PIONEER STANDARD ELECTRONICS INC - 10-K Annual Report

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

FOR ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended March 31, 2003
		OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

COMMISSION FILE NO. 0-5734

Pioneer-Standard Electronics, Inc.

(Exact name of registrant as specified in its charter)


OHIO (State or other jurisdiction of incorporation or organization)		34-0907152 (I.R.S. employer identification No.)

6065 Parkland Boulevard Mayfield Heights, Ohio (Address of principal executive offices)		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 x 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. Yes x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

The aggregate market value of Common Shares held by non-affiliates as of September 30, 2002 (the last business day of the registrant’s most recently completed second fiscal quarter) was $190,466,836 computed on the basis of the last reported sale price per share ($7.24) of such shares on the NASDAQ National Market.

As of May 1, 2003, the Registrant had the following number of Common Shares outstanding: 32,105,614

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 29, 2003 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, 2003.

PIONEER-STANDARD ELECTRONICS, INC.

ANNUAL REPORT ON FORM 10-K

Year Ended March 31, 2003

TABLE OF CONTENTS


		Page

PART I
ITEM 1.	Business		1
ITEM 2.	Properties		4
ITEM 3.	Legal Proceedings		5
ITEM 4.	Submission of Matters to a Vote of Security Holders		5
ITEM 4A.	Executive Officers of the Registrant		5
PART II
ITEM 5.	Market for Registrant’s Common Equity and Related Shareholder Matters		7
ITEM 6.	Selected Consolidated Financial and Operating Data		8
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
ITEM 7A.	Quantitative and Qualitative Disclosures about Market Risk		18
ITEM 8.	Financial Statements and Supplementary Data		19
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		19
PART III
ITEM 10.	Directors and Executive Officers of the Registrant		19
ITEM 11.	Executive Compensation		19
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		19
ITEM 13.	Certain Relationships and Related Transactions		19
ITEM 14.	Controls and Procedures		19
PART IV
ITEM 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		20
SIGNATURES			21
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER			22
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER			23

part I

Item 1. Business

Overview

Pioneer-Standard Electronics, Inc. (the “Company” or “Pioneer-Standard”) is a leading distributor and reseller focused on enterprise computer systems. Enterprise computer systems are an important part of the information technology (“IT”) of medium to large corporations and have a significant influence on the performance and efficiency of those corporations. Pioneer-Standard offers technology solutions to address strategic business needs of these end-users through the distribution and reselling of servers, storage, software, and services. Except as otherwise stated, the terms “Company” or “Pioneer-Standard” as used herein shall mean Pioneer-Standard Electronics, Inc. and its subsidiaries.

Pioneer-Standard strives to be the preferred strategic link between its suppliers and customers by providing rewardable differentiated value. The Company’s role is to provide customers with solutions to integrate their systems, improve their business environment and solve information technology challenges. Headquartered in Cleveland, Ohio, the Company has sales offices throughout North America and maintains strategic investments in the United States and Europe.

Reference herein to any particular year or quarter generally refers to the Company’s fiscal year periods ending March 31.

History and significant events

Pioneer-Standard was organized as an Ohio corporation in 1963. While originally focused on electronic components distribution, the Company grew to become a leading distributor in both electronic components and enterprise computer systems products.

Prior to February 2003, the Company was structured into two divisions, which were classified into two reportable operating segments, the Computer Systems Division (“CSD”), which focused on the distribution and reselling of enterprise computer systems products, and the Industrial Electronics Division (“IED”), which focused on the distribution of electronic components. Each division represented, on average, approximately one-half of the Company’s total revenues. The Company’s third reportable segment contained corporate costs and the results of operations of Aprisa, Inc., the Company’s majority-owned software business, focused on creating software for the electronic components market. On February 28, 2003, the Company completed the sale of substantially all of the assets and liabilities of IED for preliminary pre-tax proceeds of $240 million. The Company also announced its strategic transformation to focus solely on its enterprise computer systems business. The proceeds from the sale have increased the Company’s financial flexibility and will be used to reduce debt and fund growth of the Company’s enterprise computer systems business, both organically and through acquisition. As a result of the sale, Pioneer-Standard’s financial statements have been restated to reflect the assets and liabilities and the operating results of IED — as well as Aprisa, Inc., which ceased to provide strategic value after the sale — as discontinued operations.

In the fourth quarter of Fiscal 2003, resulting from the sale of IED, the Company announced that it would restructure its remaining business and facilities to reduce overhead and eliminate assets that were inconsistent with the Company’s strategic plan and were no longer required. As a result, the Company recorded a restructuring charge for costs specific to the impairment of facilities and other assets no longer required, and severance, incentives and other employee benefit costs incurred in connection with downsizing the corporate structure.

An impairment charge was also recorded in March 2003 to reduce the carrying value of the Company’s investment in Eurodis Electron PLC, a European distributor of electronic components, to reflect the market value of Eurodis stock on March 31, 2003, as quoted on the London Stock Exchange. As a result of the sale of IED and subsequent change in business focus, Pioneer-Standard’s intent concerning this investment changed as the investment no longer held strategic value, and therefore the adjustment to market value was recorded.

As a consequence of the significant liquidity created by the divestiture of IED, as well as the reduced level of working capital needed to operate the enterprise computer systems business, the Company significantly reduced its borrowing facilities in the fourth quarter of Fiscal 2003. The Company terminated both its Revolving Credit Agreement with its existing line of $50 million, and its $150 million Accounts Receivable Securitization financing. In addition, during March 2003, the Company tendered for its 9.5% Senior Notes. The Company received valid tenders for and repurchased Senior Notes approximating $19.0 million.

In April 2003, the Company entered into a new three-year Revolving Credit Agreement that provides the Company with the ability to borrow, on an unsecured basis, up to $100 million limited by certain borrowing base calculations, and the Company repurchased, below face value, approximately $18.3 million of its Mandatorily Redeembable Convertible Trust Preferred Securities.

Industry

The worldwide IT products and services industry generally consists of (1) manufacturers and suppliers which sell directly to distributors, resellers and end-users, (2) distributors, which sell to resellers and, (3) resellers, which sell directly to end-users.

A variety of reseller categories exist, including value-added resellers (“VARs”), corporate resellers, systems integrators, original equipment manufacturers (“OEMs”), direct marketers and independent dealers. The large number of resellers makes it cost-efficient for suppliers to rely on a small number of distributors to serve this diverse customer base. Similarly, due to the large number of suppliers and products, resellers often cannot and/or choose not to establish direct purchasing relationships. As a result, many of these resellers are heavily dependent on distribution partners, such as Pioneer-Standard, that possess the necessary systems infrastructure, capital, inventory availability, and distribution and integration facilities to provide fulfillment and other services, such as financing, logistics, marketing and technical support needs. These services allow resellers to reduce or eliminate their inventory and warehouse requirements, and reduce their staffing needs for marketing and systems integration, thereby lowering their financial needs and reducing their costs.

Despite the continuing economic downturn that has impacted overall demand for IT products and services in 2001 and 2002, enterprise computer products distribution continues to perform a vital role in delivering IT products to market in an efficient, cost-effective manner. Manufacturers are pursuing strategies to outsource functions such as logistics, order management and technical support to supply chain partners as they look to minimize costs and investments in sales and marketing and focus on their core competencies in manufacturing, research and development, and demand creation.

Distribution plays an important role in this outsource strategy by allowing the manufacturers to decrease variable costs as the distributors deliver a streamlined approach to an extended customer base through their technically competent sales organization. The Company also believes that suppliers will continue to embrace the distribution channel for enterprise computer systems in order to obtain sales, marketing and technical expertise in key markets such as the mid-market sector through the extended reseller network. The economies of scale and reach of large industry-leading enterprise computer systems distributors are expected to continue to be significant competitive advantages in this marketplace.

The Company’s Fiscal 2003 results, like other companies in the technology industry, were negatively affected by the continued economic downturn. While economic conditions and IT market demand remain uncertain, companies in this industry have found ways to improve efficiency during the slowdown. These actions should strengthen profit potential upon the occurrence of a recovery in IT demand. According to information published in April 2003 by IDC, a leading provider of technology intelligence and market data, worldwide IT spending is projected to grow at a compound annual rate of approximately 4 to 7 percent through 2007 for enterprise hardware, software and services. Since Pioneer-Standard is well entrenched in the server, storage and software markets, the Company expects to benefit from the projected growth in the overall industry. However, a further slowdown in this market could have a substantial negative effect on the Company’s revenues and results of operations.

Products distributed and sources of supply

Pioneer-Standard focuses on the distribution and reselling of three specific product areas — servers, storage and software — and provides other services to supply a complete business solution. The Company offers mid-range enterprise servers, comprehensive storage solutions including hardware and software, and database, Internet and systems management software. These products are packaged together as new systems or to enhance existing systems, depending on the customer’s needs.

The Company sells products supplied by five primary suppliers. During the 2003, 2002 and 2001 fiscal years, products purchased from the Company’s two largest suppliers accounted for 83%, 85% and 85%, respectively, of the Company’s sales volume. The Company’s largest supplier, IBM, supplied 63%, 57% and 48% of the Company’s sales volumes in Fiscal 2003, 2002 and 2001, respectively.

With the acquisition of Compaq Computer Corporation (“Compaq”) by Hewlett-Packard Company (“HP”) in May 2002, sales of products sourced by the combined HP/Compaq entity accounted for 20%, 28% and 38% in Fiscal 2003, 2002 and 2001, respectively. The Company was not an HP distributor until Fiscal 2003.

The loss of either of the top two 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. In addition, although the Company believes that its relationships with suppliers are good, there can be no assurance that the Company’s suppliers will continue to supply products on terms acceptable to the Company. Through distributor agreements with its suppliers, Pioneer-Standard is authorized to sell all or some of the suppliers’ products. The authorization with each supplier is subject to specific terms and conditions regarding such items as product return privileges, price protection policies, purchase discounts and supplier incentive programs such as purchase incentives, sales volume incentives and cooperative advertising reimbursements. A substantial portion of the Company’s advertising and marketing program expenses are reimbursed through cooperative advertising reimbursement programs. These cooperative advertising programs are at the discretion of the supplier. From time to time, suppliers may terminate the right of the Company to sell some or all of their products or change these terms and conditions or reduce or discontinue the incentives or programs offered. Any such termination or implementation of such changes could have a material negative impact on the Company’s results of operations.

Inventory

The Company maintains certain levels of inventory in order to ensure that the lead times to its customers remain competitive. 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. Along with the Company’s inventory management policies and practices, these provisions reduce the Company’s risk of loss due to slow-moving inventory, supplier price reductions, product updates or obsolescence.

In some cases, the industry practices discussed above are not embodied in agreements and do not protect the Company in all cases from declines in inventory value. However, the Company believes that these practices provide a significant level of protection from such declines, although no assurance can be given that such practices will continue or that they will adequately protect Pioneer-Standard against declines in inventory value. In addition, the Company’s results of operations depend in part on successful management of the challenges of rapidly changing technology.

Customers

The Company serves customers in most major and secondary markets of North America. The Company’s customer base includes VARs, which are typically privately held with annual sales of $10 million to $200 million, and corporate end-users, which range from medium to large corporations, as well as the public sector. A substantial amount of Pioneer-Standard’s business, whether direct or through resellers, is in the mid-market customer segment, which is currently the fastest-growing segment in the industry. No single customer accounted for more than 10 percent of the Company’s total sales during Fiscal 2003.

Uneven sales patterns and seasonality

The Company experiences a disproportionately large percentage of quarterly sales in the last month of the fiscal quarters. This uneven sales pattern makes the prediction of revenues, earnings and working capital for each quarterly financial period difficult and increases the risk of unanticipated variations in quarterly results and financial condition. In addition, the Company experiences a seasonal increase in sales during its third quarter ending in December. Third quarter sales were 32%, 29% and 30% of annual revenues for Fiscal 2003, 2002 and 2001, respectively. The Company believes that this sales pattern is industry-wide. 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.

Backlog

The Company historically has not had a significant backlog of orders. There was no significant backlog at March 31, 2003.

Competition

The distribution and reselling of enterprise computer systems products is competitive, primarily with respect to price, but also with respect to service and promptness of service. The Company faces competition with respect to developing and maintaining relationships with customers. The Company competes for customers with other

distributors as well as with some of its suppliers. Several of the Company’s largest distribution competitors are significantly larger and have national and international distribution presence. Also, it is possible that certain suppliers may decide to distribute products directly, which would further heighten competitive pressures.

Growth through acquisitions

With the divestiture of IED, Pioneer-Standard has the flexibility to make acquisitions without immediately increasing leverage or diluting the holdings of existing shareholders. The Company reviews acquisition prospects that could accelerate the growth of the business by expanding the Company’s customer base, extending the Company’s reach into new markets and/or broadening the range of solutions offered by the Company. Pioneer-Standard’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 financial performance relative to acquisition price. However, acquisitions always present risks and uncertainties that could have a material adverse impact on the Company’s business and results of operations.

Employees

As of March 31, 2003, the Company had 1,061 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 sells its products principally in the United States and Canada. Non-U.S. and Canada sales are not a significant portion of the Company’s sales.

Access to information

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports available free of charge through its Internet site (http://www.pioneerstandard.com) as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The information posted on the Company’s Internet site is not incorporated into this Annual Report on Form 10-K. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Item 2. Properties

The Company owns a 102,500 square-foot office facility located in Solon, Ohio, which houses certain sales, marketing, operational accounting and information system functions associated with the enterprise computer systems business. In addition, the Company owns a 106,000 square-foot facility, located in Twinsburg, Ohio. The Twinsburg facility housed the Company’s Industrial Electronics Distribution Center. This location is now vacant and held for sale as a result of the Company’s divestiture of IED. Certain of the Company’s corporate offices are located in a 60,450 square-foot facility in Mayfield Heights, Ohio, for which the Company entered into an 11-year lease in April 1999. The Company’s operations occupy a total of approximately 622,000 square feet, with the majority, approximately 494,000 square feet, devoted to product distribution facilities and sales offices. Of the approximately 622,000 square feet occupied, 102,500 square feet are owned and 519,500 square feet are occupied under operating leases. The Company’s facilities of 100,000 square feet or larger, as of March 31, 2003, are set forth in the table below.

Type of

Approximate

Leased or

Location

Facility

Square Footage

Owned

Solon, Ohio

Distribution

224,600

Leased

Solon, Ohio

Office Facility

102,500

Owned

Twinsburg, Ohio

Distribution

106,000

Owned

The Company’s major leases contain renewal options for periods of up to 10 years. For information concerning the Company’s rental obligations, see Note 6 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.

Item 3. Legal proceedings

The Company is not a party to any material pending legal proceedings other than ordinary routine litigation incidental to its 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, 2003.

Item 4A. Executive officers of the registrant

The information on the following page is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K. The following table sets forth the name, age, current position and principal occupation and employment during the past five years through May 1, 2003 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.

executive officers of the company


Name	Age		Current Position	Other Positions


Arthur Rhein		57	Chairman, President and Chief Executive Officer of the Company since April 30, 2003.	President and Chief Executive Officer of the Company from April 2002 to April 2003. From prior to 1999 to March 31, 2002, President and Chief Operating Officer.
Robert J. Bailey		46	Executive Vice President since May 2002.	From prior to 1999 to May 2002, Senior Vice President, Marketing of the Company’s Computer Systems Division.
Steven M. Billick		47	Executive Vice President, Treasurer and Chief Financial Officer since May 2003.	Executive Vice President and Chief Financial Officer since May 2002. From April 2000 to May 2002, Senior Vice President and Chief Financial Officer. From prior to 1999 to April 2000, Business Consultant for Management Consulting Services.
Peter J. Coleman		48	Executive Vice President since May 2002.	From prior to 1999 to May 2002, Senior Vice President, Sales of the Company’s Computer Systems Division.
Edward J. Gaio		49	Vice President and Controller of the Company since April 2001.	From January 2000 to April 2001, Controller. From prior to 1999 to 2000, Director of Finance and Planning of the Industrial Electronics Division.
James L. Sage		48	Executive Vice President, Chief Information Officer since May 2002.	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 prior to 1999 to April 2000, Vice President, Information Systems.
Richard A. Sayers II		52	Executive Vice President, Chief Human Resources Officer since May 2002.	From April 2000 to May 2002, Senior Vice President, Corporate Services. From prior to 1999 to April 2000, Senior Vice President, Human Resources.
Kathryn K. Vanderwist		43	Vice President, General Counsel and Assistant Secretary since April 2001.	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.
Lawrence N. Schultz		55	Secretary of the Company since 1999.	From prior to 1999 to present, Partner of the law firm of Calfee, Halter & Griswold LLP. (1)

(1) The law firm of Calfee, Halter & Griswold LLP serves as counsel to the Company.

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:

Year Ended March 31, 2003

First

Second

Third

Fourth

Quarter

Year

Dividends declared per Common Share

$0.03

$0.12

Price range per Common Share

$10.01-$15.50

$7.20-$11.60

$5.40-$10.13

$7.15-$11.84

$5.40-$15.50

Closing Price on last day of period

$10.39

$7.24

$9.18

$8.44



	Year Ended March 31, 2002
	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		$9.00-$13.80		$8.87-$12.52		$7.40-$13.37		$11.22-$14.94		$7.40-$14.94
Closing Price on last day of period		$12.80		$9.02		$12.70		$14.15		$14.15

As of May 1, 2003, there were 32,105,614 Common Shares (including 3,589,940 subscribed Common Shares) of Pioneer-Standard Electronics, Inc. outstanding, and there were 2,734 shareholders of record. The closing price of the Common Shares on May 1, 2003, was $9.83.

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 12 to the Consolidated Financial Statements contained in Part IV hereof.

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)			2003			2002			2001			2000			1999


Operating Results
	Continuing Operations (a)
		Net sales	$	1,171,631		$	1,294,322		$	1,431,838		$	1,219,489		$	1,128,452
		Income (loss) before income taxes (b)(c)(d)		(31,484	)		4,944			(15,724	)		11,753			26,008
		Provision (benefit) for income taxes		(11,739	)		1,618			(3,713	)		6,854			10,969
		Income (loss) from continuing operations (b)(c)(d)	$	(26,060	)	$	(2,911	)	$	(18,316	)	$	(1,305	)	$	9,231
	Income (Loss) from Discontinued Operations, net of taxes (a)		$	18,777		$	(4,136	)	$	52,892		$	41,450		$	21,578
	Cumulative Effect of Change in Accounting Principle, net of tax (e)			(34,795	)		—			—			—			—
	Net Income (Loss) (a)(b)(c)(d)(e)		$	(42,078	)	$	(7,047	)	$	34,576		$	40,145		$	30,809
Per Share Data
	Income (loss) from continuing operations — basic and diluted (a)(b)(c)(d)		$	(0.96	)	$	(0.11	)	$	(0.68	)	$	(0.05	)	$	0.35
	Cash dividends per share			0.12			0.12			0.12			0.12			0.12
	Book value per share		$	10.88		$	12.56		$	13.18		$	12.20		$	10.30
	Price range of common shares
		High	$	15.50		$	14.94		$	16.13		$	18.75		$	13.19
		Low	$	5.40		$	7.40		$	9.13		$	6.50		$	5.63
Financial Position
	Total assets		$	773,883		$	916,937		$	1,183,610		$	1,113,835		$	947,507
	Long-term debt			130,995			179,000			390,999			320,205			313,240
	Mandatorily redeemable convertible trust preferred securities			143,675			143,675			143,750			143,750			143,750
	Shareholders’ equity		$	298,550		$	340,697		$	354,257		$	324,065		$	271,503
	Weighted average shares outstanding
		Basic		27,292			27,040			26,793			26,409			26,351
		Diluted		27,292			27,040			26,793			26,409			26,594
Other Comparative Data
	Total number of average employees (a)			1,126			1,253			1,314			1,325			1,337
	Sales per employee (a)		$	1,041		$	1,033		$	1,090		$	920		$	844
	Gross margin percent of sales (a)			12.7%			13.2%			12.4%			14.6%			16.3%
	Operating expense percent of sales (a)(b)			13.4%			12.0%			12.4%			12.8%			13.0%
	Net income (loss) percent of sales (a)(b)(c)(d)(e)			(3.6	)%		(0.5	)%		2.4%			3.3%			2.7%


(a)		The sale of the Company’s Industrial Electronics Division (“IED”) and the related discontinuation of the operations of Aprisa, Inc. in February 2003 represent a disposal of a “component of an entity” as defined in Statement of Financial Accounting Standard (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” Accordingly, 1999 through 2002 have been restated to reflect the results of operations of IED and Aprisa, Inc. as discontinued operations, and to exclude employees that were related to these businesses. (See Note 2 in the Consolidated Financial Statements contained in Part IV hereof.)
(b)		In March 2003, the Company recorded a restructuring charge of $20.7 million ($13.0 million, after tax) for the impairment of facilities and other assets and for severance costs incurred in connection with downsizing the Company’s corporate structure. In Fiscal 2001, the Company recognized a non-cash write-down of $14.2 million ($10.8 million, after tax) for the abandonment of certain information technology system assets.
(c)		In March 2003, the Company recognized an impairment charge of $14.6 million ($9.2 million, after tax) on an available-for-sale investment.
(d)		In March 2003, the Company tendered for and repurchased certain of its 9.5% Senior Notes, which resulted in a pre-tax charge of $1.2 million ($0.7 million, after tax) associated with the premium paid and the write-off of related financing costs.
(e)		On April 1, 2002, Pioneer-Standard adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires that amortization of goodwill be replaced with period tests for goodwill impairment. The adoption of SFAS No. 142 resulted in a charge of $34.8 million, net of tax, which was recorded as a cumulative effect of a change in accounting principle. (See Note 4 in the Consolidated Financial Statements contained in Part IV hereof.)

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”) was organized as an Ohio corporation in 1963. While originally focused on electronic components distribution, the Company grew to become a leading distributor of both electronic components and enterprise computer systems products. In February 2003, after a comprehensive analysis conducted by the Company’s Board of Directors and senior management, it was determined that the Company’s growth prospects and potential returns on investment would be greater if all the Company’s resources were devoted to the enterprise computer systems business. Therefore, the Company decided to focus solely on that business and as part of the transformation sold substantially all of the assets and liabilities of its electronic components business and discontinued the related operations of Aprisa, Inc. (“Aprisa”), the Company’s majority-owned software business focused on creating software for the electronic components market. The Company, with its singular focus on the enterprise computer systems business, provides a broad range of servers, storage, software and services to resellers and corporate end-user customers across a diverse set of industries. A substantial amount of Pioneer-Standard’s business, whether direct or through resellers, is in the mid-market customer segment. The Company is closely aligned with growing high-technology markets and is dedicated to driving the adoption of information technology to satisfy the strategic business needs of its customers. The Company has operations in North America and strategic investments in North America and Europe. The Company’s operations comprise a single business segment.

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. The disposition of the Company’s Industrial Electronics Division (“IED”) and discontinuance of Aprisa’s operations represent a disposal of a “component of an entity” as defined in Statement of Financial Accounting Standard (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, the Company’s Consolidated Financial Statements and related notes have been presented to reflect IED and Aprisa as discontinued operations for all periods. As such, management’s discussion and analysis excludes discontinued operations and focuses on the results of the Company’s continuing operations, the enterprise computer systems business.

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 2003

Fiscal 2003 has been a year of transition for Pioneer-Standard. The Company entered Fiscal 2003 with the electronics market in a severe downturn and a weak environment for information technology (“IT”) spending. The Company made a decision to accelerate its long-term growth by entering into a strategic transformation that would allow it to become a singularly focused enterprise computer systems business. As a result, the electronic components business was sold. The proceeds from the sale of IED, which are estimated to total $240 million, have increased the Company’s financial flexibility and will be used to enhance the Company’s ability to fund the organic growth of the ongoing business, as well as, to provide the Company with the financial flexibility to make acquisitions. In addition, certain of these proceeds have been used and will continue to be used to opportunistically pay down debt.

The Company’s financial results for Fiscal 2003 reflect the Company’s transition. During the fourth quarter of Fiscal 2003, the Company reorganized its business and, in the process, recognized charges totaling approximately $36.5 million, before tax. The reorganization charges consisted primarily of the following: (1) restructuring charges of $20.7 million, before tax, which are specific to the impairment of facilities and other assets that are no longer required and severance costs incurred in connection with downsizing the corporate structure, (2) a pre-tax investment impairment charge of $14.6 million for the Company’s investment in a European electronic components distributor that no longer holds strategic value and was deemed other than temporarily impaired and, (3) pre-tax charges for the loss on retirement of debt of $1.2 million, representing the premium paid and the write-off of other related financing costs associated with the tender for and repurchase of approximately $19.0 million of the Company’s 9.5% Senior Notes in March 2003. In addition, in the first quarter of Fiscal 2003, the Company recognized a cumulative effect of change in accounting principle of $34.8 million, after tax, or $1.27 per share, for goodwill impairment as a result of the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” on April 1, 2002.

Including the reorganization charges and the cumulative effect of the change in accounting principle, the Company reported a net loss of $42.1 million, or $1.54 per share, for Fiscal 2003, compared with a net loss of $7.0 million in Fiscal 2002, or $0.26 per share.

Current economic environment

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 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 Company’s most significant accounting policies relate to the sale, purchase, distribution and promotion of its products. 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. Spe


(1)	The law firm of Calfee, Halter & Griswold LLP serves as counsel to the Company.