PIONEER STANDARD ELECTRONICS INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
X		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2002.


		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
		OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ________________.

Commission file number 0-5734

Pioneer-Standard Electronics, Inc.
(Exact name of registrant as specified in its charter)


Ohio		34-0907152

(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)


6065 Parkland Boulevard, Mayfield Heights, Ohio			44124

(Address of principal executive offices)			(Zip code)

Registrant’s telephone number, including area code: (440) 720-8500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No .

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes X No

Indicate the number of shares outstanding of each of the issuer’s classes of Common Shares, as of the latest practical date: Common Shares, without par value, as of February 1, 2003: 31,978,863. (Includes 3,965,740 Common Shares subscribed by the Pioneer Stock Benefit Trust.)

PIONEER-STANDARD ELECTRONICS, INC.

TABLE OF CONTENTS


Part I	FINANCIAL INFORMATION

	Item 1	Financial Statements

		Unaudited Condensed Consolidated Statements of Operations for the Three and Nine months Ended December 31, 2002 and 2001

		Condensed Consolidated Balance Sheets - December 31, 2002 (Unaudited) and March 31, 2002

		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine months Ended December 31, 2002 and 2001

		Notes to Unaudited Condensed Consolidated Financial Statements

	Item 2	Management’s Discussion and Analysis of Results of Operations and Financial Condition

	Item 3	Quantitative and Qualitative Disclosures About Market Risk

	Item 4	Controls and Procedures

Part II	OTHER INFORMATION

	Item 1	Legal Proceedings

	Item 2	Changes in Securities and Use of Proceeds

	Item 3	Defaults Upon Senior Securities

	Item 4	Submission of Matters to a Vote of Security Holders

	Item 5	Other Information

	Item 6	Exhibits and Reports on Form 8-K

	Signatures

	Certification of the Chief Executive Officer

	Certification of the Chief Financial Officer

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PIONEER-STANDARD ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


					Three Months Ended						Nine months Ended
					December 31						December 31

(Dollars In Thousands, Except Share and Per Share Data)					2002			2001			2002			2001

Net Sales					$	567,662		$	633,709		$	1,542,277		$	1,818,220
Cost of Goods Sold						491,019			551,983			1,320,918			1,570,322

			Gross Margin			76,643			81,726			221,359			247,898
Warehouse, Selling and Administrative Expenses						68,009			71,139			199,381			224,063

			Operating Income			8,634			10,587			21,978			23,835
Other (Income) Expense
			Other (Income) Expense			(743	)		2			(1,417	)		300
			Interest Expense			4,878			4,643			13,180			17,935

Income Before Income Taxes						4,499			5,942			10,215			5,600
			Provision for Income Taxes			990			2,317			2,248			2,184
			Minority Interest			(277	)		(88	)		(1,073	)		(253	)
			Distributions on Mandatorily
				Redeemable Convertible Trust
				Preferred Securities, net of tax		1,891			1,480			5,673			4,439

Income (Loss) Before Cumulative Effect of a
		Change in Accounting Principle			$	1,895		$	2,233		$	3,367		$	(770	)
			Cumulative Effect of a Change in Accounting
				Principle, net of $1.9 million tax benefit		—			—			(34,795	)		—

Net Income (Loss)					$	1,895		$	2,233		$	(31,428	)	$	(770	)

Per Share Data:
Income (Loss) Before Cumulative Effect of a
	Change in Accounting Principle — basic				$	.07		$	.08		$	.12		$	(.03	)
				Cumulative Effect of a Change in
				Accounting Principle		—			—			(1.27	)		—

Net Income (Loss) — basic					$	.07		$	.08		$	(1.15	)	$	(.03	)

Income (Loss) Before Cumulative Effect of a
	Change in Accounting Principle — diluted				$	.07		$	.08		$	.12		$	(.03	)
				Cumulative Effect of a Change in
				Accounting Principle		—			—			(1.26	)		—

Net Income (Loss) — diluted					$	.07		$	.08		$	(1.14	)	$	(.03	)

Dividends Per Share					$	.03		$	.03		$	.09		$	.09
Weighted Average Shares Outstanding:
				Basic		27,291,484			27,089,311			27,270,774			27,018,322
				Diluted		27,719,077			27,526,510			27,698,764			27,018,322

See accompanying notes to unaudited condensed consolidated financial statements.

PIONEER-STANDARD ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts at December 31, 2002 are unaudited)


				December 31			March 31
(Dollars In Thousands, Except Share Data)				2002			2002

ASSETS
Current Assets
	Cash and cash equivalents			$	70,274		$	23,452
	Accounts receivable, net				369,661			315,292
	Inventories, net				220,232			267,160
	Deferred income taxes				15,039			16,493
	Prepaid expenses				1,651			1,870

			Total current assets		676,857			624,267
Goodwill & intangible assets, net					118,993			155,564
Investments in affiliated companies					32,406			45,670
Other assets					14,531			10,831
Property and equipment, net					71,827			80,605

			Total Assets	$	914,614		$	916,937

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Accounts payable			$	270,988		$	201,116
	Accrued salaries, wages, commissions and benefits				12,440			9,489
	Other accrued liabilities				19,532			19,809
	Current maturities of long-term debt				18			59

			Total current liabilities		302,978			230,473
Long-Term Debt					150,032			179,000
Deferred Income Taxes					11,106			17,812
Other Long-Term Liabilities					4,151			5,280
Mandatorily Redeemable Convertible Trust Preferred Securities					143,675			143,675
Shareholders’ Equity
	Common stock, at $0.30 stated value; 31,906,301 and
		31,781,671 shares outstanding, including 3,965,740
		subscribed-for shares, in December and March, respectively			9,490			9,452
	Capital in excess of stated value				115,528			133,932
	Retained earnings				225,936			259,876
	Unearned employee benefits				(36,405	)		(56,115	)
	Unearned compensation on restricted stock				(1,921	)		(3,289	)
	Accumulated other comprehensive loss				(9,956	)		(3,159	)

			Total Shareholders’ Equity		302,672			340,697

			Total Liabilities and Shareholders’ Equity	$	914,614		$	916,937

See accompanying notes to unaudited condensed consolidated financial statements.

PIONEER-STANDARD ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


				Nine months Ended
				December 31

(Dollars in Thousands)				2002			2001

Operating Activities:
		Net loss		$	(31,428	)	$	(770	)
		Adjustments to reconcile net loss to net cash provided by operating activities:
			Cumulative effect of a change in accounting principle		34,795			—
			Write-off of investment in affiliate		—			750
			Depreciation		8,892			10,107
			Amortization		8,509			11,557
			Deferred income taxes		(4,605	)		(2,896	)
			Other non-cash items		130			664
			Changes in working capital, excluding effect of acquisitions
			(Increase) decrease in accounts receivable		(53,348	)		26,377
			Decrease in inventory		47,343			81,730
			Increase in accounts payable		69,674			57,850
			Increase (decrease) in accrued salaries and wages		2,937			(2,425	)
			Increase in other accrued liabilities		1,749			269
			Other working capital changes		(621	)		(60	)
			Other		(654	)		965

			Total adjustments		114,801			184,888

			Net cash provided by operating activities		83,373			184,118
Investing Activities:
		Additions to property and equipment			(8,265	)		(5,856	)
		Proceeds from sale of assets			1,389			—
		Acquisitions of businesses			—			(4,029	)

			Net cash used for investing activities		(6,876	)		(9,885	)
Financing Activities:
		Revolving credit borrowings			7,780			661,940
		Revolving credit payments			(7,780	)		(888,270	)
		Accounts receivable securitization financing borrowings			17,600			173,290
		Accounts receivable securitization financing payments			(46,600	)		(144,000	)
		Dividends paid			(2,512	)		(2,489	)
		Other			1,148			30

			Net cash used for financing activities		(30,364	)		(199,499	)
Effect of Exchange Rate Changes on Cash					689			(77	)

Net Change in Cash					46,822			(25,343	)
Cash at Beginning of Period					23,452			41,812

Cash at End of Period				$	70,274		$	16,469

Non-Cash Transactions:
	Pioneer-Standard Electronics, Inc.’s investments in available-for-sale securities, net-of-tax, for the nine-month periods ended December 31, 2002 and 2001, depreciated $9.2 million and $7.6 million, respectively

See accompanying notes to unaudited condensed consolidated financial statements.

PIONEER-STANDARD ELECTRONICS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
(Table Amounts in Thousands, Except Per Share Data)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Pioneer-Standard Electronics, Inc. and its subsidiaries (the “Company” or “Pioneer-Standard”). Investments in affiliated companies are accounted for by the equity or cost method, as appropriate. All intercompany accounts have been eliminated.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of December 31, 2002 and the results of its operations and cash flows for the three- and nine-month periods ended December 31, 2002 and 2001 have been included.

Operating results for the nine-month period ended December 31, 2002 are not necessarily indicative of the results that may be expected for the remainder of the year ending March 31, 2003. For further information, refer to the consolidated financial statements and footnotes thereto, which include critical accounting policies and estimates, included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2002.

Reclassifications: Certain amounts in the prior period’s Unaudited Condensed Consolidated Financial Statements and the Notes thereto have been reclassified to conform with the current period’s presentation.

2. RESTRUCTURING CHARGE

During the fourth quarter of Fiscal 2002, the Company recognized a restructuring charge of approximately $3.8 million for qualifying exit costs for one service center and eleven regional office facilities with leases expiring through 2006 and severance and other employee benefits to be paid to approximately 100 personnel. During the first quarter of Fiscal 2003, the Company increased the reserve for severance and related benefits for eight additional employees. Severance and related benefits were paid out to 104 personnel during the nine months ended December 31, 2002. The changes to the Company’s restructuring accrual since March 31, 2002 are as follows:


(Dollars in thousands)	Severance			Exit Costs			Total

Balance at March 31, 2002	$	1,887		$	1,909		$	3,796
Provision		333			—			333
Payments		(1,687	)		(564	)		(2,251	)
Reversals		(205	)		(201	)		(406	)

Balance at December 31, 2002	$	328		$	1,144		$	1,472

3. GOODWILL AND OTHER INTANGIBLE ASSETS

On April 1, 2002, the Company adopted Statement of Financial Accounting Standards (“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. Effective April 1, 2002, the Company discontinued amortization of its goodwill in accordance with this Statement. Pro forma information, assuming the adoption of this Statement in the prior year, is as follows:


	Three Months Ended				Nine months Ended
	December 31				December 31

(Dollars in thousands, except per share amounts)	2002		2001		2002			2001

Net income (loss), as reported	$	1,895	$	2,233	$	(31,428	)	$	(770	)
Add: Goodwill amortization, net of tax