1 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 AND EXCHANGE ACT OF 1934 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1996 Commission File No. 0-5734 PIONEER-STANDARD ELECTRONICS, INC. (Exact name of registrant as specified in its charter) Ohio 34-0907152 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 4800 East 131st Street, Cleveland, Ohio 44105 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (216) 587-3600 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Common Shares, without par value (Title of Class) Common Shares Purchase Rights (Title of Class) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by checkmark 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 requirement for the past 90 days. Yes X No --- --- Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Registration 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 From 10-K Annual Report or any amendment to this Form 10-K. [X] The aggregate market value of voting Shares of the Registrant held by non-affiliate was $310,547,415 as of June 1, 1996, computed on the basis of the last reported sale price per share ($15.00) of such shares on The Nasdaq National Market. Common Shares held by each officer, Director, and by each person who owns or may be deemed to own 10% or more of the outstanding Common Shares have been excluded since such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of June 3, 1996, the Registrant had the following number of Common Shares outstanding: 22,519,692
2 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 23, 1996 are incorporated by reference into Part III of this Form 10-K. Portions of the Registrant's Annual Report for the fiscal year ended March 31, 1996 are incorporated by reference into Parts II and IV 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, 1996. The Common Share information contained in this Form 10-K reflects a three-for-two share split effected in the form of a 50% share dividend declared on July 25, 1995 paid on September 6, 1995 to shareholders of record on August 16, 1995. PART I ------ Item 1. Business - ----------------- (a) Pioneer-Standard Electronics, Inc. was organized as an Ohio corporation in 1963 and maintains its principal office at 4800 East 131st Street, Cleveland, Ohio 44105 (telephone number (216) 587-3600). On June 1, 1994, Pioneer-Standard Canada Inc., a newly-formed Canadian subsidiary of the Company, purchased from United Westburne Inc., a Canadian corporation, certain of the assets and assumed certain liabilities of Westburne's Zentronics Division, which the Company believes is one of the largest distributors of electronic components and computer products in Canada. On November 30, 1995, the Company acquired 50% of the Common Stock of Pioneer/Technologies Group Inc., a Maryland corporation ("Technologies"). Prior to this acquisition, the Company held 50% of the Common Stock of Technologies. There have not been any material changes in the nature of the business done by the Company since April 1, 1995. Except as otherwise stated, the term "Company" as used herein shall mean Pioneer-Standard Electronics, Inc., Pioneer-Standard Canada Inc., and Pioneer-Standard of Maryland, Inc. (formerly Technologies). (b) The Company is engaged in the distribution of industrial and end-user electronic products, which business comprises only one basic industry segment. (c) The following is a description of various aspects of the Company's business: INDUSTRIAL AND END-USER DISTRIBUTION - The Company distributes a broad range of electronics components and computer products manufactured by others. These products are sold to original equipment manufacturers, value-added resellers, research laboratories, government agencies, and end-users, including manufacturing companies, and service and other non- 2
3 manufacturing organizations. These products are classified into three broad categories: semiconductors, computer products, and passive and electromechanical components. During fiscal 1996, semiconductor products accounted for 38% of the Company's sales compared with 37% in 1995 and 41% in 1994. These products include microprocessors, memory devices, programmable logic devices, analog and digital integrated circuits and other semiconductor devices. During fiscal 1996, computer products accounted for 40% of the Company's sales compared with 38% in 1995 and 33% in 1994. These products include computers (primarily mini and personal), display terminals, disk drives, development systems and networking products. During fiscal 1996, passive and electromechanical products accounted for 20% of the Company's sales, compared with 22% in 1995 and 24% in 1994. These products include capacitors, connectors, resistors, potentiometers, switches and power conditioning equipment. As a part of its distributor operations, the Company provides value-added services including point of use inventory management, systems integration, just-in-time kitting operations, memory and logic device programming and connector assemblies to customer specifications. Sales amounts for these services are included among the three broad categories discussed above. Miscellaneous products accounted for 2% of sales in 1996, 3% of sales in 1995 and 2% of sales in 1994. PRODUCTS DISTRIBUTED AND SOURCES OF SUPPLY - The Company is the fourth largest of the approximately 1,500 electronics distributors serving North American markets in terms of combined sales (prior to the acquisition of the remaining 50% of Technologies, the sales of the Company and Technologies were combined for industry ranking purposes). The Company markets electronic components supplied by over 100 manufacturers. A majority of the Company's revenues comes from products sourced by relatively few suppliers. During the 1996 fiscal year, products purchased from the Company's five largest suppliers accounted for 69% of total sales volume, with Digital Equipment Corporation (27%) and Intel Corporation (18%) being the largest two suppliers. The loss of any one of the top five suppliers and/or a combination of certain other suppliers could have a material adverse effect on the Company's sales and earnings unless alternative products manufactured by others are available to the Company. 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. The Company believes it has good relationships with its suppliers. CUSTOMERS - The Company serves over 24,000 customers in many major markets of North America. No single customer accounted for more than five percent of the Company's total sales for the fiscal year ended March 31, 1996. BACKLOG - The Company historically has not had a significant backlog of orders, although some shipments may be scheduled for delivery over an extended period of time. There was not a significant backlog during the last fiscal year. 3
4 COMPETITION - The sale and distribution of industrial electronic components and computer products are highly competitive, primarily with respect to price and product availability, but also with respect to service, variety and availability of products carried, number of locations and promptness of service. Many of the distributors with whom the Company competes are regional or local distributors. However, several of the Company's strongest competitors have national and international distribution businesses. The Company also experiences competition from manufacturers, including some of the Company's suppliers, who may sell directly to the industrial and end-user account base. EMPLOYEES - As of March 31, 1996, the Company had 2,052 employees, with approximately 2,016 of these persons employed on a full-time basis and the balance on a part-time basis. The Company is not a party to any collective bargaining agreement, has had no strikes or work stoppages and considers its employee relations to be excellent. (d) The Company distributes its products in the United States and Canada. Export sales are not a significant portion of the Company's sales. Item 2. Properties - ------------------- The Company's major distribution facilities used in the business are set forth below: <TABLE> <CAPTION> Owned or Expiration Date Location Sq. Ft. Leased of Lease (1) -------- ------- -------- -------------- <S> <C> <C> <C> Austin, Texas 10,800 Leased September 1, 2003 Chicago, Illinois 11,300 Leased April 14, 1998 Cleveland, Ohio (2) 87,000 Owned Dallas, Texas 13,500 Leased October 31, 1999 Eden Prairie, Minnesota 12,800 Leased August 31, 1997 Fremont, California 12,000 Leased March 15, 1999 Gaithersburg, Maryland 112,000 Leased July 31, 1999 Horsham, Pennsylvania 12,800 Leased October 31, 2000 Irvine, California 14,700 Leased February 1, 1997 Lexington, Massachusetts 26,400 Owned Montreal, Canada 12,100 Leased February 28, 1999 San Jose, California 42,000 Leased June 30, 1999 Solon, Ohio 174,000 Leased December 31, 2005 Solon, Ohio 21,600 Leased December 20, 2000 Solon, Ohio 24,000 Leased February 28, 1999 Solon, Ohio 41,000 Leased March 31, 1998 Solon, Ohio 44,700 Leased May 31, 1999 Toronto, Canada 32,700 Leased May 31, 1997 Tustin, California 16,100 Leased December 1, 2001 Twinsburg, Ohio (3) 106,000 Owned Woodbury, New York 35,600 Leased September 30, 1997 - --------------- </TABLE> 4
5 (1) The major leases contain renewal options for periods ranging from one to twenty years. (2) Corporate headquarters. (3) Corporate distribution center. The Company also has entered into various leases for distribution facilities of 10,000 square feet or less. Item 3. Legal Proceedings - -------------------------- As of March 31, 1996, the Company was not a party to any material pending legal proceedings. The Company has entered into new Employment Agreements with James L. Bayman, Arthur Rhein and John V. Goodger, effective April 1, 1996. Ms. Janice M. Margheret has been requested to sign, but has not yet signed, her proposed new Employment Agreement, and the Company and Ms. Margheret are discussing the status of her continued employment with, or in the alternative her separation from, the Company. If Ms. Margheret signs her new Employment Agreement, which she has indicated she will not do, it will contain terms similar to those contained in the other Executive Officers' Employment Agreements. On June 21, 1996, Ms. Margheret, through her attorneys, advised the Company that she has claims against the Company and certain of its Officers and Directors based upon sex discrimination, retaliation for asserting claims of sex discrimination, violations of the American With Disabilities Act, breach of contract, tortious interference with advantageous business relations and defamation. Discussions with her attorneys are being conducted, and if a mutually satisfactory resolution is not arrived at, litigation may result. 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, 1996. 5
6 Executive Officers of the Company(1) - --------------------------------- The name, age and positions of each executive officer of the Company as of June 1, 1996 are as follows: <TABLE> <CAPTION> Name Age Position ---- --- -------- <S> <C> <C> James L. Bayman 59 Chairman of the Board of the Company since April 1, 1996, Chief Executive Officer of the Company since April 3, 1995, and President of the Company since June, 1984. Chief Operating Officer of the Company from June, 1984 to April 3, 1995. Arthur Rhein 50 Senior Vice President of the Company since April, 1993 and Vice President - Marketing of the Company from 1986 to April, 1993. Prior thereto, Vice President - Northeast Division of the Company from 1984 to 1986. John V. Goodger 60 Vice President, Treasurer, and Assistant Secretary of the Company since February, 1990. Prior thereto, Vice President, Treasurer and Assistant Secretary of Ferro Corporation from 1987 to 1990 and Vice President and Treasurer of Ferro Corporation from 1984 to 1990. Janice M. Margheret 41 Senior Vice President of the Company since April, 1993 and Vice President and Controller of the Company from July, 1987 to April, 1993. Prior thereto, Group Controller of the Company from 1983 to 1987. William A. Papenbrock 57 Secretary of the Company since 1986. Mr. Papenbrock is a partner of the law firm of Calfee, Halter & Griswold(2). -------------------------- </TABLE> (1) The description of Executive Officers called for in this Item is included pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K. (2) The law firm of Calfee, Halter & Griswold serves as counsel to the Company. There is no relationship by blood, marriage or adoption among the above-listed officers. Messrs. Bayman, Rhein and Goodger have entered into new Employment Agreements with the 6
7 Company, all of which are included as Exhibits hereto. Messrs. Bayman, Rhein, and Goodger hold office until terminated as set forth in their new Employment Agreements. Mr. Papenbrock holds office until his successor is elected by the Board of Directors. See "Item 3. Legal Proceedings" for information with respect to Ms. Margheret and her employment status. 7
8 PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder 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 sales prices for the Common Shares, and the cash dividends paid on the Common Shares, for each quarter of the two most recent fiscal years and additional information required by this Item is set forth at page 34 of the Annual Report, which information is incorporated herein by reference. Cash dividends are payable quarterly, upon authorization of the Board of Directors. Regular payment dates are the 1st day of August, November, February and May. The Company maintains a Dividend Reinvestment Plan whereby cash dividends, and a maximum of an additional $5,000 per month, may be invested in the Company's Common Shares at no commission cost. On April 25, 1989, the Company adopted a Common Share Purchase Rights Plan. For further information about the Common Share Purchase Rights Plan, see Note 6 (Common Share Purchase Rights Plan) of Notes to Financial Statements of the Company. Item 6. Selected Financial Data - ------ ----------------------- The information required by this Item is set forth at page 23 of the Annual Report, which information is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and - ------ --------------------------------------------------------------- Results of Operations - --------------------- The information required by this Item is set forth at pages 19 through 22 of the Annual Report, which information is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data - ------ ------------------------------------------- The information required by this Item is set forth at pages 24 through 32 of the Annual Report, which information is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------ --------------------------------------------------------------- Financial Disclosure - -------------------- Not applicable. 8
9 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 Annual Meeting of Shareholders to be held on July 23, 1996 (the "1996 Proxy Statement") is incorporated herein by reference. Information required by this item as to the executive officers of the Company is included in Part I of this Annual Report on Form 10-K. Item 11. Executive Compensation - ------- ---------------------- The information required by this item is incorporated herein by reference to "Compensation of Executive Officers" in the 1996 Proxy Statement (except for the Compensation Committee Report and the Performance Graph). Item 12. Security Ownership of Certain Beneficial Owners and Management - ------- -------------------------------------------------------------- The information required by this item is incorporated herein by reference to "Share Ownership" in the 1996 Proxy Statement. Item 13. Certain Relationships and Related Transactions - ------- ---------------------------------------------- The information required by this item is incorporated herein by reference to "Compensation of Executive Officers - Certain Transactions" in the 1996 Proxy Statement. 9
10 PART IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - ------- ---------------------------------------------------------------- (a) The following financial statements and schedules are filed as part of this Form 10-K: (1) FINANCIAL STATEMENTS AND SCHEDULES. The following financial statements of the Company and its subsidiaries and the report of independent accountants thereon, included in the Annual Report on pages 24 through 32 and page 34, are incorporated by reference in Item 8: Report of independent auditors Balance sheet as of March 31, 1996 and 1995 For the years ended March 31, 1996, 1995 and 1994: Statements of income Statements of shareholders' equity Statements of cash flows Notes to financial statements Report of independent auditors Schedules for years ended March 31, 1996, 1995 and 1994: VIII - Valuation and Qualifying Accounts Quarterly Financial Data 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 financial statements or the notes thereto. (2) Exhibits -------- See the Index to Exhibits at page E-1 of this Form 10-K. (b) Reports on Form 8-K ------------------- A Current Report on Form 8-K was filed December 12, 1995 and a Form 8-K/A-1 with respect to such Current Report was filed on February 9, 1996. The Current Report was filed to report the Company's acquisition of Technologies. The amendment was filed to include the financial statement and pro forma financial information with respect to Technologies. 10
11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PIONEER-STANDARD ELECTRONICS, INC. Date: June 28, 1996 By: /s/ James L. Bayman ------------------------------ James L. Bayman, President and Chief Executive Officer 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 and on the dates indicated: <TABLE> <CAPTION> Signature and Title Date - ------------------- ---- <S> <C> <C> <C> /s/ James L. Bayman President and Chief Executive ) - ---------------------------------- Officer (Principal Executive ) James L. Bayman Officer) ) ) ) /s/ John V. Goodger Vice President, ) - ----------------------------------- Treasurer and Assistant Secretary ) John V. Goodger (Principal Financial and Accounting ) Officer) ) ) ) /s/ Preston B. Heller, Jr. Director ) - ------------------------------------ ) Preston B. Heller, Jr. ) ) /s/ Frederick A. Downey Director ) June 28, 1996 - --------------------------------- ) Frederick A. Downey ) ) /s/ Victor Gelb Director ) - ------------------------------------- ) Victor Gelb ) ) /s/ Gordon E. Heffern Director ) - ----------------------------------- ) Gordon E. Heffern ) ) /s/ Arthur Rhein Director ) - ------------------------------------ ) Arthur Rhein ) ) /s/ Edwin Z. Singer Director ) - ----------------------------------- ) Edwin Z. Singer ) ) /s/ Thomas C. Sullivan Director ) - ----------------------------------- ) Thomas C. Sullivan ) ) /s/ Karl E. Ware Director ) - ----------------------------------- ) Karl E. Ware ) </TABLE> 11
12 Pioneer-Standard Electronics, Inc. Exhibit Index <TABLE> <CAPTION> Sequential Exhibit No. Description Page No. - ----------- ----------- ---------- <S> <C> <C> 3.(a) Amended Articles of Incorporation of Pioneer-Standard Electronics, Inc., which is incorporated herein by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1982. N/A (b) Amended Code of Regulations, as amended, which is incorporated herein by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1988. N/A 4.(a) Credit Agreement, dated as of November 30, 1995 by and among Pioneer-Standard Electronics, Inc., Pioneer-Standard of Maryland, Inc., the Banks identified on the signature pages thereto and National City Bank, as Agent, which is incorporated by reference from the Form 8-K dated December 13, 1995. N/A (b) Rights Agreement dated as of April 25, 1989 by and between the Company and AmeriTrust Company National Association, which is incorporated herein by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1989. N/A (c) Note Purchase Agreement dated as of October 31, 1990 by and between the Company and Teachers Insurance and Annuity Association of America, which is incorporated herein by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1990. N/A (d) Amendment No. 1 to Note Purchase Agreement dated as of November 1, 1991 by and between the Company and Teachers Insurance and Annuity Association of America, which is incorporated herein by reference from the Company's Annual Report on Form 10-K for the year ended March 31, 1993. N/A (e) Amendment No. 2 to Note Purchase Agreement dated as of November 30, 1995 by and between the Company and Teachers Insurance and Annuity Association of America. 10.(a) Retirement Agreement effective March 31, 1996 by and between the Company and Preston B. Heller, Jr. (b) Employment Agreement effective as of April 1, 1996 by and between the Company and James L. Bayman. </TABLE> E-1
13 <TABLE> <S> <C> <C> (c) Employment Agreement effective as of April 1, 1996 by and between the Company and Arthur Rhein. (d) Employment Agreement effective as of April 1, 1996 by and between the Company and John V. Goodger. (e) Stock Purchase Agreement dated July 24, 1986 among Pioneer-Standard Electronics, Inc. and the other shareholders of Pioneer Technologies Group, Inc., which is incorporated herein by reference from the Company's Current Report on Form 8-K dated July 24, 1986. N/A (f) 1982 Incentive Stock Option Plan, as amended, which is incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1988. N/A (g) Amended and Restated 1991 Stock Option Plan, which is incorporated by reference from the Company's Form S-8 Registration Statement dated April 28, 1994. N/A (h) Asset Purchase Agreement dated April 22, 1994 between Pioneer-Standard Electronics, Inc. and Westburne Industrial Enterprises Ltd., which is incorporated herein by reference from the Company's Current Report on Form 8-K dated June 1, 1994. N/A (i) Amended 1995 Stock Option Plan for Outside Directors, which is incorporated by reference from the Company's Form S-8 Registration Statement dated June 28, 1996. </TABLE> E-2
14 <TABLE> <S> <C> <C> 11. Statement regarding computation of per share earnings. 13.1 1996 Annual Report (with a manually executed report of independent public accountants) 21. Subsidiaries of the Registrant 23. Consents of Ernst & Young LLP, Independent Auditors. 27. Financial Data Schedule 99.(a) Certificate of Insurance Policy effective November 1, 1996 between Chubb Group of Insurance Companies and Pioneer-Standard Electronics, Inc. 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 from the Company's Annual Report on Form 10-K for the year ended March 31, 1994. N/A </TABLE> E-3
15 REPORT OF INDEPENDENT AUDITORS We have audited the consolidated financial statements of Pioneer-Standard Electronics, Inc. as of March 31, 1996 and 1995 and for each of the three years in the period ended March 31, 1996 and have issued our report thereon dated May 1, 1996 included elsewhere in this Annual Report (Form 10-K). Our audits also included the consolidated financial statement schedule of Pioneer-Standard Electronics, Inc. as of March 31, 1996 and 1995 and for each of the three years in the period ended March 31, 1996, listed in Item 14(a) of this Annual Report (Form 10-K). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Cleveland, Ohio May 1, 1996
16 PIONEER-STANDARD ELECTRONICS, INC. SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS <TABLE> <CAPTION> Years ended March 31, 1996, 1995 and 1994 Balance at Charged Deductions - Balance beginning to costs net write-offs at end of Description of period and expenses Other (Net recoveries) period - ----------- --------- ------------ ----- ---------------- --------- <S> <C> <C> <C> <C> <C> 1996: Allowance for doubtful accounts $4,606,000 $ 940,000 $2,195,000(1) $ 759,000 $6,982,000 Inventory valuation reserve $3,416,000 $1,489,000 $5,534,000(1) $1,662,000 $8,777,000 1995: Allowance for doubtful accounts $2,869,000 $2,281,000 $ 544,000 $4,606,000 Inventory valuation reserve $2,540,000 $2,167,000 $1,291,000 $3,416,000 1994: Allowance for doubtful accounts $1,713,000 $1,808,000 $ 652,000 $2,869,000 Inventory valuation reserve $2,659,000 $1,995,000 $2,114,000 $2,540,000 <FN> (1) Amount for Pioneer Technologies Group, Inc., purchased November 30, 1995. </TABLE>