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 resel- lers, 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 opera- tions, 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. 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 opportunisti- cally 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 approxi- mately $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 compo- nents 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. 9 Overview of Fiscal 2003