Back to GetFilings.com

Table of Contents

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 November 30, 2003

Commission file number 1-8798

Nu Horizons Electronics Corp.

(Exact name of registrant as specified in its charter)

(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 ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of January 6, 2004.

Table of Contents

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

INDEX

Table of Contents

PART 1. FINANCIAL INFORMATION

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

See notes to interim consolidated condensed financial statements.

3

Table of Contents

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

See notes to interim consolidated condensed financial statements.

4

Table of Contents

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

See notes to interim consolidated condensed financial statements.

5

Table of Contents

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

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 Components Europe Limited, contain all adjustments necessary to present fairly the Company’s financial position as of November 30, 2003 and February 28, 2003 and the results of its operations for the nine and three month periods ended November 30, 2003 and 2002, and its cash flows for the nine month periods ended November 30, 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 this 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 nine-month period ended November 30, 2003 are not necessarily indicative of the results to be expected for the full year.

Property, plant and equipment consists of the following:

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

Table of Contents

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

On September 4, 2003, the Company entered into a revolving credit agreement 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. There are currently no borrowings being made under this agreement.

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:

7

Table of Contents

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(unaudited)

Management believes that the Company is operating in a single business segment, distribution of electronic components, in accordance with the rules of SFAS No. 131 (“Disclosure About Segments of an Enterprise and Related Information”).

Although the Company’s business is primarily conducted in the United States, operations are also carried out overseas through its foreign subsidiaries in different geographic areas.

Revenues, by geographic area, for the first nine months of each of the Company’s last two fiscal years are as follows:

Total assets, by geographic area, as of the third quarter ended in each of the Company’s last two fiscal years are as follows:

8

Table of Contents

Introduction:

Nu Horizons Electronics Corp. (the “Company”) and its wholly-owned subsidiaries, NIC Components Corp. (“NIC”), NUHC Inc. (“NUC”), Nu Horizons International Corp. (“International”), Nu Horizons Asia PTE LTD (“NUA”), Nu Horizons Electronics Hong Kong Limited (“NHK”), Nu Horizons Europe Limited (“NUE”), Titan Supply Chain Services Corp. (“TLC”) and Titan Supply Chain Services LTD PTE (“TSC”), and its majority owned subsidiaries NIC Components Asia PTE LTD (“NIA”) and NIC Components Europe Limited (“NIE”), are engaged in the distribution of high technology active and passive electronic components to a wide variety of original equipment manufacturers (“OEMs”) of electronic products. Active components distributed by the Company include semiconductor products such as memory chips, microprocessors, digital and linear circuits, microwave/RF and fiberoptic components, transistors and diodes. Passive components distributed by NIC, NIA and NIE, principally to OEMs and other distributors nationally, consist of a high technology line of chip and leaded components including capacitors, resistors and related networks.

The financial information presented herein includes: (i) Consolidated Condensed Balance Sheets as of November 30, 2003 and February 28, 2003; (ii) Consolidated Condensed Statements of Operations for the nine and three-month periods ended November 30, 2003 and 2002 and (iii) Consolidated Condensed Statements of Cash Flows for the nine-month periods ended November 30, 2003 and 2002.

Critical Accounting Policies and Estimates

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. 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. The Company evaluates its estimates, including those related to bad debts, inventories, income taxes, litigation and other contingencies, on an ongoing basis. 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. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies, among others, involve the more significant judgments and estimates used in the preparation of its consolidated financial statements:

9

Table of Contents

Results of Operations (Continued):

Sales for the nine-month period ended November 30, 2003 were $243,840,000 as compared to $231,153,000 for the comparable period of the prior year, an increase of $12,687,000 or 5.5%. Sales for the three-month period ended November 30, 2003 were $91,072,000 as compared to $75,831,000 for the comparable period of the prior year, an increase of $15,241,000 or 20.1%. Sequentially, sales increased from $79,965,000 in the second quarter of fiscal 2004, ended August 31, 2003 to $91,072,000 in the current quarter ended November 30, 2003, a sequential increase of 13.9%. Management believes that the current market slowdown stabilized during the first quarter of this fiscal year and that market conditions have begun to marginally improve, which accounts for the continued improved sales performance in the Company’s second and third quarters of this fiscal year. The marketplace continues to afford poor near term visibility, which makes it difficult for management to estimate the Company’s overall sales volume and earnings for the balance of this fiscal year and the early part of the next fiscal year.

The gross profit margin for the quarter ended November 30, 2003 was 17.3% as compared to 17.6% for the quarter ended November 30, 2002, while the gross profit margin for the nine-month period ended November 30, 2003 was 18.1% as compared to 18.3% for the comparable period of the prior year. Management believes that this relative stability in gross margin levels may indicate a general segment recovery for the balance of the 2004 calendar year and the Company’s 2005 fiscal year. Sequentially, gross profit margin was 17.3% for the current quarter ended as compared to 18.0% for the quarter ended August 31, 2003. This sequential reduction in profit margin can be attributed to a change in the Company’s product mix for the current quarter, which experienced larger orders in the computer and liquid crystal display categories. These higher ASP (average selling price) products traditionally command lower profit margins. Going forward, management believes that growth in other key product lines will enable the Company’s margins to increase.

Operating expenses increased to $46,316,000 for the nine-month period ended November 30, 2003 from $42,837,000 for the nine months ended November 30, 2002, an increase of $3,479,000 or 8.1%. Operating expenses increased from $14,501,000 for the three-month period ended November 30, 2002 to $15,560,000 for the three months ended November 30, 2003, an increase of $1,059,000 or 7.3%. The dollar increase in operating expenses was due to increases in the following expense categories: approximately $4,410,000 of the increase for the nine-month period and $1,464,000 of the increase for the three-month period, were for personnel related costs such as bonuses, commissions, salaries, travel and fringe benefits resulting from the increased staffing levels in connection with the expansion of the Company’s Asian and U.S. operations during the first nine months of this fiscal year. These increases for the nine-month and three-month periods were partially offset by decreases in various other general and administrative expenses. Management made a strategic decision to invest in expanding and upgrading the Company’s facilities and personnel during the recent market downturn, which has resulted in a higher rate of operating expenses. Management believes that these investments will enable the Company to take advantage of what it believes will be an inevitable rebound for the industry, although no assurances can be given in this regard.

Interest expense was $112,000 for the nine months ended November 30, 2003 as compared to $108,000 for the nine months ended November 30, 2002 and $25,000 for the three month period ended November 30, 2003 as compared to $38,000 for the period ended November 30, 2002. The interest expense for both periods resulted from the commitment fees required to maintain the Company’s revolving credit facility. There were no bank borrowings in either period.

Net loss for the nine-month period ended November 30, 2003 was $1,257,000 or $.08 per basic share as compared to a net loss of $736,000 or $.04 per basic share for the nine-month period ended November 30, 2002. Net income for the three-month period ended November 30, 2003 was $197,000 or $.01 per basic and diluted share as compared to a net loss of $998,000 or $.06 per basic share for the three-month period ended November 30, 2002. There is no diluted per share result for any period that reports a loss. Management attributes the increase in fiscal 2003 losses to increased operating expenses incurred in connection with the expansion of the Company’s Asian and U.S. operational capabilities net of the increase in gross margin dollars.

10

Table of Contents

Liquidity and Capital Resources:

At November 30, 2003, the Company’s current ratio was 5.7:1 as compared to 6.2:1 at February 28, 2003. Working capital remained relatively stable, increasing from approximately $116,792,000 at February 28, 2003 to approximately $116,818,000 at November 30, 2003, while cash decreased from February 28, 2003 to November 30, 2003 by approximately $13,713,000. The primary reasons for the decrease in cash were increases in accounts receivable net of decreases in prepaid expenses and increases in accounts payable levels.

On September 4, 2003, the Company entered into a revolving credit agreement with three banks which currently 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. There are currently no borrowings being made under this agreement.

The Company anticipates that its resources provided by its bank line of credit will be sufficient to meet its financing requirements for at least the next twelve month period.

Inflationary Impact:

Since the inception of operations, inflation has not significantly affected the operating results of the Company. However, inflation and changing interest rates have had a significant effect on the economy in general and therefore could affect the operating results of the Company in the future.

Other:

Except for historical information contained herein, the matters set forth above may be forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ from those in the forward-looking statements. Words such as “anticipate”, “believe”, “estimate”, “expect”, “intend” and similar expressions, as they relate to the Company or its management, identify forward-looking statements. Such forward-looking statements are based on the current beliefs of management, as well as assumptions made by and information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors such as the level of business and consumer spending for electronic products, the amount of sales of the Company’s products, the competitive environment within the electronics industry, the ability of the Company to continue to expand its operations, the level of costs incurred in connection with the Company’s expansion efforts, economic conditions in the semiconductor industry and the financial strength of the Company’s customers and suppliers. The Company does not undertake any obligation to update such forward-looking statements. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission.

11

Table of Contents

The Company’s credit facility bears interest based on interest rates tied to the prime or LIBOR rate, either of which may fluctuate over time based on economic conditions. As a result, the Company is subject to market risk for changes in interest rates and could be subjected to increased or decreased interest payments if market rates fluctuate and the Company is in a borrowing mode.

The Company has several foreign subsidiaries and acquires certain inventory from foreign suppliers and as such, faces risk due to adverse movements in foreign currency exchange rates. These risks could have a material impact on the Company’s results in future periods.

The electronic component industry is cyclical which can cause significant fluctuations in sales, gross profit margins and profits, from year to year. For example, during calendar 2001, the industry experienced a severe decline in the demand for electronic components, which caused sales to decrease by 56%. The prior year reflected a 74% increase in net sales. It is difficult to predict the timing of the changing cycles in the electronic component industry.

The Company’s Chief Executive Officer and Chief Financial Officer participated in various conversations and meetings within 90 days of filing this report during which the Company’s disclosure controls and procedures were evaluated. They have advised the Company that based on such evaluation, they believe such controls and procedures are and continue to be effective to ensure that information required to be disclosed in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported with the time periods specified by the SEC’s rules and forms.

There have been no significant changes in the Company’s internal controls over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting subsequent to the date of their evaluation.

Management believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

12

Table of Contents

PART II. OTHER INFORMATION

There are no material legal proceedings against the Company or in which any of their property is subject.

None

None

None

None

31.1 - Section 302 Certification of Chief Financial Officer

31.2 - Section 302 Certification of Chief Executive Officer

32.1 - Section 906 Certification of Chief Financial Officer

32.2 - Section 906 Certification of Chief Executive Officer

None

13

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

14

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

EXHIBIT INDEX

to

FORM 10-Q

FOR THE THIRD QUARTER ENDED NOVEMBER 30, 2003

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

NU HORIZONS ELECTONICS CORP.

(Exact Name of Registrant as Specified in Its Charter)