SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the transition period from _________ to ________.

Commission file number 0-5734

Pioneer-Standard Electronics, Inc.

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

Yes X   No                

Indicate the number of shares outstanding of each of the issuer’s classes of Common Shares, as of the latest practical date: Common Shares, without par value, as of November 1, 2000: 31,613,194. (Includes 4,056,202 Common Shares subscribed by the Pioneer Stock Benefit Trust.)

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PIONEER-STANDARD ELECTRONICS, INC.

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PART I — FINANCIAL INFORMATION

PIONEER-STANDARD ELECTRONICS, INC.

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PIONEER-STANDARD ELECTRONICS, INC.

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PIONEER-STANDARD ELECTRONICS, INC.

Non-Cash transactions:

      For the six month periods ended September 30, 2000 and 1999, Pioneer-Standard Electronics, Inc.’s
      investments in available-for-sale securities appreciated $5,976 and $2,508, respectively, net of tax.

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PIONEER-STANDARD ELECTRONICS, INC.

1. BASIS OF PRESENTATION

Pioneer is a worldwide distributor of electronic components and computer systems.

The accompanying unaudited condensed consolidated financial statements include the accounts of Pioneer-Standard Electronics, Inc. and its majority owned subsidiaries (the “Company” or “Pioneer”). All intercompany accounts have been eliminated.

These financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of September 30, 2000 and the results of its operations and cash flows for the three and six month periods ended September 30, 2000 and 1999 have been included.

Operating results for the six month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the remainder of the year ended March 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2000.

Reclassifications: Certain 1999 amounts have been reclassified to conform with the 2000 presentation.

2. COMPREHENSIVE INCOME

The components of comprehensive income for the three and six months ended September 30, 2000 and 1999 are as follows (amounts in thousands):

3. EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted computations include dilutive common share equivalents of outstanding stock options, restricted stock and assumed conversion of company-obligated mandatorily redeemable convertible trust preferred securities and the elimination of related distributions, net of income taxes.

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The computation of basic and diluted earnings per common share for the three and six months ended September 30, 2000 and 1999 are as follows:

4. REVOLVING CREDIT AGREEMENTS AND EXTRAORDINARY CHARGE

On September 15, 2000, the Company entered into a new five year revolving credit agreement and a new 364 day credit agreement, the latter of which, subject to certain conditions, can be converted by the Company after 364 days to a two-year term loan, with a group of commercial banks. These agreements provide the Company with the ability to borrow, on an unsecured basis, up to $375 million which, under certain conditions, can be increased by up to $50 million, limited to certain borrowing base calculations. In addition, the agreements contain certain restrictive financial and non-financial covenants. As of September 30, 2000, the Company was in compliance with these covenants.

In conjunction with the financing, the Company repaid, prior to its maturity date, amounts outstanding under the previously existing commercial bank finance agreement and recognized an extraordinary charge for early extinguishment of debt of $470, net of $301 tax benefit, as a result of currently expensing financing fees associated with the former credit facility.

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5. BUSINESS SEGMENT INFORMATION

The Company’s operations are classified into two reporting segments: Computer Systems and Industrial Electronics. The Company’s two reportable business segments are managed separately based on product and market differences.

Computer Systems products include mid-range computer systems, high-end platforms, personal computers, display terminals and networking products.

Industrial Electronics products include semiconductors and interconnect, passive and electromechanical products.

The Company evaluates performance and allocates resources based on return on capital and profitable growth. Specifically, the Company measures segment income or loss based on operating income.

Business Segment Information

In March 1998 and April 1998, Pioneer-Standard Financial Trust (the “Trust”) issued a total of $143.7 million of 6 3/4% Mandatorily Redeemable Convertible Trust Preferred Securities (the “Trust Preferred Securities”). The Trust, a statutory business trust, is a wholly-owned consolidated subsidiary of the Company, with its sole asset being $148.2 million aggregate principal amount of 6  3/4% Junior Convertible Subordinated Debentures due March 31, 2028 of Pioneer-Standard Electronics, Inc. (the “Trust Debenture”). The Company has executed a guarantee with regard to the Trust Preferred Securities. The guarantee, when taken together with the Company’s obligations under the Trust Debenture, the indenture pursuant to which the Trust Debenture was issued, and the applicable Trust Document, provides a full and unconditional guarantee of the Trust’s obligations under the Trust Preferred Securities.

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7. CONTINGENCIES

The Company is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. The Company provides for costs related to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on the Company’s future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such matters will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

8. ACCOUNTING STANDARDS NOT YET ADOPTED

In June, 1998, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires companies to recognize all derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. In June 1999, the FASB delayed the effective date of this Statement for one year to fiscal years beginning after June 15, 2000. The FASB cited the reason for this delay was to address concerns about a company’s ability to modify their information systems and educate their managers in time to apply this Statement.

In June 2000, the FASB issued SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” This Statement amends the accounting and reporting standards of SFAS No. 133 for certain derivative instruments and hedging activities. The Company will adopt these Statements on April 1, 2001 and is in the process of determining the effect that adoption will have on its financial statements.

On December 3, 1999, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 101 – Revenue Recognition in Financial Statements (“SAB 101”). SAB 101 summarizes certain of the SEC staff’s views in applying generally accepted accounting principals to revenue recognition in financial statements. SAB 101 is effective for companies no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. For the Company, the effective date is the quarter ending March 31, 2001. The Company is in the process of reviewing its revenue recognition policies and procedures to ensure it will be in compliance with the requirements of SAB 101. Pioneer does not anticipate making significant changes to the Company’s revenue recognition policies to satisfy the requirements of SAB 101.

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PIONEER-STANDARD ELECTRONICS, INC.

Results of Operations

Following are the Net Sales, Cost of Goods Sold, Operating Expenses and Operating Income for the three month period ended September 30, 2000 as compared to the same period in fiscal 2000, by segment where available.

Net Sales. Net Sales for the three month period ended September 30, 2000 increased $83.5 million or 13% over net sales in the prior three month period ended September 30, 1999. Both of the Company’s segments contributed to this increase. The Industrial Electronics Division accounted for $388.4 million in sales for the quarter, a 15% increase over the same quarter in the prior year. The Computer Systems Division accounted for $326.4 million in sales, an 11% increase over the prior year. Growth in the Internet, communications and computer markets is driving demand for technology products. The semiconductor market, served by the Industrial Electronics Division, is having a record year, which has contributed to the increase in sales for this division. The increase in sales for the Computer Systems Division was the result of the strong demand for mid-range computer systems, storage and software.

Cost of Goods Sold. Cost of Goods Sold increased $70.6 million or 13%, comparable to the increase in sales, over the prior year quarter. The Company’s gross margin percentage was comparable to the second quarter of fiscal 2000. Gross margin has been positively impacted by the continued high demand in the semiconductor market, with its increased average selling prices and long lead times. Offsetting this positive impact was the continued shift in mix to lower-margin computer products.

Warehouse, Selling and Administrative Expenses. Warehouse, Selling and Administrative Expenses increased $7.6 million over the prior year quarter, but decreased slightly as a percentage of sales. A portion of the increase in operating expenses can be attributed to an increase in compensation and fringes, specifically sales incentives, as more incentives were paid on higher sales performance. In addition to compensation increases, outside services and occupancy expenses have increased over the prior year. The Company is currently implementing several

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Operating Income. Operating income resulting from the activity described above was $29.5 million, an increase of $5.3 million, or 22% over the three months ended September 30, 1999. Operating income for the Computer Systems Division was 1.5% of sales for the current quarter, compared with 3.2% a year ago. Operating income for the Industrial Electronics Division was 6.3%, compared with 4.4% one year ago. A shift in mix and this quarter’s limited availability of certain computer products pressured the Computer Systems division’s operating margins.

Net Sales.  Net Sales for the six month period ended September 30, 2000 increased $182.6 million or 15% over net sales in the prior six month period ended September 30, 1999. The Industrial Electronics Division, accounted for $746.9 million in sales for the period, an 18% increase over the prior year period. The Computer Systems Division accounted for $643.1 million in sales, a 12% increase over the prior year. The growth in the demand for technology products recognized in the first quarter of fiscal 2001, continued in the second quarter, resulting in a strong sales performance for the year-to-date.

Cost of Goods Sold. Cost of Goods Sold increased $155.9 million or 15%, comparable to the increase in sales. The improvement in gross margin from the Industrial Electronics business was offset by the shift in mix to lower margin products and competitive pressures in the Computer Systems business.

Warehouse, Selling and Administrative Expenses. Warehouse, Selling and Administrative Expenses increased $16.8 million, or 12%, over the prior year six months ended. The year-to-date increases are a result of increases in compensation and fringes, outside services and occupancy expense.

Operating Income. Operating income resulting from the activity described above was $56.3 million, an increase of $9.9 million, or 21% over the six months ended September 30, 1999. Operating profit as a percentage of sales increased marginally over the prior year-to-date amount. This improvement was the result of an increase in operating income in the Industrial Electronics business, offset by a decrease in operating income in the Computer Systems business.

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Other Income and Expense, Income Taxes and Net Income

The components of other (income) expense and the effective tax rate for the three and six months ended September 30 are as follows: