FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT
Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For Quarter Ended May 31, 2004
Commission file number 1-8798
Nu Horizons Electronics Corp.
(Exact name of registrant as specified in its charter)
| Delaware | 11-2621097 | |
| (State of other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) | |
| 70 Maxess Road, Melville, New York | 11747 | |
| (Address of principal executive offices) | (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 Exchange 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 |
16,884,147 | |
| Class | Outstanding Shares |
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
INDEX
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
| May 31, 2004 |
February 29, 2004 |
|||||||
| (unaudited) | ||||||||
| - ASSETS - | ||||||||
| CURRENT ASSETS: |
||||||||
| Cash and cash equivalents |
$ | 8,065,448 | $ | 12,469,973 | ||||
| Accounts receivable - net of allowance for doubtful accounts of $4,191,972 and $4,089,801 for May 31, 2004 and February 29, 2004, respectively |
72,913,758 | 68,230,405 | ||||||
| Inventories |
99,638,016 | 68,729,081 | ||||||
| Prepaid expenses and other current assets |
1,828,197 | 794,086 | ||||||
| TOTAL CURRENT ASSETS |
182,445,419 | 150,223,545 | ||||||
| PROPERTY, PLANT AND EQUIPMENT – NET |
4,275,530 | 4,401,898 | ||||||
| OTHER ASSETS: |
||||||||
| Subordinated note receivable |
2,000,000 | 2,000,000 | ||||||
| Other assets |
1,560,076 | 1,552,728 | ||||||
| $ | 190,281,025 | $ | 158,178,171 | |||||
| - LIABILITIES AND SHAREHOLDERS’ EQUITY - | ||||||||
| CURRENT LIABILITIES: |
||||||||
| Accounts payable |
$ | 25,702,621 | $ | 21,479,465 | ||||
| Accrued expenses |
5,670,246 | 5,250,006 | ||||||
| TOTAL CURRENT LIABILITIES |
31,372,867 | 26,729,471 | ||||||
| LONG TERM LIABILITIES: |
||||||||
| Revolving credit line |
31,700,000 | 5,300,000 | ||||||
| Deferred income taxes |
333,495 | 280,495 | ||||||
| TOTAL LONG-TERM LIABILITIES |
32,033,495 | 5,580,495 | ||||||
| MINORITY INTEREST IN SUBSIDIARIES |
1,591,373 | 1,465,662 | ||||||
| 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; 16,884,147 and 16,859,766 shares issued and outstanding for May 31, 2004 and February 29, 2004, respectively |
111,435 | 111,275 | ||||||
| Additional paid-in capital |
43,998,457 | 43,934,877 | ||||||
| Retained earnings |
81,836,678 | 80,650,760 | ||||||
| Other accumulated comprehensive (loss) |
(663,280 | ) | (294,369 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY |
125,283,290 | 124,402,543 | ||||||
| $ | 190,281,025 | $ | 158,178,171 | |||||
See notes to interim consolidated condensed financial statements.
3
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
| For The Three Months Ended |
|||||||
| May 31, 2004 |
May 31, 2003 |
||||||
| NET SALES |
$ | 118,176,077 | $ | 72,803,142 | |||
| COSTS AND EXPENSES: |
|||||||
| Cost of sales |
98,560,638 | 58,771,401 | |||||
| Operating expenses |
17,184,078 | 15,353,582 | |||||
| Interest (income) |
— | (8,904 | ) | ||||
| Interest expense |
328,964 | 20,522 | |||||
| 116,073,680 | 74,136,601 | ||||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTERESTS |
2,102,397 | (1,333,459 | ) | ||||
| Provision (credit) for income taxes |
790,768 | (585,104 | ) | ||||
| INCOME (LOSS) BEFORE MINORITY INTERESTS |
1,311,629 | (748,355 | ) | ||||
| Minority interest in earnings of subsidiaries |
125,711 | 83,016 | |||||
| NET INCOME (LOSS) |
$ | 1,185,918 | $ | (831,371 | ) | ||
| NET INCOME (LOSS) PER COMMON SHARE |
|||||||
| Basic |
$ | .07 | ($ | .05 | ) | ||
| Diluted |
$ | .07 | ($ | .05 | ) | ||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
|||||||
| Basic |
16,884,147 | 16,675,040 | |||||
| Diluted |
18,045,308 | 16,675,040 | |||||
See notes to interim consolidated condensed financial statements.
4
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
| For The Three Months Ended |
||||||||
| May 31, 2004 |
May 31, 2003 |
|||||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: |
||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Cash received from customers |
$ | 113,435,385 | $ | 67,575,764 | ||||
| Cash paid to suppliers and employees |
(143,236,424 | ) | (71,640,676 | ) | ||||
| Interest received |
— | 8,904 | ||||||
| Interest paid |
(328,964 | ) | (20,522 | ) | ||||
| Income taxes paid |
(189,038 | ) | (30,000 | ) | ||||
| Net cash (used) by operating activities |
(30,319,041 | ) | (4,106,530 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Capital expenditures |
(180,313 | ) | (145,479 | ) | ||||
| Net cash (used in) investing activities |
(180,313 | ) | (145,479 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Net borrowings under revolving credit line |
26,400,000 | — | ||||||
| Proceeds from exercise of stock options |
63,740 | 43,468 | ||||||
| Net cash provided by financing activities |
26,463,740 | 43,468 | ||||||
| EFFECT OF EXCHANGE RATE CHANGE |
(368,911 | ) | 393,301 | |||||
| NET (DECREASE) IN CASH AND CASH EQUIVALENTS |
(4,404,525 | ) | (3,815,240 | ) | ||||
| Cash and cash equivalents, beginning of year |
12,469,973 | 31,345,616 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 8,065,448 | $ | 27,530,376 | ||||
| RECONCILIATION OF NET INCOME TO NET CASH (USED) BY OPERATING ACTIVITIES: |
||||||||
| NET INCOME (LOSS) |
$ | 1,185,918 | $ | (831,371 | ) | |||
| Adjustments: |
||||||||
| Depreciation and amortization |
306,681 | 330,236 | ||||||
| Provision for bad debt |
57,339 | — | ||||||
| Contribution to ESOP |
— | (61,369 | ) | |||||
| Changes in assets and liabilities: |
||||||||
| (Increase) in accounts receivable |
(4,740,692 | ) | (5,227,378 | ) | ||||
| (Increase) decrease in inventories |
(30,908,935 | ) | 5,793,659 | |||||
| (Increase) decrease in prepaid expenses and other current assets |
(1,034,111 | ) | 391,329 | |||||
| (Increase) in other assets |
(7,348 | ) | (16,546 | ) | ||||
| Increase (decrease) in accounts payable and accrued expenses |
4,643,396 | (4,546,806 | ) | |||||
| Increase (decrease) in income taxes |
53,000 | (21,300 | ) | |||||
| Increase in minority interest |
125,711 | 83,016 | ||||||
| NET CASH (USED) BY OPERATING ACTIVITIES |
$ | (30,319,041 | ) | $ | (4,106,530 | ) | ||
See notes to interim consolidated condensed financial statements.
5
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
| 1. | 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 Europe 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 Europe Limited, contain all adjustments necessary to present fairly the Company’s financial position as of May 31, 2004 and February 29, 2004 and the results of its operations for the three month periods ended May 31, 2004 and 2003, and its cash flows for the three month periods ended May 31, 2004 and 2003.
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 29, 2004, 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, 2004 is not necessarily indicative of the results to be expected for the full year.
| 2. | PROPERTY, PLANT AND EQUIPMENT: |
Property, plant and equipment consists of the following:
| May 31, 2004 |
February 29, 2004 | |||||
| Furniture, fixtures and office equipment |
$ | 8,339,882 | $ | 8,185,446 | ||
| Computer equipment |
6,016,540 | 5,993,016 | ||||
| Leasehold improvements |
1,254,364 | 1,254,364 | ||||
| 15,610,786 | 15,432,826 | |||||
| Less: accumulated depreciation and amortization |
11,335,256 | 11,030,928 | ||||
| $ | 4,275,530 | $ | 4,401,898 | |||
| 3. | 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.
6
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
| 4. | BANK LINE OF CREDIT: |
On September 4, 2003, the Company entered into a secured revolving line of credit with three banks which provides for maximum borrowings of $41,500,000 at either (i) the lead bank’s prime rate or (ii) LIBOR plus 100 to 275 basis points, depending on the ratio of the Company’s liabilities to its tangible net worth, at the option of the Company through September 4, 2007. Direct borrowings under the line of credit were $31,700,000 at May 31, 2004 and $5,300,000 at February 29, 2004. There were no borrowings at May 31, 2003. As of the end of each reporting period, the Company had met all of the required covenants. On July 2, 2004, subsequent to the balance sheet date, the Company entered into an amendment to the line of credit to increase the maximum amount available thereunder to $51,500,000.
| 5. | 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, 2004 |
May 31, 2003 |
||||||
| NUMERATOR: |
|||||||
| Net (loss) income |
$ | 1,185,918 | $ | (831,371 | ) | ||
| DENOMINATOR: |
|||||||
| Basic earnings per common share – weighted-average number of common shares outstanding |
16,884,147 | 16,675,040 | |||||
| Effect of dilutive stock options |
1,161,161 | * | |||||
| Diluted earnings per common share – adjusted weighted-average number of common shares outstanding |
18,045,308 | 16,675,040 | |||||
| * | 371,670 stock options are not included in the calculation of diluted earnings per share since, due to the loss, they are anti- dilutive. |
| 6. | STOCK BASED COMPENSATION: |
The Company accounts for its stock-based compensation using the intrinsic value method provided for under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under APB No. 25 and related interpretations, compensation cost is recognized based on the difference, if any, on the date of grant between the fair value of the Company’s stock and the amount an employee must pay to acquire the stock. SFAS No. 123, “Accounting for Stock Based Compensation” (as amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an Amendment to FASB Statement No. 123”), establishes a fair-value based method of accounting for stock-based compensation plans. The Company has adopted the disclosure-only alternative under SFAS No. 123, which requires the disclosure of the pro forma effects on net income (loss) per share as if the fair value accounting prescribed by SFAS No. 123 had been adopted. Compensation expense related to stock options granted to non-employees is accounted for under SFAS 148, whereby compensation expense is recognized over the vesting period based on the fair value of the options on the date of grant.
No stock-based employee compensation cost is reflected in net income (loss), as all options granted had an exercise price equal to th