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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 November 30, 2002 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 ¨
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 | 16,663,817 | |
Class | Outstanding Shares |
Table of Contents
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
Page(s) | ||||
| Part I. | Financial Information | |||
| Item 1. | Financial Statements | |||
| 3. | ||||
| 4. | ||||
| 5. | ||||
| 6.-8. | ||||
| Item 2. | 9 - 11. | |||
| Item 3. | 12. | |||
| Item 4. | 12. | |||
| Part II. | 13. | |||
| 14. | ||||
| 15 - 16. | ||||
Table of Contents
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
November 30, 2002 | February 28, 2002 | |||||||
(unaudited) | ||||||||
– ASSETS – | ||||||||
CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 27,053,411 | $ | 2,689,978 | ||||
| Accounts receivable—net of allowance of doubtful accounts of $4,177,483 and $4,445,901 for November 30, 2002 and February 28, 2002, respectively | 42,296,223 | 40,018,469 | ||||||
| Inventories | 68,975,286 | 95,076,198 | ||||||
| Prepaid expenses and other current assets | 8,648,885 | 3,726,568 | ||||||
TOTAL CURRENT ASSETS | 146,973,805 | 141,511,213 | ||||||
PROPERTY, PLANT AND EQUIPMENT—NET (Note 3) | 5,288,173 | 6,145,476 | ||||||
OTHER ASSETS: | ||||||||
| Subordinated note receivable (Note 2) | 2,000,000 | 2,000,000 | ||||||
| Other assets | 1,533,294 | 1,661,772 | ||||||
| $ | 155,795,272 | $ | 151,318,461 | |||||
– LIABILITIES AND SHAREHOLDERS’ EQUITY – | ||||||||
CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 18,861,426 | $ | 13,637,730 | ||||
| Accrued expenses | 9,967,287 | 7,083,324 | ||||||
TOTAL CURRENT LIABILITIES | 28,828,713 | 20,721,054 | ||||||
LONG TERM LIABILITIES: | ||||||||
| Deferred income taxes | 239,151 | 231,598 | ||||||
| Revolving credit line (Note 4) | — | 2,500,000 | ||||||
TOTAL LONG-TERM LIABILITIES | 239,151 | 2,731,598 | ||||||
MINORITY INTEREST IN SUBSIDIARIES | 1,573,717 | 1,392,632 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
SHAREHOLDERS’ EQUITY: | ||||||||
| Preferred stock, $1 par value, 1,000,000 shares authorized; none issued or outstanding | — | — | ||||||
| Common stock, $.0066 par value, 20,000,000 shares authorized; 16,663,817 and 16,609,005 shares issued and outstanding for November 30, 2002 and February 28, 2002, respectively | 109,981 | 109,619 | ||||||
| Additional paid-in capital | 42,847,266 | 42,600,827 | ||||||
| Retained earnings | 83,104,502 | 84,010,397 | ||||||
| Other accumulated comprehensive (loss) | (908,058 | ) | (247,666 | ) | ||||
TOTAL SHAREHOLDERS’ EQUITY | 125,153,691 | 126,473,177 | ||||||
| $ | 155,795,272 | $ | 151,318,461 | |||||
See notes to interim consolidated condensed financial statements.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
(unaudited)
For the Nine Months Ended | For the Three Months Ended | |||||||||||||||
November 30, 2002 | November 30, 2001 | November 30, 2002 | November 30, 2001 | |||||||||||||
NET SALES | $ | 231,152,869 | $ | 217,909,566 | $ | 75,830,874 | $ | 58,217,629 | ||||||||
COSTS AND EXPENSES: | ||||||||||||||||
| Cost of sales | 188,788,612 | 170,554,738 | 62,492,563 | 46,007,268 | ||||||||||||
| Operating expenses | 42,837,236 | 46,329,327 | 14,501,397 | 14,288,424 | ||||||||||||
| Interest expense | 107,762 | 1,337,488 | 38,269 | 191,685 | ||||||||||||
| 231,733,610 | 218,221,553 | 77,032,229 | 60,487,377 | |||||||||||||
(LOSS) BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTERESTS | (580,741 | ) | (311,987 | ) | (1,201,355 | ) | (2,269,748 | ) | ||||||||
| Provision (credit) for income taxes | (25,806 | ) | (165,566 | ) | (238,897 | ) | (963,793 | ) | ||||||||
(LOSS) BEFORE MINORITY INTERESTS | (554,935 | ) | (146,421 | ) | (962,458 | ) | (1,305,955 | ) | ||||||||
| Minority interest in earnings of subsidiaries | 181,085 | 357,012 | 35,592 | 76,236 | ||||||||||||
(LOSS) FROM CONTINUING OPERATIONS | (736,020 | ) | (503,433 | ) | (998,050 | ) | (1,382,191 | ) | ||||||||
DISCONTINUED OPERATIONS (Note 2): | ||||||||||||||||
| Income from operations of contract manufacturing subsidiary disposed of—net of income taxes | — | 798,735 | — | — | ||||||||||||
| Gain on sale of contract manufacturing subsidiary—net of income taxes | — | 4,183,507 | — | 1,606,275 | ||||||||||||
| — | 4,982,242 | — | 1,606,275 | |||||||||||||
NET INCOME (LOSS) | $ | (736,020 | ) | $ | 4,478,809 | $ | (998,050 | ) | $ | 224,084 | ||||||
NET INCOME (LOSS) PER COMMON SHARE—BASIC: | ||||||||||||||||
| Continuing operations | $ | (.04 | ) | $ | (.03 | ) | $ | (.06 | ) | $ | (.08 | ) | ||||
| Discontinued operations | .00 | .30 | .00 | .09 | ||||||||||||
| $ | (.04 | ) | $ | .27 | $ | (.06 | ) | $ | .01 | |||||||
NET INCOME (LOSS) PER COMMON SHARE—DILUTED: | ||||||||||||||||
| Continuing operations | $ | (.04 | ) | $ | (.03 | ) | $ | (.06 | ) | $ | (.08 | ) | ||||
| Discontinued operations | .00 | .29 | .00 | .09 | ||||||||||||
| $ | (.04 | ) | $ | .26 | $ | (.06 | ) | $ | .01 | |||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic | 16,649,037 | 16,563,547 | 16,663,817 | 16,580,927 | ||||||||||||
| Diluted | 16,649,037 | 17,437,743 | 16,663,817 | 17,379,501 | ||||||||||||
See notes to interim consolidated condensed financial statements.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
(unaudited)
For The Nine Months Ended | ||||||||
November 30, 2002 | November 30, 2001 | |||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Cash received from customers | $ | 228,875,115 | $ | 300,642,266 | ||||
| Cash paid to suppliers and employees | (201,085,364 | ) | (236,392,490 | ) | ||||
| Interest paid | (107,762 | ) | (1,337,488 | ) | ||||
| Income taxes paid | (64,573 | ) | (6,876,513 | ) | ||||
Net cash provided by operating activities | 27,617,416 | 56,035,775 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Capital expenditures | (170,517 | ) | (1,081,985 | ) | ||||
| Dividend to minority shareholders | (169,875 | ) | — | |||||
| Proceeds from sale of subsidiary | — | 29,563,000 | ||||||
| Net assets of subsidiary sold | — | (18,217,706 | ) | |||||
| Expenses related to sale of subsidiary | — | (3,606,122 | ) | |||||
Net cash (used in) provided by investing activities | (340,392 | ) | 6,657,187 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Borrowings under revolving credit line | 6,700,000 | 70,200,000 | ||||||
| Repayments under revolving credit line | (9,200,000 | ) | (129,633,500 | ) | ||||
| Proceeds from stock options | 246,801 | 359,043 | ||||||
Net cash (used in) financing activities | (2,253,199 | ) | (59,074,457 | ) | ||||
EFFECT OF EXCHANGE RATE CHANGE | (660,392 | ) | 477,082 | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 24,363,433 | 4,095,587 | ||||||
| Cash and cash equivalents, beginning of year | 2,689,978 | 558,176 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 27,053,411 | $ | 4,653,763 | ||||
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES: | ||||||||
NET (LOSS) INCOME | $ | (736,020 | ) | $ | 4,478,809 | |||
| Adjustments: | ||||||||
| Gain on sale of subsidiary | — | (4,183,507 | ) | |||||
| Depreciation and amortization | 1,027,820 | 1,010,887 | ||||||
| Contribution to ESOP | — | 158,844 | ||||||
| Bad debt provision | — | 86,982 | ||||||
| Changes in assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | (2,277,754 | ) | 60,996,045 | |||||
| Decrease in inventories | 26,100,912 | 19,175,887 | ||||||
| (Increase) decrease in prepaid expenses and other current assets | (4,922,317 | ) | 1,816,337 | |||||
| Decrease (increase) in other assets | 128,478 | (32,258 | ) | |||||
| Increase (decrease) in accounts payable and accrued expenses | 8,107,659 | (27,710,232 | ) | |||||
| Increase in income taxes | 7,553 | 49,159 | ||||||
| Increase in minority interest | 181,085 | 188,822 | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | $ | 27,617,416 | $ | 56,035,775 | ||||
See notes to interim consolidated condensed financial statements.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
(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., Nu Horizons International Corp., Nu Horizons Eurotech Limited and Titan Logistics Corp. and its majority owned subsidiaries, NIC Components Asia PTE LTD, NIC Eurotech Limited, Nu Horizons Asia PTE LTD and Titan Supply Chain Services PTE LTD, contain all adjustments necessary to present fairly the Company’s financial position as of November 30, 2002 and February 28, 2002 and the results of its operations for the nine and three month periods ended November 30, 2002 and 2001, and its cash flows for the nine month periods ended November 30, 2002 and 2001.
See Note 2 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, 2002, 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, 2002 are not necessarily indicative of the results to be expected for the full year.
2. | SALE OF SUBSIDIARY: |
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 was paid with $2,000,000 in subordinated debt and $29,563,000 in cash.
Following is summary financial information for the Company’s discontinued contract-manufacturing subsidiary:
For the Nine Months Ended November 30, | For the Three Months Ended November 30, | |||||||||||
2002 | 2001 | 2002 | 2001 | |||||||||
| Income from discontinued operations: | ||||||||||||
| Before income taxes | $ | — | $ | 1,365,838 | $ | — | $ | — | ||||
| Income tax provision | — | 567,103 | — | — | ||||||||
| Net income from discontinued operations | — | 798,735 | — | — | ||||||||
| Gain on disposal: | ||||||||||||
| Before income taxes | — | 7,153,797 | — | 2,746,730 | ||||||||
| Income tax provision | — | 2,970,290 | — | 1,140,455 | ||||||||
| Net gain on disposal | — | 4,183,507 | — | 1,606,275 | ||||||||
| Net income and gain on disposal | $ | — | $ | 4,982,242 | $ | — | $ | 1,606,275 | ||||
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
November 30, 2002 | February 28, 2002 | |||||
| Furniture, fixtures and office equipment | $ | 7,848,158 | $ | 7,755,003 | ||
| Computer equipment | 5,494,397 | 5,405,976 | ||||
| Leasehold improvements | 1,254,364 | 1,254,364 | ||||
| 14,596,919 | 14,415,343 | |||||
| Less: accumulated depreciation and amortization | 9,308,746 | 8,269,867 | ||||
| $ | 5,288,173 | $ | 6,145,476 | |||
4. 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, 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 outstanding borrowings as of November 30, 2002.
5. NET INCOME (LOSS) PER SHARE:
Earnings (loss) 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 Nine Months Ended | For the Three Months Ended | |||||||||||||||
November 30, 2002 | November 30, 2001 | November 30, 2002 | November 30, 2001 | |||||||||||||
NUMERATOR: | ||||||||||||||||
| Net (loss) from continuing operations | $ | (736,020 | ) | $ | (503,433 | ) | $ | (998,050 | ) | $ | (1,382,191 | ) | ||||
| Net income from discontinued operations | — | 4,982,242 | — | 1,606,275 | ||||||||||||
| Net income (loss) | $ | (736,020 | ) | $ | 4,478,809 | $ | (998,050 | ) | $ | 224,084 | ||||||
DENOMINATOR | ||||||||||||||||
| Denominator for basic earnings per common share – weighted-average number of common shares outstanding | 16,649,037 | 16,563,547 | 16,663,817 | 16,580,927 | ||||||||||||
| Effect of dilutive stock options | — | 874,196 | — | 798,574 | ||||||||||||
| Denominator for diluted earnings per common share – adjusted weighted-average number of common shares outstanding | 16,649,037 | 17,437,743 | 16,663,817 | 17,379,501 | ||||||||||||
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
6. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:
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 our last two fiscal years are as follows:
November 30, 2002 | November 30, 2001 | |||||
| Americas | $ | 212,954,737 | $ | 201,705,153 | ||
| Europe | 3,023,765 | 5,596,620 | ||||
| Asia/Pacific | 15,174,367 | 10,607,793 | ||||
| $ | 231,152,869 | $ | 217,909,566 | |||
Total assets, by geographic area, for the third quarter ended in each of our last two fiscal years are as follows:
November 30, 2002 | November 30, 2001 | |||||
| Americas | $ | 140,370,330 | $ | 155,181,013 | ||
| Europe | 1,633,594 | 5,691,106 | ||||
| Asia/Pacific | 13,791,348 | 8,755,040 | ||||
| $ | 155,795,272 | $ | 169,627,159 | |||
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Introduction:
Nu Horizons Electronics Corp. (the “Company”) and its wholly-owned subsidiaries, NIC Components Corp. (“NIC”), Nu Horizons International Corp. (“International”), Nu Horizons Eurotech Limited, and Titan Logistics Corp., and its majority owned subsidiaries NIC Components ASIA PTE LTD, NIC Eurotech Limited, Nu Horizons Asia PTE LTD and Titan Supply Chain Services PTE LTD, 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, principally to OEMs and other distributors nationally, consists of a high technology line of chip and leaded components including capacitors, resistors and related networks.
As of August 23, 2001, the Company sold the assets of Nu Visions Manufacturing, Inc. located in Springfield, Massachusetts, another majority-owned subsidiary of the Company, which was a contract assembler of circuit boards and related electromechanical devices for various OEM’s.
The financial information presented herein includes: (i) Consolidated Condensed Balance Sheets as of November 30, 2002 and February 28, 2002; (ii) Consolidated Condensed Statements of Operations for the nine and three month periods ended November 30, 2002 and 2001 and (iii) Consolidated Condensed Statements of Cash Flows for the nine month periods ended November 30, 2002 and 2001.
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:
- The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”). Under SAB 101, revenue is recognized when the title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable and collectibility is reasonably assured. The Company recognizes revenues at time of shipment of its products and sales are recorded net of discounts and returns.
- The Company maintains allowances for doubtful accounts for estimated bad debts. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required.
- Inventories are recorded at the lower of cost or market. Write-downs of inventories to market value are based upon product franchise agreements governing price protection, stock rotation and obsolescence, as well as assumptions about future demand and market conditions. If assumptions about future demand/or actual market conditions are less favorable than those projected by management, write-downs of inventories could be required.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Results of Continuing Operations:
Sales for the nine-month period ended November 30, 2002 were $231,153,000 as compared to $217,910,000 for the comparable period of the prior year, an increase of $13,243,000 or 6.1%. Sales for the three-month period ended November 30, 2002 were $75,831,000 as compared to $58,218,000 for the comparable period of the prior year, an increase of $17,613,000 or 30.3%. The Company and the industry as a whole have experienced a significant decline in demand for electronic components over the last few years. Management believes that this slow down has stabilized during the current fiscal year and that market conditions have begun to marginally improve, which accounts for the improved sales performance in the current third quarter as compared to the third quarter of the prior fiscal year. However, the marketplace continues to afford poor near term visibility and management continues to believe that the balance of this fiscal year and the early part of the next fiscal year will continue to be flat or provide moderate growth opportunities, at best.
The gross profit margin for the nine month period ended November 30, 2002 was 18.3% as compared to 21.7% for the comparable period of the prior year. The Company believes that the variation in gross profit margin is primarily due to the sale of a larger quantity of lower margin products in the current year’s fiscal period compared to the prior year. The gross profit margin for the quarter ended November 30, 2002 was 17.6% as compared to 21.0% for the quarter ended November 30, 2001. The Company believes that the quarter over quarter decrease in gross margins reflects the sale of a larger quantity of lower margin products in the third fiscal quarter of 2003 compared to the third fiscal quarter of 2002, as well as continued pricing pressures resulting from the industry wide decline in demand coupled with an over-supply of product in the marketplace. As a result, management believes that there could be continued margin pressure over the next several quarters.
Operating expenses decreased to $42,837,000 for the nine months ended November 30, 2002 from $46,329,000 for the nine month period ended November 30, 2001, a decrease of $3,492,000 or 7.5%. Operating expenses increased to $14,501,000 for the three months ended November 30, 2002 from $14,288,000 for the three month period ended November 30, 2001, an increase of $213,000 or 1.5%. The dollar decrease in operating expenses for the nine month period was due to decreases in the following expense categories: approximately $3,470,000 or 99% of the decrease for the period were for personnel related costs such as bonuses, commissions, salaries, travel and fringe benefits resulting from the substantial reduction in sales volume for the periods. The remaining $22,000 decrease for the nine month period were a result of decreases in various other general and administrative expenses. The sharp reduction in sales has resulted in higher operating expenses as a percent of sales and a loss of the economies of scale the Company enjoyed in recent fiscal years. Management has decided to endure this higher rate of operating expenses in order to be prepared 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 decreased to $108,000 for the nine months ended November 30, 2002 from $1,337,000 for the nine months ended November 30, 2001 and to $38,000 for the three months ended November 30, 2002 from $192,000 for the three month period ended November 30, 2001. These decreases were primarily due to bank borrowings being reduced to zero resulting from the continuing decrease in the Company’s accounts receivable and inventory levels as a result of the substantially reduced sales activity during the 2002 periods net of the commitment fees required to maintain the Company’s revolving line of credit facility.
Net loss from continuing operations for the nine-month period ended November 30, 2002 was $736,000 or $.04 per share as compared to a net loss of $503,000 or $.03 per share for the nine-month period ended November 30, 2001. Net loss for the three-month period ended November 30, 2002 was $998,000 or $.06 per share as compared to a net loss of $1,382,000 or $.08 per share for the three-month period ended November 30, 2001.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Discontinued Operations:
On August 23, 2001, the Company completed the sale of the assets of its contract manufacturing subsidiary, Nu Visions Manufacturing, Inc. The selling price of $31,563,000 was paid for with $2,000,000 in subordinated debt and $29,563,000 of cash proceeds.
Net income from discontinued operations for the nine-month period ended November 30, 2001 was $799,000 or $.05 per share diluted with no net income or loss in the current nine month period ended November 30, 2002. There was no net income or loss from the discontinued operation for the three month periods ended November 30, 2001 or 2002. The net gain on the sale of the subsidiary resulted in an additional after tax profit of $4,184,000 for nine months ended November 30, 2001 ($1,606,000 for the three months ended November 30, 2001). There were no equivalent items to report for these periods in the current year.
Liquidity and Capital Resources:
At November 30, 2002, the Company’s current ratio was 5.1:1 as compared to 6.8:1 at February 28, 2002. Working capital decreased from approximately $120,790,000 at February 28, 2002 to approximately $118,145,000 at November 30, 2002, while cash increased from February 28, 2002 to November 30, 2002 by approximately $24,363,000. The primary reason for the decrease in working capital were decreases in inventories net of increases in accounts payable and accounts receivable, while the increase in cash primarily resulted from the decrease in inventories.
On October 18, 2000, the Company entered into an unsecured revolving line of credit with six banks, as amended on October 30, 2002, which currently provides for maximum secured 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 total liabilities to its tangible net worth, at the option of the Company through October 18, 2004. Borrowings under this line of credit decreased from $2,500,000 at February 28, 2002 to no borrowings at August 31, 2002. The primary reason for the decrease was borrowing was not needed due to reductions in inventories and receivables as a result of the significant decline in sales.
The Company anticipates that its resources provided by its cash flow from operations and 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. Potential risks and uncertainties include such factors 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. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission.
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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.
| a) | The Company’s Chief Executive Officer and Chief Financial Officer participated in various conversations and meetings within 90 days of the filing of this report during which the Company’s disclosure controls and procedures were evaluated. The Chief Executive Officer and Chief Financial Officer have advised the Company that, based on such evaluation, they believe such disclosure controls and procedures are and continue to be effective. |
| b) | There have been no significant changes in the Company’s internal controls or in other factors that would significantly affect the Company’s internal controls subsequent to the date of their evaluation. |
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ITEM 1. Legal Proceedings
There are no material legal proceedings against the Company or in which any of their property is subject.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports:
(a) Exhibits:
99.1 – Certification of Chief Financial Officer
99.2 – Certification of Chief Executive Officer
(b) Reports on Form 8-K
None
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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.
Nu Horizons Electronics Corp. | ||||||||
| Registrant | ||||||||
| Date: | January 10, 2003 | /s/ Arthur Nadata | ||||||
| Arthur Nadata, President and CEO | ||||||||
| Date: | January 10, 2003 | /s/ Paul Durando | ||||||
Paul Durando, Vice President-Finance and Chief Financial Officer | ||||||||
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SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul Durando, Vice President, Finance of Nu Horizons Electronics Corp. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nu Horizons Electronics Corp.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| Date: | January 10, 2003 | /s/ Paul Durando | ||||||
| Paul Durando | ||||||||
Vice President - Finance and Chief Financial Officer (Principal Financial Officer) | ||||||||
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CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Arthur Nadata, President and CEO of Nu Horizons Electronics Corp. certify that:
1. I have reviewed this quarterly report on Form 10-Q of Nu Horizons Electronics Corp.
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
| Date: | January 10, 2003 | /s/ Arthur Nadata | ||||||
| Arthur Nadata | ||||||||
President and Chief Executive Officer (Principal Executive Officer) | ||||||||
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBIT INDEX
to
FORM 10-Q
FOR THE THIRD QUARTER ENDED NOVEMBER 30, 2002
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
NU HORIZONS ELECTRONICS CORP.
(Exact Name of Registrant as Specified in Its Charter)
NUMBER | DESCRIPTION | |
| 10.1 | First Amendment to Revolving Credit Agreement dated October 18, 2000 between the Company and six banks | |
| 99.1 | Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act | |
| 99.2 | Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act |