1998 (File No. 0-5734).
|
| |
(b |
) |
|
Amended Code of Regulations, as amended, of
Pioneer-Standard Electronics, Inc., which is incorporated by
reference to Exhibit 3(b) to the Company’s Annual
Report on Form 10-K for the year ended March 31, 1997
(File No. 0-5734).
|
| |
4(a |
) |
|
Rights Agreement, dated as of April 27, 1999, by
and between the Company and National City Bank, which is
incorporated herein by reference to Exhibit 1 to the
Company’s Registration Statement on Form 8-A
(File No. 0-5734).
|
| |
(b |
) |
|
Indenture, dated as of August 1, 1996, by
and between the Company and Star Bank, N.A., as Trustee, which
is incorporated herein by reference to Exhibit 4(g) to the
Company’s Annual Report on Form 10-K for the year
ended March 31, 1997 (File No. 0-5734).
|
| |
(c |
) |
|
Share Subscription Agreement and Trust, effective
July 2, 1996, by and between the Company and Wachovia Bank
of North Carolina, N.A., which is incorporated herein by
reference to Exhibit 10.1 to the Company’s
Registration Statement on Form S-3
(Reg. No. 333-07665).
|
| |
(d |
) |
|
Certificate of Trust of Pioneer-Standard
Financial Trust, dated March 23, 1998, which is
incorporated herein by reference to Exhibit 4(l) to the
Company’s Annual Report on Form 10-K for the year
ended March 31, 1998 (File No. 0-5734).
|
| |
(e |
) |
|
Amended and Restated Trust Agreement among
Pioneer-Standard Electronics, Inc., as Depositor, Wilmington
Trust Company, as Property Trustee and Delaware Trustee, and the
Administrative Trustees named therein, dated as of
March 23, 1998, which is incorporated herein by reference
to Exhibit 4(m) to the Company’s Annual Report on
Form 10-K for the year ended March 31, 1998
(File No. 0-5734).
|
| |
(f |
) |
|
Junior Subordinated Indenture, dated
March 23, 1998, between the Company and Wilmington Trust,
as trustee, which is incorporated herein by reference to
Exhibit 4(n) to the Company’s Annual Report on
Form 10-K for the year ended March 31, 1998
(File No. 0-5734).
|
| |
(g |
) |
|
First Supplemental Indenture, dated
March 23, 1998, between the Company and Wilmington Trust,
as trustee, which is incorporated herein by reference to
Exhibit 4(o) to the Company’s Annual Report on
Form 10-K for the year ended March 31, 1998
(File No. 0-5734).
|
| |
(h |
) |
|
Form of 6 3/4% Convertible Preferred
Securities (Included in Exhibit 4(m)), which is incorporated
herein by reference to Exhibit 4(p) to the Company’s
Annual Report on Form 10-K for the year ended
March 31, 1998 (File No. 0-5734).
|
| |
(i |
) |
|
Form of Series A 6 3/4% Junior Convertible
Subordinated Debentures (Included in Exhibit 4(o)), which
is incorporated herein by reference to Exhibit 4(q) to the
Company’s Annual Report on Form 10-K for the year
ended March 31, 1998 (File No. 0-5734).
|
| |
(j |
) |
|
Guarantee Agreement, dated March 23, 1998,
between the Company and Wilmington Trust, as guarantee trustee,
which is incorporated herein by reference to Exhibit 4(r)
to the Company’s Annual Report on Form 10-K for the
year ended March 31, 1998 (File No. 0-5734).
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
56
| |
|
|
|
|
| Exhibit No. |
|
Description |
|
|
|
| |
*10(a |
) |
|
Amended and Restated Employment Agreement, dated
April 27, 1999, by and between the Company and John V.
Goodger, which is incorporated herein by reference to
Exhibit 10.4 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999
(File No. 0-5734).
|
| |
*(b |
) |
|
The Company’s 1982 Incentive Stock Option
Plan, as amended, which is incorporated by reference to
Exhibit 3(e) to the Company’s Annual Report on
Form 10-K for the year ended March 31, 1997
(File No. 0-5734).
|
| |
*(c |
) |
|
The Company’s Amended and Restated 1991
Stock Option Plan, which is incorporated herein by reference to
Exhibit 4.1 to the Company’s Form S-8
Registration Statement (Reg. No. 33-53329).
|
| |
*(d |
) |
|
The Company’s Amended 1995 Stock Option Plan
for Outside Directors, which is incorporated herein by reference
to Exhibit 99.1 to the Company’s Form S-8
Registration Statement (Reg. No. 333-07143).
|
| |
*(e |
) |
|
Pioneer-Standard Electronics, Inc. 1999 Stock
Option Plan for Outside Directors, which is incorporated herein
by reference to Exhibit 10.5 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999 (File No. 0-5734).
|
| |
*(f |
) |
|
Pioneer-Standard Electronics, Inc. 1999
Restricted Stock Plan, which is incorporated herein by reference
to Exhibit 10.6 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999
(File No. 0-5734).
|
| |
*(g |
) |
|
Pioneer-Standard Electronics, Inc. Supplemental
Executive Retirement Plan, which is incorporated herein by
reference to Exhibit 10(o) to the Company’s Annual
Report on Form 10-K for the year ended March 31, 2000
(File No. 0-5734).
|
| |
*(h |
) |
|
Pioneer-Standard Electronics, Inc. Benefit
Equalization Plan, which is incorporated herein by reference to
Exhibit 10(p) to the Company’s Annual Report on
Form 10-K for the year ended March 31, 2000 (File
No. 0-5734).
|
| |
*(i |
) |
|
Form of Option Agreement between Pioneer-Standard
Electronics, Inc. and the optionees under the Pioneer-Standard
Electronics, Inc. 1999 Stock Option Plan for Outside Directors,
which is incorporated herein by reference to Exhibit 10.7
to the Company’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 (File No. 0-5734).
|
| |
*(j |
) |
|
Amended and Restated Employment agreement,
effective April 1, 2000, between Pioneer-Standard
Electronics, Inc. and James L. Bayman, which is
incorporated herein by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000
(File No. 0-5734).
|
| |
*(k |
) |
|
Amended and Restated Employment agreement,
effective April 1, 2000, between Pioneer-Standard
Electronics, Inc. and Arthur Rhein, which is incorporated herein
by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 (File No. 0-5734).
|
| |
*(l |
) |
|
Employment agreement, effective April 24,
2000, between Pioneer-Standard Electronics, Inc. and
Steven M. Billick, which is incorporated herein by
reference to Exhibit 10.3 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2000 (File No. 0-5734).
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
57
| |
|
|
|
|
| Exhibit No. |
|
Description |
|
|
|
| |
(m |
) |
|
Five-Year Credit Agreement, dated as of
September 15, 2000, among Pioneer-Standard Electronics,
Inc., the Foreign Subsidiary Borrowers, the Lenders, and Bank
One, Michigan as Agent, Banc One Capital Markets, Inc. as Lead
Arranger and Sole Book Runner, KeyBank National Association as
Syndication Agent, and ABN AMRO Bank, N.V., as Documentation
Agent, which is incorporated herein by reference to
Exhibit 10.4 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000
(File No. 0-5734).
|
| |
(n |
) |
|
364-Day Credit Agreement, dated as of
September 15, 2000, among Pioneer-Standard Electronics,
Inc., the Lenders, Bank One, Michigan as Agent, Banc One Capital
Markets, Inc. as Lead Arranger and Sole Book Runner, KeyBank
National Association, as Syndication Agent, and ABN AMRO Bank,
N.V., as Documentation Agent, which is incorporated herein by
reference to Exhibit 10.5 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended
September 30, 2000 (File No. 0-5734).
|
| |
*(o |
) |
|
Pioneer-Standard Electronics, Inc. Senior
Executive Disability Plan, effective April 1, 2000, which
is incorporated herein by reference to Exhibit 10(v) to the
Company’s Annual Report on Form 10-K for the year
ended March 31, 2001 (File No. 0-5734).
|
| |
*(p |
) |
|
Non-Competition Agreement, dated as of
February 25, 2000, between Pioneer-Standard Electronics,
Inc. and Robert J. Bailey, which is incorporated herein by
reference to Exhibit 10(w) to the Company’s Annual
Report on Form 10-K for the year ended March 31, 2001
(File No. 0-5734).
|
| |
*(q |
) |
|
Change of Control Agreement, dated as of
February 25, 2000, between Pioneer-Standard Electronics,
Inc. and Robert J. Bailey, which is incorporated herein by
reference to Exhibit 10(x) to the Company’s Annual
Report on Form 10-K for the year ended March 31, 2001
(File No. 0-5734).
|
| |
*(r |
) |
|
Non-Competition Agreement, dated as of
February 25, 2000, between Pioneer-Standard Electronics,
Inc. and Peter J. Coleman, which is incorporated herein by
reference to Exhibit 10(y) to the Company’s Annual
Report on Form 10-K for the year ended March 31, 2001
(File No. 0-5734).
|
| |
*(s |
) |
|
Change of Control Agreement, dated as of
February 25, 2000, between Pioneer-Standard Electronics,
Inc. and Peter J. Coleman, which is incorporated herein by
reference to Exhibit 10(z) to the Company’s Annual
Report on Form 10-K for the year ended March 31, 2001
(File No. 0-5734).
|
| |
(t |
) |
|
Receivables Purchase Agreement, dated as of
October 19, 2001, among Pioneer-Standard Electronics
Funding Corporation, as the Seller, Pioneer-Standard
Electronics, Inc., as the Servicer, Falcon Asset Securitization
Corporation and Three Rivers Funding Corporation, as Conduits,
Bank One, NA and Mellon Bank, N.A., as Managing Agents and the
Committed purchasers from time to time parties hereto and Bank
One, NA as Collateral Agent, which is incorporated herein by
reference to Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended December 31,
2001 (File No. 0-5734).
|
| |
(u |
) |
|
Receivables Sales Agreement, dated as of
October 19, 2001, among Pioneer-Standard Electronics, Inc.,
Pioneer-Standard Minnesota, Inc., Pioneer-Standard Illinois,
Inc. and Pioneer-Standard Electronics, Ltd., as Originators and
Pioneer-Standard Funding Corporation, as Buyer, which is
incorporated herein by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the
quarter ended December 31, 2001 (File No. 0-5734).
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES
58
| |
|
|
|
|
| Exhibit No. |
|
Description |
|
|
|
| |
(v |
) |
|
Amendment No. 1 to Receivables Purchase
Agreement, dated as of January 29, 2002, by and among
Pioneer-Standard Funding Corporation, as Seller,
Pioneer-Standard Electronics, Inc. as Servicer, Falcon Asset
Securitization Corporation and Three Rivers Funding Corporation,
as Conduits, certain Committed Purchasers, Bank One, NA and
Mellon Bank, N.A. as Managing Agents, and Bank One, as
Collateral Agent, which is incorporated herein by reference to
Exhibit 10.3 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended December 31, 2001
(File No. 0-5734).
|
| |
(w |
) |
|
Third Amendment to Five-Year Credit Agreement,
dated as of January 29, 2002, by and among Pioneer-Standard
Electronics, Inc., the Foreign Subsidiary Borrowers, the various
lenders and Bank One, Michigan as Agent, which is incorporated
herein by reference to Exhibit 10.4 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001 (File No. 0-5734).
|
| |
*(x |
) |
|
Amendment to the Pioneer-Standard Electronics,
Inc. Supplemental Executive Retirement Plan dated
January 29, 2002.
|
| |
(y |
) |
|
Fourth Amendment to Five-Year Credit Agreement,
dated as of May 6, 2002, by and among Pioneer-Standard
Electronics, Inc., the Foreign Subsidiary Borrowers, the various
lenders and Bank One, Michigan as LC Issuer and Agent.
|
| |
*(z |
) |
|
Amended and Restated Employment agreement,
effective April 1, 2002, between Pioneer-Standard
Electronics, Inc. and James L. Bayman.
|
| |
*(aa |
) |
|
Employment agreement, effective April 1,
2002, between Pioneer-Standard Electronics, Inc. and Arthur
Rhein.
|
| |
21 |
|
|
Subsidiaries of the Registrant.
|
| |
23 |
|
|
Consent of Ernst & Young LLP, Independent
Auditors.
|
| |
99(a |
) |
|
Certificate of Insurance Policy, effective
November 1, 1997, between Chubb Group of Insurance
Companies and Pioneer-Standard Electronics, Inc., which is
incorporated herein by reference to Exhibit 99(a) to the
Company’s Annual Report on Form 10-K for the year
ended March 31, 1998 (File No. 0-5734).
|
| |
99(b |
) |
|
Forms of Amended and Restated Indemnification
Agreement entered into by and between the Company and each of
its Directors and Executive Officers, which are incorporated
herein by reference to Exhibit 99(b) to the Company’s
Annual Report on Form 10-K for the year ended
March 31, 1994 (File No. 0-5734).
|
|
|
| * |
Denotes a management contract or compensatory
plan or arrangement.
|
PIONEER-STANDARD ELECTRONICS, INC. AND
SUBSIDIARIES