NU HORIZONS ELECTRONICS CORP - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT

Under Section 13 or 15(d) of

the Securities Exchange Act of 1934

For Quarter Ended May 31, 2003

Commission file number1-8798

Nu Horizons Electronics Corp.

(Exact name of registrant as specified in its charter)

Delaware

(State of other jurisdiction of

incorporation or organization

11-2621097

(I.R.S. Employer

Identification No.)

70 Maxess Road, Melville, New York

(Address of principal executive offices)

11747

(Zip Code)

(631) 396 -5000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

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 checkmark whether the registrant is an accelerated filer (as defined in Exchang4e Act Rule 12b-2). Yes x No ¨

Indicated the number of shares outstanding of each of the issuer’s classes of common stock, as of the close of the period covered by this report.

Common Stock – Par Value $.0066

Class

16,675,040

Outstanding Shares

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

INDEX

			Page(s)
Part I.	Financial Information

	Item 1.	Financial Statements

		Consolidated Condensed Balance Sheets - May 31, 2003 (unaudited) and February 28, 2003	3.

		Consolidated Condensed Statements of Operations (unaudited) - Three Months Ended May 31, 2003 and 2002	4.

		Consolidated Condensed Statements of Cash Flows (unaudited) - Three Months Ended May 31, 2003 and 2002	5.

		Notes to Interim Consolidated Condensed Financial Statements (unaudited)	6.-7.

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8 - 10.

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11.

	Item 4.	Controls and Procedures	11.

Part II.	Other Information		12.

SIGNATURES			13.

CERTIFICATIONS			14 - 15.

Exhibit Index

PART 1. FINANCIAL INFORMATION

ITEM 1.

Financial Statements

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

	May 31, 2003			February 28, 2003
	(unaudited)
– ASSETS –
CURRENT ASSETS:
Cash and cash equivalents	$	27,530,376		$	31,345,616
Accounts receivable – net of allowance for doubtful accounts of $4,088,963 and $4,083,590 for May 31, 2003 and February 28, 2003, respectively		44,319,721			39,092,343
Inventories		60,279,363			66,073,022
Prepaid expenses and other current assets		2,561,337			2,952,665

TOTAL CURRENT ASSETS		134,690,797			139,463,646
PROPERTY, PLANT AND EQUIPMENT – NET (Note 2)		4,965,742			5,150,499
OTHER ASSETS:
Subordinated note receivable (Note 3)		2,000,000			2,000,000
Other assets		1,501,590			1,485,044

	$	143,158,129		$	148,099,189

– LIABILITIES AND SHAREHOLDERS’ EQUITY –
CURRENT LIABILITIES:
Accounts payable	$	14,128,714		$	16,732,172
Accrued expenses		3,996,047			5,939,395

TOTAL CURRENT LIABILITIES		18,124,761			22,671,567

LONG TERM LIABILITIES:
Deferred income taxes		231,532			252,832

MINORITY INTEREST IN SUBSIDIARIES		1,265,465			1,182,449

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $1 par value, 1,000,000 shares authorized; none issued or outstanding		—			—
Common stock, $.0066 par value, 50,000,000 shares authorized; 16,675,040 and 16,663,817 shares issued and outstanding for May 31, 2003 and February 28, 2003, respectively		110,055			109,981
Additional paid-in capital		42,968,939			42,925,545
Retained earnings		80,667,388			81,498,759
Other accumulated comprehensive income (loss)		(148,642	)		(541,944	)

		123,597,740			123,992,341
Less: loan to ESOP		61,369			—

TOTAL SHAREHOLDERS’ EQUITY		123,536,371			123,992,341

	$	143,158,129		$	148,099,189

See notes to interim consolidated condensed financial statements.

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

	For The Three Months Ended
	May 31, 2003			May 31, 2002
NET SALES	$	72,803,142		$	75,012,267

COSTS AND EXPENSES:
Cost of sales		58,771,401			60,547,989
Operating expenses		15,353,582			14,264,637
Interest (income)		(8,904	)		—
Interest expense		20,522			47,828

		74,136,601			74,860,454

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTERESTS		(1,333,459	)		151,813
Provision (credit) for income taxes		(585,104	)		45,265

INCOME (LOSS) BEFORE MINORITY INTERESTS		(748,355	)		106,548
Minority interest in earnings of subsidiaries		83,016			98,845

NET INCOME (LOSS)	$	(831,371	)	$	7,703

NET INCOME (LOSS) PER COMMON SHARE
Basic	$	(.05	)	$	.00

Diluted		N/A		$	.00

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		16,675,040			16,636,447
Diluted		17,046,710			17,482,949

See notes to interim consolidated financial statements.

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

	For The Three Months Ended
	May 31, 2003			May 31, 2002
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers	$	67,575,764		$	74,684,373
Cash paid to suppliers and employees		(71,640,676	)		(64,904,171	)
Interest received		8,904			—
Interest paid		(20,522	)		(47,828	)
Income taxes paid		(30,000	)		(45,643	)

Net cash (used) provided by operating activities		(4,106,530	)		9,686,731

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(145,479	)		(65,201	)

Net cash (used in) investing activities		(145,479	)		(65,201	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit line		—			6,700,000
Repayments under revolving credit line		—			(9,200,000	)
Proceeds from exercise of stock options		43,468			115,702

Net cash provided by (used in) financing activities		43,468			(2,384,298	)

EFFECT OF EXCHANGE RATE CHANGE		393,301			56,354

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(3,815,240	)		7,293,586
Cash and cash equivalents, beginning of year		31,345,616			2,689,978

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	27,530,376		$	9,983,564

RECONCILIATION OF NET INCOME TO NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES:
NET (LOSS) INCOME	$	(831,371	)	$	7,703
Adjustments:
Depreciation and amortization		330,236			308,336
Contribution to ESOP		(61,369	)		—
Changes in assets and liabilities:
(Increase) in accounts receivable		(5,227,378	)		(327,894	)
Decrease in inventories		5,793,659			16,160,213
Decrease in prepaid expenses and other current assets		391,329			909,857
(Increase) in other assets		(16,546	)		(26,391	)
(Decrease) in accounts payable and accrued expenses		(4,546,806	)		(7,439,555	)
(Decrease) in income taxes		(21,300	)		(4,383	)
Increase in minority interest		83,016			98,845

NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES	$	(4,106,530	)	$	9,686,731

See notes to interim consolidated financial statements.

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

BASIS OF PRESENTATION:

In the opinion of management, the accompanying unaudited interim consolidated condensed financial statements of Nu Horizons Electronics Corp. (the “Company”), its wholly owned subsidiaries NIC Components Corp., NUHC Inc., Nu Horizons International Corp., Nu Horizons Asia PTE LTD, Nu Horizons Electronics Hong Kong Limited, Nu Horizons Eurotech Limited, Titan Supply Chain Services Corp. and Titan Supply Chain Services PTE LTD and its majority owned subsidiaries, NIC Components Asia PTE LTD and NIC Eurotech Limited, contain all adjustments necessary to present fairly the Company’s financial position as of May 31, 2003 and February 28, 2003 and the results of its operations for the three month periods ended May 31, 2003 and 2002, and its cash flows for the three month periods ended May 31, 2003 and 2002.

See Note 3 regarding the sale of the net assets of the Company’s majority-owned subsidiary, Nu Visions Manufacturing, Inc.

The accounting policies followed by the Company are set forth in Note 2 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended February 28, 2003, which is incorporated herein by reference. Specific reference is made to that report for a description of the Company’s securities and the notes to consolidated financial statements included therein. The accompanying unaudited interim financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes required by accounting principles generally accepted in the United States of America

The results of operations for the three-month period ended May 31 is not necessarily indicative of the results to be expected for the full year.

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consists of the following:

	May 31, 2003		February 28, 2003
Furniture, fixtures and office equipment	$	7,960,552	$	7,882,785
Computer equipment		5,741,751		5,678,891
Leasehold improvements		1,254,364		1,254,364

		14,956,667		14,816,040
Less: accumulated depreciation and amortization		9,990,925		9,665,541

	$	4,965,742	$	5,150,499

JUNIOR SUBORDINATED NOTE:

On August 23, 2001, the Company completed the sale of the assets of its contract-manufacturing subsidiary, Nu Visions Manufacturing, Inc., (“Nu Visions”). The selling price of $31,563,000 consisted of $2,000,000 in a Junior Subordinated Note and $29,563,000 in cash.

The $2,000,000 Junior Subordinated Note, dated August 23, 2001 and issued by the buyer, has a maturity date of May 14, 2007 and is subordinate in right of payment to all existing and future indebtedness of the issuer. The note bears interest from the issue date, on the principal amount, to, and including the maturity date, at a rate of 8% per annum. Interest shall be payable on the maturity date and shall compound quarterly as of each anniversary of the issue date. Prepayment of the note and interest accrued is permitted if and when certain conditions in the subordination agreement have been met.

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

BANK LINE OF CREDIT:

On October 18, 2000, the Company entered into an unsecured revolving line of credit with six banks, as amended October 30, 2002 and February 24, 2003, which currently provides for maximum borrowings of $80,000,000 at either (i) the lead bank’s prime rate or (ii) LIBOR plus 75 to 265 basis points, depending on the ratio of the Company’s liabilities to its tangible net worth, at the option of the Company through October 18, 2004. There were no borrowings at May 31, 2002, February 28, 2003 or May 31, 2003. As of the end of each reporting period, the Company had met all of the required covenants.

NET INCOME PER SHARE:

Earnings per share has been computed in accordance with the provisions of SFAS No. 128. The following table sets forth the components of basic and diluted earnings per share

	For the Three Months Ended
	May 31, 2003			May 31, 2002
NUMERATOR:
Net (loss) income	$	(831,371	)	$	7,703

DENOMINATOR:
Basic earnings per common share – weighted-average number of common shares outstanding		16,675,040			16,636,447
Effect of dilutive stock options		371,670			846,502

Diluted earnings per common share – adjusted weighted-average number of common shares outstanding		17,046,710			17,482,949

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