Annual Reports

 
Quarterly Reports

  • 10-Q (Dec 28, 2010)
  • 10-Q (Oct 7, 2010)
  • 10-Q (Jul 8, 2010)
  • 10-Q (Jan 7, 2010)
  • 10-Q (Oct 8, 2009)
  • 10-Q (Jul 8, 2009)

 
8-K

 
Other

Nu Horizons Electronics 10-Q 2008

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2007

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 1-8798  

Nu Horizons Electronics Corp.
(Exact name of Registrant as specified in its charter)
 
 Delaware 
 
  11-2621097 
(State or 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 xNoo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesoNo x

The number of shares outstanding of registrant’s common stock, as of January 7, 2008:

Common Stock - Par Value $.0066
 
18,393,314
Class
 
Outstanding Shares
 

 
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
INDEX
 
Part I.
Financial Information
Page(s)
 
         
 
Item 1.
Financial Statements
   
         
   
Consolidated Condensed Statements of Operations (unaudited) -
Three and Nine Months Ended November 30, 2007 and 2006 (as restated for 2006)
3.
 
         
   
Consolidated Condensed Balance Sheets -
November 30, 2007 (unaudited) and February 28, 2007 (as restated
for February 28, 2007)
 
4.
 
         
   
Consolidated Condensed Statements of Cash Flows (unaudited) -
Nine Months Ended November 30, 2007 and 2006 (as restated for 2006)
 
5.
 
         
   
Notes to Interim Consolidated Condensed Financial Statements (unaudited)
6-13.
 
     
 
 
   
Report of Independent Registered Public Accounting Firm
14.
 
         
 
Item 2.
Management’s Discussion and Analysis of Financial
   
   
Condition and Results of Operations
15.-19.
 
         
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
20.
         
 
Item 4.
Controls and Procedures
21.
 
         
Part II.
Other Information
22.
 
 
SIGNATURES
23.
 
     
EXHIBIT INDEX
   
     
CERTIFICATIONS
   
 


PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
     
For the Three Months Ended 
   
For the Nine Months Ended 
 
     
November 30, 2007 
   
November 30, 2006 
   
November 30, 2007 
   
November 30, 2006 
 
           
(As Restated)  
         
(As Restated)  
 
                           
NET SALES
 
$
210,824,000
 
$
186,080,000
 
$
606,727,000
 
$
567,361,000
 
                           
COSTS AND EXPENSES:
                         
Cost of sales
   
178,999,000
   
157,025,000
   
514,274,000
   
480,913,000
 
Operating expenses
   
30,259,000
   
23,994,000
   
83,733,000
   
68,991,000
 
     
209,258,000
   
181,019,000
   
598,007,000
   
549,904,000
 
                           
OPERATING INCOME
   
1,566,000
   
5,061,000
   
8,720,000
   
17,457,000
 
                           
OTHER (INCOME) EXPENSE
                         
Interest expense
   
1,175,000
   
1,036,000
   
3,150,000
   
2,928,000
 
Interest income
   
(14,000
)
 
(24,000
)
 
(34,000
)
 
(536,000
)
     
1,161,000
   
1,012,000
   
3,116,000
   
2,392,000
 
                           
INCOME BEFORE PROVISION FOR
INCOME TAXES AND MINORITY
INTERESTS
   
405,000
   
4,049,000
   
5,604,000
   
15,065,000
 
                           
Provision for income taxes
   
653,000
   
2,002,000
   
3,189,000
   
7,449,000
 
                           
INCOME (LOSS) BEFORE
MINORITY INTERESTS
   
(248,000
)
 
2,047,000
   
2,415,000
   
7,616,000
 
                           
Minority interest in earnings of
subsidiaries
   
125,000
   
114,000
   
317,000
   
425,000
 
                           
NET INCOME (LOSS)
 
$
(373,000
)
$
1,933,000
 
$
2,098,000
 
$
7,191,000
 
                           
NET INCOME (LOSS) PER
COMMON SHARE:
                         
                           
Basic
 
$
(.02
)
$
.11
 
$
.11
 
$
.40
 
                           
Diluted
 
$
(.02
)
$
.10
 
$
.11
 
$
.39
 
                           
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
                         
Basic
   
18,377,582
   
18,059,849
   
18,322,489
   
17,777,952
 
Diluted
   
18,377,582
   
19,018,687
   
19,047,418
   
18,558,163
 
 
See accompanying notes
 
3

 
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
 
     
November 30,
2007 
   
February 28,
2007 
 
     
(unaudited) 
   
(As Restated) 
 
- ASSETS -
             
CURRENT ASSETS:
             
Cash
 
$
1,542,000
 
$
4,747,000
 
Accounts receivable - net of allowance for doubtful accounts of $4,782,000 and
$4,985,000 as of November 30, 2007 and February 28, 2007, respectively
   
145,988,000
   
119,946,000
 
Inventories
   
143,247,000
   
119,311,000
 
Prepaid expenses and other current assets
   
4,437,000
   
4,625,000
 
TOTAL CURRENT ASSETS
   
295,214,000
   
248,629,000
 
               
PROPERTY, PLANT AND EQUIPMENT - NET
   
4,788,000
   
3,381,000
 
               
OTHER ASSETS:
             
Cost in excess of net assets acquired
   
8,079,000
   
8,332,000
 
Intangibles - net
   
3,654,000
   
-
 
Deferred tax asset
   
3,082,000
   
3,082,000
 
Other assets
   
6,035,000
   
4,055,000
 
               
TOTAL ASSETS
 
$
320,852,000
 
$
267,479,000
 
               
- LIABILITIES AND SHAREHOLDERS’ EQUITY -
CURRENT LIABILITIES:
             
Accounts payable
 
$
81,682,000
 
$
62,410,000
 
Accrued expenses
   
12,751,000
   
8,765,000
 
Bank credit line
   
770,000
   
2,327,000
 
Income taxes payable
   
4,709,000
   
8,179,000
 
TOTAL CURRENT LIABILITIES
   
99,912,000
   
81,681,000
 
               
LONG TERM LIABILITIES
             
Revolving credit line
   
64,000,000
   
30,000,000
 
Due to seller
   
-
   
3,378,000
 
Deferred tax liability
   
3,878,000
   
2,725,000
 
TOTAL LONG TERM LIABILITIES
   
67,878,000
   
36,103,000
 
               
MINORITY INTEREST IN SUBSIDIARIES
   
2,266,000
   
1,948,000
 
               
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; 18,393,314 and
18,158,034 shares issued and outstanding as of November 30, 2007 and
February 28, 2007, respectively
   
121,000
   
120,000
 
Additional paid-in capital
   
54,561,000
   
53,512,000
 
Retained earnings
   
96,200,000
   
94,102,000
 
Other accumulated comprehensive (loss) income
   
(86,000
)
 
13,000
 
TOTAL SHAREHOLDERS’ EQUITY
   
150,796,000
   
147,747,000
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
320,852,000
 
$
267,479,000
 
 
See accompanying notes
 
4


NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
     
For The Nine Months Ended 
 
     
November 30, 2007  
   
November 30, 2006 
 
     
 
   
(As Restated) 
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
             
               
CASH FLOWS FROM OPERATING ACTIVITIES:
             
Cash received from customers
 
$
580,992,000
 
$
554,579,000
 
Cash paid to suppliers and employees
   
(600,681,000
)
 
(550,788,000
)
Interest received
   
34,000
   
536,000
 
Interest paid
   
(3,131,000
)
 
(3,133,000
)
Income taxes paid
   
(7,559,000
)
 
(1,564,000
)
Net cash used in operating activities
   
(30,345,000
)
 
(370,000
)
               
CASH FLOWS FROM INVESTING ACTIVITIES:
             
Capital expenditures
   
(2,698,000
)
 
(936,000
)
Payments for the acquisitions - net of cash acquired
   
(2,593,000
)
 
(6,023,000
)
Net cash used in investing activities
   
(5,291,000
)
 
(6,959,000
)
               
CASH FLOWS FROM FINANCING ACTIVITIES:
             
Borrowings under revolving credit lines
   
227,947,000
   
193,632,000
 
Repayments under revolving credit lines
   
(195,542,000
)
 
(195,361,000
)
Proceeds from exercise of stock options
   
125,000
   
2,839,000
 
Proceeds from settlement of subordinated note
   
-
   
2,000,000
 
Net cash provided by financing activities
   
32,530,000
   
3,110,000
 
               
EFFECT OF EXCHANGE RATE CHANGE
   
(99,000
)
 
(19,000
)
               
NET CHANGE IN CASH AND CASH EQUIVALENTS
   
(3,205,000
)
 
(4,238,000
)
               
Cash and cash equivalents, beginning of year
   
4,747,000
   
10,873,000
 
               
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
1,542,000
 
$
6,635,000
 
               
RECONCILIATION OF NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES:
             
               
NET INCOME
 
$
2,098,000
 
$
7,191,000
 
Adjustments:
             
Depreciation and amortization
   
1,408,000
   
994,000
 
Provision for bad debts
   
-
   
65,000
 
Deferred income tax
   
131,000
   
1,077,000
 
Increase in minority interest
   
317,000
   
425,000
 
Stock based compensation
   
925,000
   
502,000
 
Changes in assets and liabilities:
             
Accounts receivable
   
(25,735,000
)
 
(12,782,000
)
Inventories
   
(23,286,000
)
 
7,129,000
 
Prepaid expenses and other current assets
   
276,000
   
(1,463,000
)
Other assets
   
(1,978,000
)
 
(53,000
)
Accounts payable and accrued expenses
   
22,426,000
   
(5,389,000
)
Income taxes payable
   
(3,549,000
)
 
1,934,000
 
Due to seller
   
(3,378,000
)
 
-
 
               
NET CASH (USED) IN OPERATING ACTIVITIES
 
$
(30,345,000
)
$
(370,000
)
               
Supplemental Disclosures of Cash Flow Information:
             
Non-cash transactions:
             
Reallocation of cost in excess of net assets acquired-tax effect
 
$
1,054,000
 
$
-
 
 
See accompanying notes
 
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 Electronics Asia PTE LTD, Nu Horizons Electronics Hong Kong Limited, Nu Horizons Electronics Europe Limited, Nu Horizons Electronics Limited, Titan Supply Chain Services Corp., Titan Supply Chain Services PTE LTD, Titan Supply Chain Services Limited ("Titan"), Nu Horizons Electronics (Shanghai) Co. Ltd., Nu Horizons Electronics Asia Pte Ltd. Korea, Dacom Süd Electronic GmbH, Razor Electronics Inc. and Nu Exchange B2B, Inc. 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, 2007 and February 28, 2007 and the results of its operations for the three and nine month periods ended November 30, 2007 and 2006, and its cash flows for the nine month periods ended November 30, 2007 and 2006.

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/A for the year ended February 28, 2007, 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 and nine month periods ended November 30, 2007 are not necessarily indicative of the results to be expected for the full year.

2.
RESTATEMENT OF FINANCIAL STATEMENTS:

In preparing the fiscal 2007 tax returns, developing the fiscal 2008 tax provision, and reviewing our accounting for income taxes in connection with the application of the provision of Financial Accounting Standards Board ("FASB") Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Tax - an Interpretation of FASB Statement No. 109", we determined that there were errors in the prior years' tax returns and the application of FASB Statement No. 109 - Accounting for Income Taxes. Consequently, there was an understatement of our provision for income tax expense and the related U.S. income tax obligations, a majority of which related to our foreign operations, for the fiscal years 2002 through 2007.

As a result of the tax adjustments described above and noted below, our management and the Audit Committee of the Company's Board of Directors concluded, as reported in a current report on Form 8-K filed on October 3, 2007, that (1) our previously issued financial statements and any related reports of our independent registered public accounting firm for the fiscal years ended February 28, 2002 through 2007 and the first quarter of fiscal 2008 should no longer be relied upon because of the aforementioned errors in those financial statements, (2) our earnings and press releases and similar communications should no longer be relied upon to the extent that they relate to these financial statements, and (3) our financial statements, original Form 10-K for the fiscal year ended February 28, 2007 and original Form 10-Q for the three months ended May 31, 2007 should be restated to reflect the correct accounting for income taxes discussed above. On November 21, 2007, we completed the restatement of our financial statements by filing our amended Annual Report on Form 10-K/A for the fiscal year ended February 28, 2007 and amended Form 10-Q/A for the three months ended May 31, 2007.
 
6


 
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES 
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(UNAUDITED)
 
2.
RESTATEMENT OF FINANCIAL STATEMENTS (Continued):

The following table summarizes the impact of the restatement discussed above on the previously issued Consolidated Condensed Financial Statements as of February 28, 2007 and for the three and nine months ended November 30, 2006:
 
     
As of February 28, 2007 
 
     
As Previously
Reported 
   
Adjustment 
   
As Restated 
 
Consolidated Balance Sheet
                   
Prepaid and other current assets
 
$
4,454,000
 
$
171,000
 
$
4,625,000
 
Deferred tax asset
   
-
   
3,082,000
   
3,082,000
 
Accrued expenses
   
8,579,000
   
186,000
   
8,765,000
 
Income taxes payable
   
3,927,000
   
4,252,000
   
8,179,000
 
Deferred tax liability
   
2,369,000
   
356,000
   
2,725,000
 
Minority interest
   
1,912,000
   
36,000
   
1,948,000
 
Additional paid-in capital
   
50,670,000
   
2,842,000
   
53,512,000
 
Retained earnings
   
98,521,000
   
(4,419,000
)
 
94,102,000
 
 
     
For the Three Months Ended November 30, 2006 
 
     
As Previously
 Reported 
   
Adjustment 
   
As Restated 
 
Consolidated Statement of Operations
                   
Provision for income taxes
 
$
1,565,000
 
$
437,000
 
$
2,002,000
 
Minority interest
   
93,000
   
21,000
   
114,000
 
Net income
   
2,391,000
   
(458,000
)
 
1,933,000
 
Net income per common share:
                   
Basic
 
$
.13
 
$
(.02
)
$
.11
 
Diluted
 
$
.13
 
$
(.03
)
$
.10
 
 
     
For the Nine Months Ended November 30, 2006 
 
     
As Previously
Reported 
   
Adjustment
   
As Restated
 
Consolidated Statement of Operations
                   
Provision for income taxes
 
$
5,748,000
 
$
1,701,000
 
$
7,449,000
 
Minority interest
   
268,000
   
157,000
   
425,000
 
Net income
   
9,049,000
   
(1,858,000
)
 
7,191,000
 
Net income per common share:
                   
Basic
 
$
.51
 
$
(.11
)
$
.40
 
Diluted
 
$
.49
 
$
(.10
)
$
.39
 
 
     
For the Nine Months Ended November 30, 2006 
 
     
As Previously
Reported 
   
Adjustment 
   
As Restated 
 
Consolidated Statement of Cash Flows
                   
Net income
 
$
9,049,000
 
$
(1,858,000
)
$
7,191,000
 
Minority interest
   
268,000
   
157,000
   
425,000
 
Income taxes payable
   
233,000
   
1,701,000
   
1,934,000
 

3. 
ACQUISITIONS:
 
On August 29, 2006, the Company acquired the outstanding shares of DT Electronics Limited ("DT"), an entity engaged in the electronic components distribution business in the United Kingdom. The operating results of DT are reflected in the accompanying financial statements since the date of acquisition. Reference is made to Note 3 of the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K/A for the year ended February 28, 2007 in which the Company has previously disclosed certain purchase price information, as well as the preliminary allocations of the net consideration paid. The final allocation of purchase price for the DT acquisition resulted in goodwill of $5,622,000 and customer list amounting to $3,764,000. The customer list is being amortized over a 17 year useful life and is included in Intangibles - net on the Balance Sheet at November 30, 2007.
 
7


NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
 
3. 
ACQUISITIONS (continued):

On June 6, 2007, the Company acquired Dacom Süd Electronics Vertriebs GmbH ("Dacom"), an entity engaged in the electronic components distribution business in Germany. The operating results of Dacom are reflected in the accompanying financial statements since the date of acquisition.

The Dacom acquisition has been accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, "Business Combinations". The following table presents the preliminary allocations of the aggregate purchase price for the Dacom acquisition based on the estimated fair values of assets acquired and liabilities assumed. Such amounts are subject to change upon finalizing valuations.

The purchase price for Dacom as of the acquisition date was $2,857,000, including transaction costs of $464,000.

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the Dacom acquisition:

Purchase price
 
$
2,393,000
 
Direct acquisition costs
   
464,000
 
Total purchase price
 
$
2,857,000
 
         
         
Allocation of purchase price:
       
Cash
 
$
264,000
 
Accounts receivable
   
307,000
 
Inventory
   
650,000
 
Other current assets
   
90,000
 
Fixed assets
   
6,000
 
Accounts payable/accrued expenses
   
(800,000
)
Bank credit line
   
(38,000
)
Taxes payable
   
(79,000
)
Cost in excess of net assets acquired
   
2,457,000
 
Total purchase price
 
$
2,857,000
 

The following unaudited proforma information of the Company is provided to give effect to the DT acquisition and the Dacom acquisition assuming they occurred as of March 1, 2006, the beginning of the earliest period presented:
 
     
For the Three Months Ended 
   
For the Nine Months Ended 
 
     
November 30, 2007 
   
November 30, 2006 
   
November 30, 2007 
   
November 30, 2006 
 
           
(As Restated)  
         
(As Restated)  
 
Net sales
 
$
210,824,000
 
$
187,649,000
 
$
608,440,000
 
$
590,065,000
 
Net income (loss)
   
(373,000
)
 
1,981,000
   
2,173,000
   
8,260,000
 
Net income (loss) per share:
                 
Basic
 
$
(.02
)
$
.11
 
$
.12
 
$
.46
 
Diluted
 
$
(.02
)
$
.10
 
$
.11
 
$
.45
 

The proforma amounts above reflect interest on the purchase price assuming the acquisitions occurred as of March 1, 2006, with interest calculated at the Company's borrowing rate under its credit facility for the respective period. The proforma net earnings above assumes an income tax provision at the Company's consolidated tax rate for the respective year. The information presented above is for illustrative purposes only and is not indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of the Company's 2007 fiscal year or of future operating performance.
 
8

 
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
 
4. 
PROPERTY, PLANT AND EQUIPMENT:
 
Property, plant and equipment consists of the following:              
               
   
November 30, 2007 
   
February 28, 2007 
 
               
Furniture, fixtures and office equipment
 
$
10,597,000
 
$
8,895,000
 
Computer equipment
   
9,232,000
   
8,204,000
 
Leasehold improvements
   
1,255,000
   
1,255,000
 
     
21,084,000
   
18,354,000
 
Less: accumulated depreciation and
amortization
   
16,296,000
   
14,973,000
 
               
   
$
4,788,000
 
$
3,381,000
 

Depreciation expense for the nine-month periods ended November 30, 2007 and 2006 aggregated $1,297,000 and $994,000, respectively. Depreciation expense for the three months ended November 30, 2007 and 2006 was $474,000 and $354,000, respectively.
 
5. 
DEBT:
 
On January 31, 2007, the Company entered into an amended and restated secured revolving line of credit agreement with eight banks (the "Lenders"), which currently provides for maximum borrowings of $150,000,000 (as amended to date, the "Revolving Credit Line"). On June 6, 2007, the Company and the Lenders entered into an amendment to the Revolving Credit Line permitting the Dacom acquisition and increasing indebtedness allowed to be incurred by foreign subsidiaries to institutional lenders to $60,000,000. The Revolving Credit Line provides for borrowings utilizing an asset based formula predicated on a certain percentage of outstanding domestic accounts receivable and inventory levels at any given month end. Borrowings under the Revolving Credit Line bear interest at either (i) the lead bank’s prime rate or (ii) LIBOR plus 150 basis points, at the option of the Company, through September 30, 2011, the due date of the loan. Direct borrowings under the Revolving Credit Line were $64,000,000 at November 30, 2007 and $30,000,000 at February 28, 2007. LIBOR rates ranged from 6.17% to 6.32% at November 30, 2007. As of the end of each of the fiscal periods, the Company was in compliance with all of the required bank covenants under the Revolving Credit Line.

The Company also has a receivables financing agreement with a bank in England (the "Bank Credit Line"), which provides for maximum borrowings of £2,500,000 (approximately $4,600,000) with interest at the bank's base rate plus 1.65% (7.15% at November 30, 2007). Borrowings under the Bank Credit Line were £374,000 ($770,000) at November 30, 2007.

On November 20, 2006, the Company entered a revolving credit agreement with a Singapore bank to provide a $30,000,000 secured line of credit to the Company’s Asian subsidiaries and thereby finance the Company’s Asian operations. Borrowings under the agreement utilize an asset based formula based on a certain percentage of outstanding accounts receivable and inventory levels at any given month end. Borrowings under the Singapore credit line bear interest at SIBOR plus 1.5%. As part of this agreement, the Company must maintain a compensating balance of $2,250,000, which amount is included in other assets. At November 30, 2007, there were no borrowings under this credit line.

The events relating to the restatement discussed in Note 2 had no impact on the Company's calculation of and compliance with financial covenants contained in its credit agreements as of August 31, 2007. However, the restatement did contribute to the delay in filing the fiscal 2008 quarterly report on Form 10-Q for the three and six months ended August 31, 2007, which required that the Company obtain waivers from its Lenders under the Revolving Credit Line. These waivers were obtained on October 25, 2007.
 
9

 
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

6. 
ACCRUED EXPENSES:
 
Accrued expenses consist of the following:
 
     
November 30, 2007 
   
February 28, 2007 
 
           
(As Restated) 
 
Commissions
 
$
1,930,000
 
$
1,662,000
 
Due to seller of business acquired
   
3,245,000
   
1,611,000
 
Executive bonuses
   
-
   
1,246,000
 
Retirement plan
   
1,775,000
   
1,200,000
 
Payroll and related benefits
   
1,338,000
   
864,000
 
Other tax payable
   
933,000
   
455,000
 
Professional fees
   
805,000
   
-
 
Other miscellaneous expenses
   
2,725,000
   
1,727,000
 
Total
 
$
12,751,000
 
$
8,765,000
 

7. 
NET INCOME (LOSS) PER SHARE:
 
Basic earnings (loss) per share is computed based upon the weighted average number of common shares outstanding and excludes any potential dilution. Diluted earnings per share reflect potential dilution from the exercise of common stock equivalents into common stock.
 
     
For the Three Months Ended
   
For the Nine Months Ended
 
     
November 30, 2007 
   
November 30, 2006 
   
November 30, 2007 
   
November 30, 2006 
 
           
(As Restated) 
         
(As Restated) 
 
NUMERATOR:
                         
Net income (loss)
 
$
(373,000
)
$
1,933,000
 
$
2,098,000
 
$
7,191,000
 
                           
DENOMINATOR
                         
Basic earnings per
common share -
weighted-average
number of common
shares outstanding
   
18,377,582
   
18,059,849
   
18,322,489
   
17,777,952
 
Effect of dilutive stock
options
   
-
   
958,838
   
724,929
   
780,211
 
Diluted earnings per
common share -
adjusted weighted-
average number of
common shares
outstanding
   
18,377,582
   
19,018,687
   
19,047,418
   
18,558,163
 

Potentially dilutive shares that were excluded in the calculation of diluted earnings per share, as their impact would be anti-dilutive, aggregated 519,028 for the three months ended November 30, 2007.
 
8. 
STOCK BASED COMPENSATION:
 
Effective March 1, 2006, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123(R)”) and the guidance provided by the Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”), which established the accounting for share-based compensation awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period.
 
10

 
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
 
8. 
STOCK BASED COMPENSATION (continued):
 
Stock Options 
Stock options granted to date under each of the Company’s 1998 and 2000 Stock Option Plans, 2000 Key Employee Stock Option Plan and 2002 Key Employee Stock Incentive Plan generally expire ten years after the date of grant and become exercisable in two equal annual installments commencing one year from date of grant. Stock options granted under the Company’s Outside Director Stock Option Plan and 2000 and 2002 Outside Directors’ Stock Option Plans expire ten years after the date of grant and become exercisable in three equal annual installments on the date of grant and the succeeding two anniversaries thereof. The exercise price for options cannot be less than the fair market value of the Company’s common stock on the date of grant.

The following information relates to the stock option activity for the nine months ended November 30, 2007:
 
Options
   
Shares 
   
Weighted
Average
Exercise Price 
   
Weighted Average
Remaining Contractual
Life 
   
Aggregate
 Intrinsic
Value 
 
Outstanding at March 1, 2007
   
2,126,818
 
$
6.85
             
Granted
   
60,000
 
$
8.91
             
Exercised
   
(27,000
)
$
7.81
             
Forfeited
   
0
 
$
0
             
                           
Outstanding at November 30, 2007
   
2,159,818
 
$
6.90
   
3.9 years
 
$
2,394,124
 
Exercisable at November 30, 2007
   
2,099,818
 
$
6.81
   
3.8 years
 
$
2,394,124
 

The fair value of each option was estimated using the Black-Scholes method with the following weighted average assumptions for the 60,000 options granted during the quarter ended August 31, 2007: expected term of 5 years; risk free rate of 4.0%; and volatility rate of 58.42%.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on November 30, 2007. This amount changes based on the fair market value of the Company’s common stock. The total intrinsic value of options exercised for the three and nine months ended November 30, 2007 was $0 and $132,000, respectively.

Cash received from option exercises during the nine months ended November 30, 2007 was $125,000 and is included within the financing activities section in the accompanying consolidated statements of cash flows.

Restricted Stock 
Subject to the terms and conditions of the 2002 Key Employee Stock Incentive Plan, as amended, the compensation committee may grant shares of restricted stock. Shares of restricted stock awarded may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable period of restriction established by the compensation committee and specified in the award agreement. Compensation expense is recognized on a straight-line basis as shares become free of forfeiture restrictions (i.e., vest), historically over a seven-year period. For the three-month and nine-month periods ended November 30, 2007, the Company recorded compensation expense aggregating $193,000 and $525,000 relating to the issuance of restricted stock.
 
11

 
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
 
8. 
STOCK BASED COMPENSATION (continued):
 
Summary of Non-Vested Shares 
The following information summarizes the changes in non-vested restricted stock for the nine months ended November 30, 2007: 
 
     
Shares 
   
Weighted
Average
Grant Date
Fair Value 
 
Non-vested shares at March 1, 2007
   
263,000
 
$
9.98
 
Granted
   
218,000
   
11.16
 
Vested
   
(23,286
)
 
8.45
 
Forfeited
   
(4,430
)
 
9.13
 
Non-vested shares at November 30, 2007
   
453,284
   
10.63
 

As of November 30, 2007, there was total unrecognized compensation cost of $4,677,000 related to non-vested shares and stock options which is expected to be recognized over a period of 7 years.
 
9. 
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”).

For the nine months ended November 30, 2007, approximately 67% of the Company’s business was conducted in North America, while the remaining operations are conducted overseas through foreign subsidiaries.

The following table presents revenue by geographic area:
 
     
Three Months Ended 
   
Nine Months Ended 
 
     
November 30,
2007 
   
November 30,
2006 
   
November 30,
2007 
   
November 30,
2006 
 
North Americas
 
$
132,544,000
 
$
136,403,000
 
$
403,664,000
 
$
434,332,000
 
Europe
   
20,160,000
   
12,723,000
   
53,020,000
   
22,248,000
 
Asia/Pacific
   
58,120,000
   
36,954,000
   
150,043,000
   
110,781,000
 
   
$
210,824,000
 
$
186,080,000
 
$
606,727,000
 
$
567,361,000
 

Total assets, by geographic area, as of the third quarter ended in each of our last two fiscal years are as follows:
 
     
November 30,
2007  
   
November 30,
2006  
 
               
North Americas
 
$
192,413,000
 
$
182,504,000
 
Europe
   
34,537,000
   
22,342,000
 
Asia/Pacific
   
93,902,000
   
54,993,000
 
   
$
320,852,000
 
$
259,839,000
 

Long lived assets (net), by geographic area, as of the third quarter ended in each of our last two fiscal years are as follows:
 
     
November 30,
2007
   
November 30,
2006
 
North Americas
 
$
4,127,000
 
$
2,930,000
 
Europe
   
174,000
   
154,000
 
Asia/Pacific
   
487,000
   
563,000
 
   
$
4,788,000
 
$
3,647,000
 
 
12

 
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (AS RESTATED)
(UNAUDITED)
 
10. 
INCOME TAXES:
 
Effective March 1, 2007, we adopted the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”).  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For benefits to be recognized in the financial statements, a tax position must be more-likely-than-not to be sustained upon examination by the taxing authorities based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

In preparing the fiscal 2007 tax returns, developing the fiscal 2008 tax provision, and reviewing our accounting for income taxes in connection with the application of FIN 48, we determined that there were errors in the prior years' tax returns and the application of FASB Statement No. 109 - Accounting for Income Taxes. Consequently, there was an understatement of our provision for income tax expense for prior periods and the related U.S. income tax obligations, a majority of which related to our foreign operations, requiring the restatement of our financial statements in a Form 10-K/A (filed on November 21, 2007) for the fiscal years ended February 28, 2007. The liability for uncertain tax positions is included in the Condensed Consolidated Balance Sheet as of November 30, 2007.  There were no significant changes to our uncertain tax positions during the three months ended November 30, 2007.  For the three months ended November 30, 2007, interest and penalties increased by $76,000 and $162,000, respectively.  The Company recognizes accrued interest and penalties related to uncertain tax positions in federal, foreign, state and local income tax expense.  As of November 30, 2007, we had accrued approximately $667,000 and $2,489,000 for the payment of potential tax-related interest and penalties, respectively.  The increase in tax penalties and interest during the quarter is primarily related to the underpayment of tax in 2007.
 
 
 
11. 
CONTINGENCIES:

Litigation:

On or about October 4, 2007, a Consolidated Amended Class Action Complaint for Securities Fraud ("Amended Complaint") was filed in the United States District Court for the District of California in the matter entitled Louis Grasso, individually and on behalf of all others similarly situated, Plaintiff, v. Vitesse Semiconductor Corporation, Louis Tomasetta, Yatin Mody, Eugene F. Hovanec, Silicon Valley Bank, Nu Horizons Electronics Corp, Titan Supply Chain Services, Corp. (Formerly Known as Titan Logistics Corp.), and KPMG LLP, Defendants. Pursuant to the Amended Complaint, Nu Horizons, Titan, Silicon Valley Bank, and KPMG LLP were added as defendants to the putative class action which had been commenced by a purchaser of Vitesse common stock. In the Amended Complaint, plaintiff alleges that Nu Horizons and Titan violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks rescission or unspecified damages on behalf of a purported class which purchased Vitesse common stock during the period from January 27, 2003 to and including April 27, 2006. As of January 4, 2008, a class has not been certified. Nu Horizons believes that the plaintiff’s claims are without merit and intends to defend vigorously against the plaintiff’s allegations. Nu Horizons and Titan have moved to dismiss the Amended Complaint for failing to state a claim under the federal securities laws.
 
13

 
Report of Independent Registered Public Accounting Firm
 
 
 
To The Board of Directors and Stockholders
Nu Horizons Electronics Corp.
Melville, New York

We have reviewed the consolidated condensed balance sheet of Nu Horizons Electronics Corp. and subsidiaries (the Company) as of November 30, 2007, and the related consolidated condensed statements of operations for the three and nine month periods ended November 30, 2007 and 2006, and cash flows for the nine month periods ended November 30, 2007 and 2006 included in the accompanying Securities and Exchange Commission Form 10-Q for the period ended November 30, 2007. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of Nu Horizons Electronics Corp. as of February 28, 2007, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 2, 2007 (November 21, 2007, as to the effects of the restatement discussed in Note 2 and the subsequent events discussed in Note 16), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of February 28, 2007 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.
 
 
/s/ LAZAR LEVINE & FELIX LLP 
New York, New York
January 4, 2008
 
14

 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this Report, "we," "us," "our," "Nu Horizons" or "the Company" means Nu Horizons Electronics Corp. and its subsidiaries unless the context indicates a different meaning.

Forward Looking Statements:

Statements in this Form 10-Q quarterly report may be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express the Company’s intentions, beliefs, expectations, strategies, predictions or any other statements relating to its future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those risks discussed from time to time in the Company’s Form 10-K/A annual report for the year ended February 28, 2007, and in other documents which the Company files with the Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to product demand, market and customer acceptance, competition, government regulations and requirements, pricing and development difficulties, as well as general industry and market conditions and growth rates, and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q.

For a description of the Company's critical accounting policies and an understanding of the significant factors that influenced the Company's performance during the three and nine month periods ended November 30, 2007 and 2006, this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with the consolidated condensed financial statements, including the related notes, appearing in Item 1 of this Report, as well as the Company's Annual Report on Form 10-K/A for the year ended February 28, 2007.

Overview:
Nu Horizons and its wholly-owned subsidiaries 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 Components Corp., NIC Components Asia Pte Ltd. and NIC Components Europe Limited, principally to OEMs and other distributors nationally, consist of a high technology line of chip and leaded components including capacitors, resistors and related networks. In addition, the Company distributes Sun Microsystems boards, servers, storage and software to OEMs (referred to herein as "Systems").

The electronics manufacturing and the electronics distribution industries in which the Company operates have experienced double digit increases in sales dollar volume for the last several few years. Additionally, there have been recent consolidations in the electronics distribution industry, resulting in greater market share for certain of the remaining companies. The increase in sales volume has been accompanied by continued downward margin pressures, primarily due to the industry shift to production in Asia.

The Company recognized the industry shift to overseas production and the need to serve its suppliers on a global basis. As a result, the Company adopted a strategy of expanding its Asian and European operations by investing in human resources and expanding its sales force and engineering personnel. In prior years, we invested in Asia and currently we are staffed with 204 employees in 19 offices, with a warehouse in Singapore. In fiscal 2007, we continued our growth strategy of expanding our European presence by acquiring DT Electronics Limited on August 29, 2006, with 37 employees and a warehouse in Coventry, England. Most recently, we opened our first office in Munich, Germany and on June 6, 2007, the Company acquired Dacom Süd Electronics Vertriebs GmbH ("Dacom"), a franchised electronics component distributor, based in Munich, Germany. The Company paid approximately $2,857,000 in cash for Dacom which included transaction fees. Dacom had approximately $6,000,000 in sales for calendar year 2006. We expect that the acquisition of Dacom will accelerate our expansion in the European market.

It is difficult for the Company, as a distributor, to forecast the material trends of the electronic component and computer products industry because the Company does not typically have material forward-looking information available from its customers and suppliers. As such, management relies on the publicly available information published by certain industry groups and other related analyses to evaluate its longer term prospects.
 
15

 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview (continued):

The Company is continuing to cooperate with the inquiry by the Securities and Exchange Commission ("SEC") in the action captioned "In the Matter of Vitesse Semiconductor Corp." (referred to herein as the "Vitesse Matter"). The cost of such cooperation has required the Company to incur significant expenses for professional fees and related expenses. In addition, the Company has incurred expenses for professional fees in connection with the Vitesse-related action entitled Louis Grasso, individually and on behalf of all others similarly situated, Plaintiff, v. Vitesse Semiconductor Corporation, Louis Tomasetta, Yatin Mody, Eugene F. Hovanec, Silicon Valley Bank, Nu Horizons Electronics Corp, Titan Supply Chain Services, Corp. (Formerly Known as Titan Logistics Corp.), and KPMG LLP, Defendants (the “Vitesse Class Action”), as more fully described in Note 11 to the financial statements contained in Item 1 of this Report. As of November 30, 2007, approximately $1,581,000 and $1,162,000 has been incurred for the nine months and the three months, respectively. Management is presently unable to determine the duration of the SEC investigation and of the pendancy of the Vitesse Class Action and, consequently, the total costs that will be incurred by the Company. Nevertheless, management expects that the Company will continue to incur costs at approximately current levels through the first quarter of fiscal 2009.

The tables below provide a quarter-over-quarter summary of sales for the Company:

Quarterly Analysis of Sales
 
     
Quarters Ended November 30, 
   
Percentage
Change 
 
                                 
     
2007 
   
% of Total  
   
2006 
   
% of Total 
   
2007 to 2006 
 
Sales by Type:
                               
Electronic Components
 
$
197,680,000
   
94
%
$
171,861,000
   
92
%
 
15
%
Systems
   
13,144,000
   
6
%
 
14,219,000
   
8
%
 
(8
)%
   
$
210,824,000
   
100
%
$
186,080,000
   
100
%
 
13
%
 
     
Nine Months Ended November 30, 
 
Percentage
 Change 
 
     
2007 
   
% of Total  
   
2006 
   
% of Total 
   
2007 to 2006 
 
Sales by Type:
                               
Electronic Components
 
$
568,639,000
   
94
%
$
493,302,000
   
87
%
 
15
%
Systems
   
38,088,000
   
6
%
 
74,059,000
   
13
%
 
(49
)%
   
$
606,727,000
   
100
%
$
567,361,000
   
100
%
 
7
%

The following table sets forth for the three-and nine-month periods ended November 30, 2007 and 2006, certain items in the Company’s consolidated statements of operations expressed as a percentage of net sales.

 
     
Three Months Ended Nov. 30, 
   
Nine Months Ended Nov. 30, 
 
     
2007 
   
2006 
   
2007 
   
2006 
 
Net sales
   
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Cost of sales
   
84.9
   
84.4
   
84.8
   
84.8
 
Gross profit
   
15.1
   
15.6
   
15.2
   
15.2
 
Operating expenses
   
14.4
   
12.9
   
13.8
   
12.1
 
Interest expense
   
.6
   
.6
   
.5
   
.5
 
Interest (income)
   
-
   
-
   
-
   
(.1
)
Income before taxes and minority interest
   
.2
   
2.2
   
.9
   
2.7
 
Income tax provision
   
.3
   
1.1
   
.5
   
1.3
 
Minority interests
   
.1
   
.1
   
.1
   
.1
 
Net income (loss)
   
(.2
)
 
1.0
   
.3
   
1.3
 
 
16

 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Results of Operations:

Three Months Ended November 30, 2007 compared to Three Months Ended November 30, 2006

Sales for the three month period ended November 30, 2007 were $210,824,000 as compared to $186,080,000 for the comparable period of the prior year, an increase of $24,744,000 or 13%.

Sales of electronic components, excluding Systems, for the three month period ended November 30, 2007 were $197,680,000 as compared to $171,861,000 for the comparable period of the prior year, an increase of approximately $25,819,000 or 15%. On a sequential basis, sales of electronic components for the current three month period increased approximately $5,930,000, or 3%, from $191,750,000 for the quarter ended August 31, 2007. Management believes that this sales increase is primarily due to increased market share resulting from industry consolidation, its increased sales personnel and the expansion of its line card and customer base. The lack of near term visibility in the electronics manufacturing and the electronics distribution industry makes it difficult for management to estimate the Company’s overall sales volume and earnings for the balance of the Company’s current fiscal year. Management believes, however, that the industry growth rate in the near term will likely be in the single digits. System sales have declined primarily due to the loss of business with certain key customers. System sales for the quarter ended November 30, 2007 were $13,144,000, compared to $14,219,000 in 2006.

The gross profit margin for the quarter ended November 30, 2007 was 15.1% as compared to 15.6% for the quarter ended November 30, 2006. Management believes that the gross margin pressure experienced in the quarter resulted from a change in the Company’s product mix and lower margins associated with increased order size, in conjunction with increased sales in the Asia Pacific markets which requires lower selling prices to secure high volume business from large Asian contract manufacturers.

As a percentage of sales, operating expenses increased to 14.4% from 12.9% in the comparable period of the prior year. Operating expenses increased $6,265,000 or 26% over the prior period. Of this dollar increase in operating expenses, $2,903,000 was due primarily to increases in personnel related expenses such as bonuses, commissions, salaries, travel and fringe benefits related to new hires to support expanded supplier relationships and our start-up operations in Germany. $2,225,000 of the increase was due to professional fees related to the SEC inquiry of the Vitesse Matter, the restatement of our financial statements as more fully described in Note 2 to the financial statements contained in Item 1 of this Report and the Vitesse Class Action. $672,000 of the increase was related to the combination of rent and utilities, depreciation and other general and administrative expenses. Finally, $465,000 of the increase was related to  marketing sales promotion expenses.

Interest expense increased to $1,175,000 for the three months ended November 30, 2007 from $1,036,000 for the prior period. This increase in interest expense resulted from higher interest rates and larger bank borrowing balances incurred to support increases in both accounts receivable and inventories resulting from higher sales.

The effective tax rate for the third quarter of fiscal 2008 is higher than the statutory rate principally due to penalties and interest of $236,000 associated with the correction of errors in our United States Federal and state tax returns discussed in Note 2 of the financial statements contained in Item 1 herein. The effective tax rate in the third quarter of fiscal 2007 is higher due to higher tax expense of $437,000 associated with the aforementioned restatement.

Net loss for the three month period ended November 30, 2007 was $(373,000) or $(.02) per basic and diluted share as compared to a net income of $1,933,000 or $.11 per basic and $.10 per diluted share for the three month period ended November 30, 2006. Management attributes the decrease in earnings for the 2007 period to primarily to higher operating expenses noted above.
 
17

 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Results of Operations (continued):

Nine Months Ended November 30, 2007 compared to Nine Months Ended November 30, 2006

Sales for the nine month period ended November 30, 2007 were $606,727,000 as compared to $567,361,000 for the comparable period of the prior year, an increase of $39,366,000 or 7%.

Sales of electronic components, excluding Systems, for the nine month period ended November 30, 2007 were $568,639,000 as compared to $493,302,000 for the comparable period of the prior year, an increase of approximately $75,337,000 or 15%. Management believes that this sales increase is primarily due to increased market share resulting from industry consolidation, the acquisition of DT Electronics, its increased sales personnel and the expansion of its line card and customer base. Core electronics distribution sales for the nine months ended November 30, 2007 were negatively impacted by a general softness in the passive component market due to over-capacity, resulting in decreased demand which could continue in the near term. The lack of near term visibility in the electronics manufacturing and the electronics distribution industry makes it difficult for management to estimate the Company’s overall sales volume and earnings for the balance of the Company’s current fiscal year. Management believes, however, that the industry growth rate in the near term will likely be in the single digits. System sales have declined primarily due to the loss of business with certain key customers. System sales for the nine months ended November 30, 2007 were $38,088,000, compared to $74,059,000 in the comparable period of fiscal 2007.

The gross profit margin for the nine months ended November 30, 2007 and 2006 was 15.2%.

As a percentage of sales, operating expenses increased to 13.8% from 12.2% in the comparable period of the prior year. Operating expenses increased $14,742,000 or 21% for the nine months ended November 30, 2007 compared to the prior year. The increase in operating expenses was due primarily to increases in the following expense categories; approximately $8,736,000 or 60% of the increase for the nine month period was for personnel related costs such as bonuses, commissions, salaries, travel and fringe benefits primarily related our acquisition of DT Electronics on August 29, 2006 and new hires to support expanded supplier relationships. $2,858,000 of the increase was due to professional fees related to the SEC inquiry for the Vitesse Matter, the restatement of our financial statements as more fully discussed in Note 2 of the financial statements contained in Item 1 of this Report and the Vitesse Class Action. $1,208,000 of the increase was related to marketing sales promotion expenses. Finally, $1,940,000 of the increase was related to the combination of rent and utilities, depreciation and other general and administrative expenses.

Interest expense increased by $222,000 for the nine months ended November 30, 2007 compared to the prior year. This increase in interest expense for the current period resulted from increased bank borrowings incurred to support an increase in accounts receivable and inventory levels, as well as the effect of increased interest rates on those borrowings in the current periods.

The effective rates of 56.9% and 49.4% for the fiscal 2008 and 2007 periods respectively are higher than statutory rates due principally to interest and penalties of $1,033,000 in fiscal 2008 and incremental tax expense of $1,701,000 in fiscal 2007 related to the restatement discussed in Note 2 of the financial statements contained in Item 1 herein.

Net income for the nine-month period ended November 30, 2007 was $2,098,000 or $.11 per basic share and $.11 per diluted share as compared to a net income of $7,191,000 or $.40 per basic and $.39 per diluted share for the nine-month period ended November 30, 2006. Management attributes the decrease in earnings for the 2007 period to increased operating costs described above.
 
18

 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Liquidity and Capital Resources:

The Company's current ratio was 3.0:1 at November 30 and February 28, 2007. Working capital increased to $195,302,000 at November 30, 2007 from $166,948,000 at February 28, 2007.

On January 31, 2007, the Company entered into an amended and restated secured revolving line of credit agreement, as amended, with eight banks, which currently provides for maximum borrowings of $150,000,000 (the "Revolving Credit Line"). The Revolving Credit Line provides for borrowings utilizing an asset based formula predicated on a certain percentage of outstanding domestic accounts receivable and inventory levels at any given month end. Based on the asset based formula, the Company may not be able to borrow the maximum amount available under its Revolving Credit Line at all times. Borrowings under the Revolving Credit Line bear interest at either (i) the lead bank’s prime rate or (ii) LIBOR plus 150 basis points, at the option of the Company, through September 30, 2011, the due date of the loan. Direct borrowings under the Revolving Credit Line were $64,000,000 at November 30, 2007 and $30,000,000 at February 28, 2007. As of the end of each of the fiscal periods, the Company was in compliance with all of the required bank covenants.

The Company also has a receivable financing agreement (the "Bank Credit Line") with a bank in England which provides for maximum borrowings of £2,500,000 (approximately $4,600,000) which bear interest at the bank's base rate plus 1.65%. The interest rate at November 30, 2007 was 7.15%. The Company owed $770,000 and $2,327,000 at November 30, 2007 and February 28, 2007 respectively.

On November 20, 2006, the Company entered a revolving credit agreement with a Singapore bank to provide a $30,000,000 secured line of credit to the Company’s Asian subsidiaries and thereby finance the Company’s Asian operations. Borrowings under the agreement utilize an asset based formula based on a certain percentage of outstanding accounts receivable and inventory levels at any given month end. Borrowings under the Singapore credit line bear interest at SIBOR plus 1.5 percent. At November 30, 2007, there were no borrowings under this credit line.

At November 30, 2007, the Company had approximately $61,000,000 in the aggregate available under all of its bank credit facilities.

The Company anticipates that its resources provided by its cash flow from operations and the aforementioned agreements will be sufficient to meet its financing requirements for at least the next twelve-month period.

Off-Balance Sheet Arrangements:

As of November 30, 2007, the Company had no off-balance sheet arrangements.
 
19


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

All of the Company’s bank debt and the associated interest expense are sensitive to changes in the level of interest rates. The Company’s credit facilities bear interest based on interest rates tied to the prime lending rate, LIBOR or SIBOR rate, either of which may fluctuate over time based on economic conditions. A hypothetical 100 basis point (one percentage point) increase in interest rates would have resulted in incremental interest expense of approximately $134,000 for the three month period ended November 30, 2007 and $403,000 for the nine month period ended November 30, 2007. As a borrower, the Company is subject to the risk associated with fluctuating interest rates and therefore, could incur increased interest expense.
 
The Company has several foreign subsidiaries in Asia, the United Kingdom and Canada. The Company does business in more than one dozen countries and currently for the nine months ended November 30, 2007 generated approximately 33% of its revenue from outside North America. The Company’s ability to sell its products in foreign markets may be affected by changes in economic, political or market conditions in the foreign markets in which the Company does business.

The Company’s total assets in its foreign subsidiaries was $128,400,000 and $77,300,000 at November 30, 2007 and 2006, respectively, translated into U.S. dollars at the closing exchange rates. The Company also 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 potential loss based on end of period balances and prevailing exchange rates resulting from a hypothetical 10% strengthening of the U.S. dollar against foreign currencies was not material in the quarter ended November 30, 2007. The Company does not currently employ any currency derivative instruments, futures contracts or other currency hedging techniques to mitigate its risks in this regard.

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.
 
20

 
ITEM 4. CONTROLS AND PROCEDURES

Management's Quarterly Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and that information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In connection with the preparation of this Report, our Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the Company's disclosure controls and procedures as of the end of the period covered by this Report. Based upon the evaluation that was conducted, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Report.

Changes in Internal Controls

As described in Note 2 to the interim consolidated condensed financial statements included elsewhere herein, errors in the Company's prior years' tax returns and the application of FASB Statement No. 109 - Accounting for Income Taxes caused an understatement of the Company’s provision for income tax expense for prior periods and the related U.S. income tax obligations, which in turn resulted in the Company having to restate its consolidated financial statements. As a result of such errors and restatement, management concluded that there was a material weakness in the Company’s internal controls over financial reporting regarding the accounting for income taxes. In order to remediate the material weakness in internal controls over the Company's accounting for income taxes, during the most recently completed fiscal quarter, the Company engaged an independent registered public accounting firm (other than its auditors, Lazar Levine & Felix LLP) to prepare its tax returns and review and advise Company personnel on the preparation of the quarterly tax provision in accordance with FASB Statement No. 109 - Accounting for Income Taxes. Other than the foregoing changes in internal control related to income taxes, there were no changes made in the Company’s internal controls over financial reporting that occurred during the Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

As a result of the DT acquisition, the Company is currently evaluating its operations which commenced in the third quarter of fiscal 2007, integrating DT’s operations, including its inventory management systems and other internal controls.
 
Inherent Limitations on Effectiveness of Controls

The Company’s system of internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

All internal control systems, no matter how well designed and operated, can provide only reasonable assurance with respect to financial statement preparation and presentation. Management does not expect that the Company’s disclosure controls and procedures will prevent all error and fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected, even with respect to those systems of internal control that are determined to be effective. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company’s system contains self monitoring mechanisms, and actions are taken to correct deficiencies as they are identified. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Company’s chief executive officer and chief financial officer have concluded that such disclosure controls and procedures are effective at the “reasonable assurance” level.
 
21

 
PART II. OTHER INFORMATION
 
ITEM 1. Legal Proceedings:

On or about October 4, 2007, a Consolidated Amended Class Action Complaint for Securities Fraud ("Amended Complaint") was filed in the United States District Court for the District of California in the matter entitled Louis Grasso, individually and on behalf of all others similarly situated, Plaintiff, v. Vitesse Semiconductor Corporation, Louis Tomasetta, Yatin Mody, Eugene F. Hovanec, Silicon Valley Bank, Nu Horizons Electronics Corp, Titan Supply Chain Services, Corp. (Formerly Known as Titan Logistics Corp.), and KPMG LLP, Defendants. Pursuant to the Amended Complaint, Nu Horizons, Titan, Silicon Valley Bank, and KPMG LLP were added as defendants to the putative class action which had been commenced by a purchaser of Vitesse common stock. In the Amended Complaint, plaintiff alleges that Nu Horizons and Titan violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder and seeks rescission or unspecified damages on behalf of a purported class which purchased Vitesse common stock during the period from January 27, 2003 to and including April 27, 2006. As of January 4, 2008, a class has not been certified. Nu Horizons believes that the plaintiff’s claims are without merit and intends to defend vigorously against the plaintiff’s allegations. Nu Horizons and Titan have moved to dismiss the Amended Complaint for failing to state a claim under the federal securities laws.

ITEM 1A. Risk Factors

There have not been any material changes to the Company’s risk factors as discussed in Item 1A - Risk Factors in the Company’s Annual Report on Form 10-K/A for the year ended February 28, 2007.
 
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds: 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:
 
 
3.1
Certificate of Incorporation, as amended (Incorporated by Reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the Quarter ended November 30, 2000).
     
 
3.2
By-laws, as amended (Incorporated by Reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended February 29, 1988).
   
 
4.1
Specimen Common Stock Certificate (Incorporated by Reference as Exhibit 4.1 to the Company’s Registration Statement on Form S-1, Registration No. 2-89176).
     
 
31.1
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
 
31.2
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
 
32.1
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
 
32.2
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
22

 
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.
 
 
     
 
Nu Horizons Electronics Corp.                                                                   
Registrant
 
 
 
 
 
 
Date:             January 8, 2008 
/s/ Arthur Nadata
Arthur Nadata
Chairman and Chief Executive Officer
 
   
 
     
 
 
Date:             January 8, 2008 
 
/s/Kurt Freudenberg 
Kurt Freudenberg
Executive Vice President
and Chief Financial Officer
   
 
23

 
EXHIBIT INDEX
 
Exhibits:

 
31.1
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 
31.2
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32.1
 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002
 
 
32.2
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002

24

 
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