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 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-10.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. 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, 2009

OR

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________.

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
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

70 Maxess Road, Melville, New York
 
11747
(Address of principal executive offices)
 
(Zip Code)
 
(631) 396 -5000
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨   No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

 
Large accelerated filer ¨
Accelerated filer x
 
Non-accelerated filer (Do not check
Smaller reporting company  ¨
 
 if a smaller reporting company) ¨
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x

The number of shares outstanding of registrant’s common stock, as of January 4, 2010:

Common Stock – Par Value $.0066
 
18,552,092
Class
 
Outstanding Shares
 
 
 

 

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
INDEX

   
Page(s)
     
PART I.
FINANCIAL INFORMATION
       
 
Item 1.
Financial Statements.
 
       
   
Condensed Consolidated Statements of Operations (unaudited) -
 
   
Three and Nine Months Ended November 30, 2009 and 2008
3.
       
   
Condensed Consolidated Balance Sheets -
 
   
November 30, 2009 (unaudited) and February 28, 2009
4.
       
   
Condensed Consolidated Statements of Cash Flows (unaudited) -
 
   
Nine Months Ended November 30, 2009 and 2008
5.
       
   
Notes to Interim Condensed Consolidated Financial Statements (unaudited)
6.-15.
       
   
Report of Independent Registered Public Accounting Firm.
16.
       
 
Item 2.
Management’s Discussion and Analysis of Financial
 
   
Condition and Results of Operations.
17.-23.
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
24.
       
 
Item 4.
Controls and Procedures.
25.
       
PART II.
OTHER INFORMATION
26.
       
 
Item 1.
Legal Proceedings.
26.
       
 
Item 1A.
Risk Factors.
26.
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
26.
       
 
Item 3.
Defaults Upon Senior Securities.
26.
       
 
Item 4.
Submission of Matters to a Vote of Security Holders.
26.
       
 
Item 5.
Other Information.
26.
       
 
Item 6.
Exhibits.
27.
       
 
SIGNATURES
28.
       
 
EXHIBIT INDEX
29.
       
 
CERTIFICATIONS
 
 
 
 

 

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
November 30,
2009
   
November 30,
2008
   
November 30,
2009
   
November 30,
2008
 
                         
NET SALES
  $ 179,446,000     $ 188,219,000     $ 483,805,000     $ 600,184,000  
                                 
COSTS AND EXPENSES:
                               
Cost of sales
    154,269,000       159,709,000       415,115,000       509,904,000  
Selling, general and administrative expenses
    22,821,000       28,653,000       67,366,000       86,077,000  
      177,090,000       188,362,000       482,481,000       595,981,000  
                                 
OPERATING INCOME (LOSS)
    2,356,000       (143,000 )     1,324,000       4,203,000  
                                 
OTHER EXPENSE (INCOME)
                               
Interest expense
    454,000       747,000       1,146,000       2,563,000  
Interest income
    (2,000 )     (7,000 )     (12,000 )     (11,000 )
      452,000       740,000       1,134,000       2,552,000  
                                 
 INCOME (LOSS)  BEFORE PROVISION (BENEFIT) FOR INCOME TAXES
    1,904,000       (883,000 )     190,000       1,651,000  
                                 
 Provision (benefit) for income taxes
    1,174,000       (1,127,000 )     (240,000 )     (151,000 )
                                 
CONSOLIDATED NET INCOME
    730,000       244,000       430,000       1,802,000  
                                 
Net income attributable to noncontrolling interest
    80,000       94,000       181,000       305,000  
                                 
NET INCOME ATTRIBUTED TO SHAREHOLDERS
  $ 650,000     $ 150,000     $ 249,000     $ 1,497,000  
                                 
NET INCOME PER SHARE
                               
                                 
Basic
  $ .04     $ .01     $ .01     $ .08  
                                 
Diluted
  $ .04     $ .01     $ .01     $ .08  
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
                               
Basic
    18,115,544       18,067,795       18,102,269       18,035,460  
Diluted
    18,189,426       18,067,795       18,162,352       18,137,584  

See accompanying notes

 
3

 

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

   
November 30,
2009
   
February 28,
2009
 
   
(unaudited)
       
- ASSETS -
           
CURRENT ASSETS:
           
Cash
  $ 11,502,000     $ 4,793,000  
Accounts receivable – net of allowance for doubtful accounts of  $3,634,000 and $3,438,000 as of November 30, 2009 and February 28, 2009, respectively
    117,507,000       111,572,000  
Inventories
    107,768,000       107,877,000  
Deferred tax asset
    4,494,000       3,323,000  
Prepaid expenses and other current assets
    6,204,000       4,979,000  
TOTAL CURRENT ASSETS
    247,475,000       232,544,000  
                 
PROPERTY, PLANT AND EQUIPMENT – NET
    4,655,000       4,827,000  
                 
OTHER ASSETS:
               
Cost in excess of net assets acquired
    5,022,000       5,020,000  
Intangibles – net
    3,488,000       3,742,000  
Other assets
    2,040,000       5,222,000  
                 
TOTAL ASSETS
  $ 262,680,000     $ 251,355,000  
                 
- LIABILITIES AND SHAREHOLDERS’ EQUITY -
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 63,656,000     $ 67,133,000  
Accrued expenses
    9,844,000       8,498,000  
Bank debt
    5,005,000       8,450,000  
Income taxes payable
    1,580,000       1,322,000  
TOTAL CURRENT LIABILITIES
    80,085,000       85,403,000  
                 
LONG TERM LIABILITIES
               
Bank debt
    30,100,000       14,950,000  
Deferred tax liability
    1,902,000       1,903,000  
Other long term liabilities
    3,115,000       2,590,000  
TOTAL LONG TERM LIABILITIES
    35,117,000       19,443,000  
                 
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; 18,552,092 and 18,578,946 shares issued and outstanding as of November 30, 2009 and February 28, 2009, respectively
    122,000       122,000  
Additional paid-in capital
    57,163,000       56,386,000  
Retained earnings
    87,635,000       87,386,000  
Other accumulated comprehensive (loss) income
    (19,000 )     83,000  
Total Shareholders’ Equity
    144,901,000       143,977,000  
Noncontrolling interest
    2,577,000       2,532,000  
TOTAL EQUITY
    147,478,000       146,509,000  
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 262,680,000     $ 251,355,000  

See accompanying notes

 
4

 

NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
For The Nine Months Ended
 
   
November 30,
2009
   
November 30,
2008
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
           
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Cash received from customers
  $ 478,259,000     $ 606,357,000  
Cash paid to suppliers and employees
    (481,946,000 )     (585,095,000 )
Interest received
    12,000       12,000  
Interest paid
    (1,202,000 )     (2,573,000 )
Income tax refunds
    2,474,000       1,650,000  
Income taxes paid
    (1,181,000 )     (2,899,000 )
Net cash (used) provided by operating activities
    (3,584,000 )     17,452,000  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Capital expenditures
    (910,000 )     (1,730,000 )
Acquisition payment Nu Horizons Electronics Limited
    -       (3,410,000 )
Acquisition payment  Nu Horizons Electronics A/S
    -       (3,814,000 )
Net cash used in investing activities
    (910,000 )     (8,954,000 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Borrowings under revolving credit lines and bank credit lines
    183,155,000       244,756,000  
Repayments under revolving credit lines and bank credit lines
    (171,752,000 )     (252,339,000 )
Dividend to noncontrolling interest
    (135,000 )     -  
Proceeds from exercise of stock options
    -       356,000  
Net cash provided (used) by financing activities
    11,268,000       (7,227,000 )
                 
EFFECT OF EXCHANGE RATE CHANGE
    (65,000 )     683,000  
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS
    6,709,000       1,954,000  
                 
Cash and cash equivalents, beginning of year
    4,793,000       3,886,000  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 11,502,000     $ 5,840,000  
                 
RECONCILIATION OF NET INCOME TO NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES:
               
                 
CONSOLIDATED NET INCOME
  $ 430,000     $ 1,802,000  
Adjustments:
               
Depreciation and amortization
    1,389,000       1,445,000  
Bad debt reserve
    248,000       (463,000 )
Deferred income tax
    (1,171,000 )     19,000  
Stock based compensation
    777,000       756,000  
Changes in assets and liabilities:
               
Accounts receivable
    (5,545,000 )     6,315,000  
Inventories
    109,000       4,400,000  
Prepaid expenses and other current assets
    (1,190,000 )     693,000  
    Other assets
    3,171,000       127,000  
Accounts payable and accrued expenses
    (1,145,000 )     4,367,000  
Income taxes
    (1,181,000 )     (2,899,000 )
Other long term liabilities
    524,000       890,000  
                 
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES
  $ (3,584,000 )   $ 17,452,000  

See accompanying notes

 
5

 

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

1.
BASIS OF PRESENTATION:

 
A.
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. ("NIC"), Nu Horizons International Corp. ("International"), NUHC Inc. ("NUC"), Nu Horizons Electronics Asia PTE LTD ("NUA"), Nu Horizons Electronics Pte Ltd ("NUZ"), Nu Horizons Electronics Asia Pte Ltd., Korea Branch ("NUK"), Nu Horizons Electronics NZ Limited ("NUN"), Nu Horizons Electronics Hong Kong Ltd. ("NUO"), Nu Horizons Electronics (Shanghai) Co. Ltd. ("NUS"), Nu Horizons Electronics Limited ("NUE"), Nu Horizons Electronics GmbH ("NUD"), Titan Supply Chain Services Corp. ("Titan"), Titan Supply Chain Services PTE LTD ("TSC"), Titan Supply Chain Services Limited ("TSE"), Razor Electronics, Inc. ("RAZ"), NuXchange B2B Services, Inc. ("NUX"), Nu Horizons Electronics A/S, formerly known as C-88 AS ("C-88"), and its majority-owned subsidiaries, NIC Components Europe Limited ("NIE"), and NIC Components Asia PTE LTD. ("NIA") contain all adjustments of a normal and recurring nature, necessary to present fairly the Company’s financial position as of November 30, 2009 and February 28, 2009 and the results of its operations for the three- and nine-month periods ended November 30, 2009 and 2008, and its cash flows for the nine-month periods ended November 30, 2009 and 2008.  All references to the "Company," “Nu Horizons,” "we," "us" and "our" refer to Nu Horizons Electronics Corp. and its subsidiaries, unless the context indicates otherwise.

The accounting policies followed by the Company are set forth in Note 1 to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended February 28, 2009.  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 ("U.S. GAAP").

The results of operations for the three- and nine-month periods ended November 30, 2009 are not necessarily indicative of the results to be expected for the full year.

In fiscal 2009 and the first and second quarters of fiscal 2010, the Company estimated its quarterly income taxes by applying an estimated annual effective tax rate to interim period pre-tax income to calculate the income tax provision or benefit for each quarter. During the three months ended November 30, 2009, the Company used an alternative method to calculate the effective tax rate since it is unable to make a reliable estimate of pre-tax income for the remainder of the fiscal year. Under this alternative method, interim period income taxes are based on each discrete quarter's pre-tax income.  Due to the recent volatility and uncertainty in the current economic market, the Company applied the alternative method to compute income taxes expense beginning in the third quarter of 2009.  The change in method resulted in a decrease of approximately $255,000 to income tax expense for the three and nine months ended November 30, 2009.

B.
Revenue Recognition:

Nu Horizons and its wholly- and majority-owned subsidiaries are engaged in the distribution of high technology electronic components to a wide variety of original equipment manufacturers of electronic products in the United States, Asia and Europe.   The Company also has certain business with a select supplier where it acts as an agent.

The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred or services are rendered, the sales price is determinable, and collectability is reasonably assured.  Revenue is recognized at time of shipment.

A portion of the Company's business involves shipments directly from its suppliers to its customers.  In these transactions, the Company is responsible for negotiating price both with the supplier and customer, payment to the supplier, establishing payment terms with the customer, product returns, and has risk of loss if the customer does not make payment.  As the principal with the customer, the Company recognizes the sale and cost of sale of the product upon receiving notification from the supplier that the product was shipped.

In addition, the Company has certain business with a supplier and customers that is accounted for on an agency basis (that is, the Company recognizes the fees associated with serving as an agent in sales with no associated cost of sales).  These transactions relate to the rendering of logistics services for the delivery of inventory for which the Company does not assume the risks and rewards of ownership.

 
6

 

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

Sales are recorded net of discounts, rebates, price adjustments, and returns.  Prompt payment discounts are recorded at the time payment is received from the customer.  Provisions are made for rebates which are primarily volume driven, based on historical trends and anticipated customer buying patterns.  We record a reserve for potential sales returns when the right of return exists.  Historical sales returns and anticipated future buying patterns are utilized to record provisions for sales returns.

2.
NEW ACCOUNTING STANDARDS:

In June 2009, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which establishes the FASB Accounting Standards CodificationTM (“ASC”) as the single source of authoritative U.S. GAAP, organized by topic, and creates a new referencing system to identify authoritative literature such that references to SFAS, EITF, etc. will no longer be valid. The Codification does not create any new U.S. GAAP standards.  In addition, the Securities and Exchange Commission ("SEC") rules and releases will remain as sources of authoritative U.S. GAAP for SEC registrants.  The standard is effective for interim and annual periods ending after September 15, 2009.  The Company adopted the standard in the third quarter of fiscal 2010 and it did not have a material impact on the Company’s consolidated financial position or results of operations.

In May 2009, the FASB issued new accounting and disclosure guidance for subsequent events that occur after the balance sheet date but before financial statements are issued or available to be issued.  The Company adopted this guidance in the second quarter of fiscal 2010.  The adoption did not impact the Company’s consolidated financial position or results of operations.

In December 2007, the FASB issued guidance that changes the requirements for an acquirer’s recognition and measurement of the assets acquired and the liabilities assumed in a business combination. It also requires that transaction costs be expensed as incurred. This guidance is effective for annual periods beginning after December 15, 2008 and should be applied prospectively for all business combinations entered into after the date of adoption. The Company adopted this guidance effective March 1, 2009.  The adoption of the guidance will impact the manner in which the Company accounts for future acquisitions and the impact could be significant, depending on the terms of future acquisitions.

In December 2007, the FASB issued new accounting and disclosure guidance related to noncontrolling interest in subsidiaries.  The guidance requires that noncontrolling interests be reported as a component of shareholders’ equity; net income attributable to the parent and the noncontrolling interest be separately identified in the consolidated statement of operations; changes in the parent’s ownership interest be treated as equity transactions if control is maintained; and upon a loss of control, any gain or loss on the interest be recognized in the statement of operations.  The guidance also requires expanded disclosures to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. The new guidance is being applied prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively. The Company adopted this guidance effective March 1, 2009 and it did not materially impact the Company’s consolidated financial position or results of operations.  Prior period amounts were reclassified to conform to the current presentation.

3.
ACQUISITIONS:

On September 9, 2008, the Company acquired all the outstanding shares of C-88, a franchised distributor of electronic components based in Hoersholm, Denmark.  This acquisition will further expand the Company’s presence in Europe.  The operating results of C-88 are reflected in the accompanying financial statements since the date of acquisition.

The C-88 acquisition has been accounted for using the purchase method of accounting.  Pursuant to the terms of the purchase agreement, the Company paid $4,044,000 in cash as of the acquisition date, including transaction costs of $544,000.  The purchase price was first allocated to tangible and identifiable intangible assets.  The excess purchase price was allocated to goodwill which amounted to $2,375,000 and is attributed to the active electronic components segment.  The goodwill is not tax deductible.  The Company allocated $1,600,000 to customer relationships and $20,000 to non-compete agreements which will be amortized over 10 years and 2 years, respectively.  The purchase agreement also provides for potential additional payments to the seller from a minimum of $500,000 up to a maximum $3,500,000 (the “Deferred Purchase Price”).  At November 30, 2009, the present value of the minimum payment of $500,000 has been recorded as a short- and long-term liability as accrued expenses and other long-term liabilities on the Company's consolidated balance sheet as a payment of $300,000 is due to the seller during the fourth quarter of fiscal 2010 and a payment of $200,000 is due during the fourth quarter of fiscal 2011. The payment of any amounts in excess of the $500,000 minimum is contingent upon the attainment of certain earnings milestones by C-88 during the three-year period ending August 31, 2011.

 
7

 

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

Contingent consideration will be accounted for as compensation expense.  The compensation is contingent on continued employment of the directors of C-88 and will be accrued over the period ending August 31, 2011 when it is deemed probable that the earnings milestones will be attained.  For the three- and nine-month period ended November 30, 2009, no additional amount above the $500,000 minimum has been recorded as C-88 did not attain the first earnings milestone and is not currently projected to meet the second earnings milestone established in the purchase agreement.

The following table presents the allocations of the aggregate purchase price for the C-88 acquisition based on the estimated fair values of assets acquired and liabilities assumed.

Purchase price
  $ 3,500,000  
Direct acquisition costs
    544,000  
Total purchase price, net of cash acquired
  $ 4,044,000  
         
Allocation of purchase price:
       
Cash
    77,000  
Accounts receivable
    3,396,000  
Inventory
    786,000  
Other current assets
    105,000  
Fixed assets
    22,000  
Other assets
    6,000  
Accounts payable/accrued expenses
    (3,030,000 )
Bank credit line
    (900,000 )
Taxes payable
    (413,000 )
Customer relationships
    1,600,000  
Non compete agreement
    20,000  
Cost in excess of net assets acquired
    2,375,000  
Total purchase price, net of cash acquired
  $ 4,044,000  

4.
PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment, which are recorded at cost, consist of the following:

   
November 30, 2009
   
February 28, 2009
 
             
Furniture, fixtures and equipment
  $ 11,548,000     $ 10,829,000  
Computer equipment
    9,615,000       9,478,000  
Leasehold improvements
    670,000       1,106,000  
      21,833,000       21,413,000  
Less:  Accumulated depreciation and amortization
    17,178,000       16,586,000  
    $ 4,655,000     $ 4,827,000  

Depreciation expense for the three months ended November 30, 2009 and 2008 was $274,000 and $571,000, respectively.  Depreciation expense for the nine months ended November 30, 2009 and 2008 aggregated $1,135,000 and $1,451,000 respectively.

 
8

 

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

5.
DEBT:

Bank Debt: Revolving Credit Lines
On January 31, 2007, the Company entered into an amended and restated secured revolving line of credit agreement with eight banks, which currently provides for maximum borrowings of $120,000,000 (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.  At November 30, 2009, borrowings under the Revolving Credit Line incurred interest at either (i) the lead bank’s prime rate plus 1.75% or (ii) LIBOR plus 3.5%, at the option of the Company, through September 30, 2011, the due date of the loan.  The interest rate at November 30, 2009 was 5.00%.   Direct borrowings under the Revolving Credit Line were $30,100,000 and $14,950,000 at November 30, 2009 and February 28, 2009, respectively.  As of November 30, 2009, the Company was in compliance with all of the required bank covenants.

On November 20, 2006, the Company entered into 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 (the "Singapore Credit Line").  On November 20, 2009, the Singapore Credit Line expired and the Company repaid all of its direct borrowings then outstanding under the Singapore Credit Line aggregating $5,000,000.

Bank Debt: Bank Credit Lines
The Company also has a receivable financing agreement with a bank in England (the "U.K. Credit Line") which provides for maximum borrowings of £4,000,000 (approximately $6,654,000) at November 30, 2009, which bear interest at the bank’s base rate plus 1.55%.  The interest rate at November 30, 2009 was 2.28%.  The Company owed $3,788,000 and $1,944,000 at November 30, 2009 and February 28, 2009, respectively.  The U.K. Credit Line renews annually in July.

The Company has a credit agreement with a bank in Denmark (the "Danish Credit Line") which provides for maximum borrowings of 10,072,000 Danish Kroner (approximately $2,033,000) as of November 30, 2009, at the current prevailing interest rate (6.14% at November 30, 2009).  Borrowings under the Danish Credit Line were 6,030,000 Danish Kroner ($1,217,000) and 8,953,000 Danish Kroner ($1,506,000) at November 30, 2009 and February 28, 2009, respectively.  The Danish Credit Line has no expiration date and is reviewed quarterly by the bank in Denmark.

At November 30, 2009, the Company had approximately $39,850,000 in the aggregate available under all of its then outstanding bank credit facilities.
 
 
9

 

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

6.
ACCRUED EXPENSES:

Accrued expenses consist of the following:

   
November 30, 2009
   
February 28, 2009
 
             
Commissions
  $ 2,002,000     $ 1,706,000  
Goods and services tax
    1,731,000       1,137,000  
Compensation and related benefits
    1,646,000       1,350,000  
Sales returns
    708,000       758,000  
Professional fees
    346,000       461,000  
Deferred rent
    427,000       343,000  
Due to seller
    300,000       296,000  
Other
    2,684,000       2,447,000  
Total
  $ 9,844,000     $ 8,498,000  

7.
OTHER LONG TERM LIABILITIES:

Other long term liabilities consist of the following:

   
November 30, 2009
   
February 28, 2009
 
             
Executive retirement plan
  $ 2,920,000     $ 2,400,000  
Due to seller
    195,000       190,000  
Total
  $ 3,115,000     $ 2,590,000  

 
10

 

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

8.
NET INCOME PER SHARE:

Basic earnings per share is calculated by dividing net income by the weighted average shares outstanding during the period.  Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding.  Such securities shown below, presented on a common share equivalent basis, have been included in the per-share computations:

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
November 30, 2009
   
November 30, 2008
   
November 30, 2009
   
November 30, 2008
 
                         
NUMERATOR:
                       
Net income attributed to shareholders
  $ 650,000     $ 150,000     $ 249,000     $ 1,497,000  
                                 
DENOMINATOR:
                               
Basic earnings per common share – weighted-average number of common shares outstanding
    18,115,544       18,067,795       18,102,269       18,035,460  
Effect of dilutive stock options and restricted shares
    73,882       -       60,083       102,124  
Diluted earnings per common share – adjusted weighted-average number of common shares outstanding
    18,189,426       18,067,795       18,162,352       18,137,584  
Net income per share:
Basic
  $ 0.04     $ 0.01     $ 0.01     $ 0.08  
                                 
Diluted
  $ 0.04     $ 0.01     $ 0.01     $ 0.08  

For the three months ended November 30, 2009 and 2008, the above calculation excludes 1,268,250 options and 296,359 restricted shares and 2,149,223 options and 514,730 restricted shares, respectively, as their effect was antidilutive.  For the nine months ended November 30, 2009 and 2008, the above calculation excludes 1,383,000 options and 354,490 restricted shares, and 1,456,750 options and 417,633 restricted shares, respectively, as their effect was antidilutive.
 
 
11

 

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

9.
STOCK BASED COMPENSATION:

The Company expenses the estimated fair value of these awards over the requisite employee service period.

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 installments beginning on the date of grant and on 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, 2009:

Options
 
Shares
   
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic Value
 
Outstanding at March 1, 2009
    2,176,723     $ 6.85          
Granted
    435,000     $ 3.84          
Forfeited
    (1,308,473 )   $ 5.13          
Outstanding at November 30, 2009
    1,303,250     $ 7.57  
4.3 years
  $ 99,200  
Exercisable at  November 30, 2009
    1,185,750     $ 8.00  
3.8 years
  $ 6,000  

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 2010 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, 2009.  This amount changes based on the fair market value of the Company’s common stock. The total intrinsic value of options exercised for the nine months ended November 30, 2009 and 2008 was $0 (no options exercised), and $506,000, respectively.  For the nine-month periods ended November 30, 2009 and 2008, the Company recorded compensation expense aggregating $173,000 and $231,000, respectively, relating to stock options.

Cash received from option exercises during the nine months ended November 30, 2009 and 2008 was $0 (no options exercised) and $356,000, respectively, 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 of the Company's board of directors may grant shares of restricted stock.  Shares of restricted stock awarded may not be sold, transferred, pledged or assigned 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 five- or seven-year period.  In each of the nine-month periods ended November 30, 2009 and 2008, the Company recorded compensation expense aggregating $604,000 relating to restricted stock.
 
 
12

 

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

Summary of Non-Vested Shares
The following information summarizes the changes in non-vested restricted stock for the nine months ended November 30, 2009:

   
Shares
   
Weighted Average
Grant Date
Fair Value
 
Non-vested shares at March 1, 2009
    509,620     $ 9.16  
Granted
    41,000     $ 4.01  
Vested
    (64,964 )   $ 8.36  
Forfeited
    (50,653 )   $ 9.82  
Non-vested shares at November 30, 2009
    435,003     $ 8.72  

As of November 30, 2009, there was total unrecognized compensation cost of $2,910,000 related to non-vested shares and stock options which is expected to be recognized over a weighted average period of 3.2 years.

10.
BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:

Nu Horizons Electronics Corp. and its subsidiaries, both wholly- and majority-owned, are wholesale and export distributors of active electronic components and passive components and systems products throughout the United States, Asia, Australia and Europe. The Company has two operating segments consisting of active electronic components and passive components.

The active electronic components segment includes mainly commercial semiconductor products such as memory chips, microprocessors, digital and linear circuits, microwave, RF and fiber-optic components, transistors, diodes and systems products.  The passive components segment includes passive components distributed by NIC and majority-owned subsidiaries NIA and NIE, principally to OEMs, contract manufacturers and other distributors globally, that consist of a high technology line of surface mount and leaded components including capacitors, resistors, inductors and circuit protection components.

Each operating segment has its own management team that manages certain functions within the segment. Each segment also has discrete financial reporting that is evaluated at the corporate level on which operating decisions and strategic planning for the Company are made.

Sales and operating income (loss), by segment, for the three and nine months ended November 30, 2009 and 2008 are as follows:

   
Three Months Ended
   
Nine Months Ended
 
 Sales:
 
November 30,
2009
   
November 30,
2008
   
November 30,
2009
   
November 30,
2008
 
Active electronic components
  $ 166,315,000     $ 174,703,000     $ 451,659,000     $ 556,447,000  
Passive components
    13,131,000       13,516,000       32,146,000       43,737,000  
    $ 179,446,000     $ 188,219,000     $ 483,805,000     $ 600,184,000  

   
Three Months Ended
   
Nine Months Ended
 
 Operating income (loss):
 
November 30,
2009
   
November 30,
2008
   
November 30,
2009
   
November 30,
2008
 
Active electronic components
  $ 1,879,000     $ 1,227,000     $ 2,856,000     $ 8,150,000  
Passive components
    956,000       (318,000 )     719,000       199,000  
Corporate
    (479,000 )     (1,052,000 )     (2,251,000 )     (4,146,000 )
    $ 2,356,000     $ (143,000 )   $ 1,324,000     $ 4,203,000  
 
 
13

 

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

Total assets, by segment, as of November 30, 2009 and February 28, 2009 are as follows:

   
November 30,
2009
   
February 28,
2009
 
Total assets:
           
Active electronic components
  $ 219,859,000     $ 208,057,000  
Passive components
    42,821,000       43,298,000  
    $ 262,680,000     $ 251,355,000  

The Company’s business is conducted in the Americas, Europe and Asia/Pacific.

Revenues, by geographic area, for the three and nine months ended November 30, 2009 and 2008 are as follows:

   
Three Months Ended
   
Nine Months Ended
 
 Revenue:
 
November 30,
2009
   
November 30,
2008
   
November 30,
2009
   
November 30,
2008
 
Americas
  $ 102,521,000     $ 118,813,000     $ 279,794,000     $ 388,097,000  
Europe
    17,548,000       15,430,000       52,233,000       48,779,000  
Asia/Pacific
    59,377,000       53,976,000       151,778,000       163,308,000  
    $ 179,446,000     $ 188,219,000     $ 483,805,000     $ 600,184,000  

Total assets, by geographic area, as of November 30, 2009 and February 28, 2009 are as follows:

   
November 30,
2009
   
February 28,
2009
 
Total assets:
           
Americas
  $ 168,688,000     $ 157,648,000  
Europe
    16,943,000       18,092,000  
Asia/Pacific
    77,049,000       75,615,000  
    $ 262,680,000     $ 251,355,000  

The net book value of long-lived assets, by geographic area, as of November 30, 2009 and February 28, 2009 is as follows:

   
November 30,
2009
   
February 28,
2009
 
Long –lived assets:
           
Americas
  $ 4,071,000     $ 4,176,000  
Europe
    310,000       342,000  
Asia/Pacific
    274,000       309,000  
    $ 4,655,000     $ 4,827,000  

 
14

 

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

11.
COMPREHENSIVE INCOME:

Comprehensive income (loss) includes certain gains and losses that, under U.S. GAAP, are excluded from net income (loss), as these amounts are recorded directly as an adjustment to shareholders' equity.  Our comprehensive income (loss) primarily includes net income (loss) and foreign currency translation adjustments.  Comprehensive income (loss) for the three and nine months ended November 30, 2009 and 2008 is as follows:

   
For the Three Months Ended
   
For the Nine Months Ended
 
   
November 30,
2009
   
November 30,
2008
   
November 30,
2009
   
November 30,
2008
 
                         
Consolidated net income
  $ 730,000     $ 244,000     $ 430,000     $ 1,802,000  
Other comprehensive (loss) income (foreign currency translation adjustments)
    (189,000 )     527,000       (102,000 )     904,000  
Consolidated comprehensive income
    541,000       771,000       328,000       2,706,000  
Less:  Comprehensive income attributed to noncontrolling interest
    80,000       94,000       181,000       305,000  
Comprehensive income attributed to shareholders
  $ 461,000     $ 677,000     $ 147,000     $ 2,401,000  

12.
SUBSEQUENT EVENTS:
 
The Company has evaluated events subsequent to the November 30, 2009 quarter end through January 7, 2010, the date of filing of this Form 10-Q.  During this period, no material disclosable subsequent events were identified.

 
15

 
 
Report of Independent Registered Public Accounting Firm
 
 
 
 
 
 
As discussed in Note 2 to the condensed consolidated financial statements, the Company changed its method of accounting for noncontrolling interests with the adoption of the guidance originally issued in FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements (codified in FASB ASC 810-10-65-1, Noncontrolling Interests in Consolidated Financial Statements) effective March 1, 2009.
 




                                                                                             /s/ Ernst & Young LLP


Jericho, New York
January 7, 2010
 
 
16

 

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 under "Item 1A – Risk Factors" in the Company's Annual Report on Form 10-K for the year ended February 28, 2009 and elsewhere in such Annual Report and from time to time 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, 2009 and 2008, 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 for the year ended February 28, 2009.

Overview:

Nu Horizons and its wholly- and majority-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 in the United States, Asia and Europe.

The Company operates in two product segments, active electronic components and passive components. The active electronic components segment includes semiconductor products such as memory chips, microprocessors, digital and linear circuits, microwave/RF and fiberoptic components, transistors and diodes. As part of the active electronic components segment, the Company’s System business distributes systems from IBM Corporation and Sun Microsystems Inc. The passive components segment includes passive components distributed by NIC and majority-owned subsidiaries NIA and NIE, principally to OEMs, contract manufacturers and other distributors globally, that consist of a high technology line of surface mount and leaded components including capacitors, resistors, inductors and circuit protection components.  NIC, NIA and NIE are a primary source of qualified products to over 9,000 OEMs worldwide.

In September 2008, we acquired C-88, a franchised electronic components distributor based in Hoersholm, Denmark, near Copenhagen.  The C-88 acquisition has been accounted for using the purchase method of accounting.  Pursuant to the terms of the C-88 purchase agreement, the Company paid $4,044,000 in cash as of the acquisition date, including transaction costs of $544,000.  The purchase agreement also provides for potential additional payments to the seller from a minimum of $500,000 up to a maximum $3,500,000 (“the Deferred Purchase Price”).  At November 30, 2009, the present value of the minimum payment of $500,000 has been recorded as a short- and long-term liability as accrued expenses and other long-term liabilities on the Company's consolidated balance sheet since a payment of $300,000 is due to the seller during the fourth quarter of fiscal 2010 and a payment of $200,000 is due during the fourth quarter of fiscal 2011.  The payment of any amounts in excess of the $500,000 minimum is contingent upon the attainment of certain earnings milestones by C-88 during the three-year period ending August 31, 2011.

Contingent consideration will be accounted for as compensation expense. The compensation is contingent on continued employment of the directors of C-88 and will be accrued over the period ending August 31, 2011 when it is deemed probable that the earnings milestones will be attained.  For the three- and nine-month periods ended November 30, 2009, no additional amount above the $500,000 minimum has been recorded as C-88 did not attain the first earnings milestone and is not currently projected to meet the second earnings milestone established in the purchase agreement.
 
 
17

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

In the second quarter of fiscal 2010, the Company became a North American Alcatel-Lucent Distributor which is expected to provide us the opportunity to further grow our Systems business. This product line includes enterprise voice solutions such as digital PBX’s, VOIP systems, and call center applications and data solutions such as switches, routers and wireless LAN products. Systems sales for the three- and nine-month periods ended November 30, 2009 decreased 17% and 51%, respectively from the three- and nine-month periods ended November 30, 2008.  The decrease in the three-month period ended November 30, 2009 is primarily due to the global economic recession and the decrease in the nine-month period ended November 30, 2009 is primarily due to a one-time sale in the three-month period ended August 31, 2008, to a large customer at a low gross margin on a product that was being discontinued.

It is difficult for the Company, as a distributor, to forecast the material trends of the electronic components 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.  The economic recession makes it difficult for management to estimate the Company's overall sales volume and earnings for the remainder of fiscal 2010.  However, due to recent growth in sales, gross profit and operating income, management has become cautiously optimistic.

Net sales for the three-month period ended November 30, 2009 were $179,446,000 as compared to $188,219,000 for the comparable period last year, a decrease of 4.7%.  For the nine-month period ended November 30, 2009 net sales were $483,805,000 as compared to $600,184,000 or a decrease of 19.4%.  The sales decrease for the three- and nine month periods is due to the recent global economic recession and a one-time sale in the three-month period ended August 31, 2008, to a large customer on a product that was being discontinued.  Sequentially, net sales for the three months ended November 30, 2009 improved by $22,846,000 or 14.6% from $156,600,000 in the second quarter of fiscal 2010.  For the three months ended November 30, 2009 as compared to the same period last year, net sales in North America decreased 13.7%, net sales in Asia increased 10.0% and net sales in Europe increased 13.7%.  Sequentially, net sales for the three months ended November 30, 2009 in North America, Asia and Europe grew 9.5%, 25.8% and 11.0%, respectively, as compared to the second quarter of fiscal 2010.

Due to the recent economic recession and related decreased product demand during prior recent fiscal periods, the Company took several cost-reduction actions.  In the third quarter of fiscal 2009, the Company eliminated its employer contribution match to the employee 401K plan and announced a reduction in its workforce.  Additionally, in the fourth quarter of fiscal 2009, the Company announced a further reduction in its workforce and implemented a salary reduction program.  Also, the Company invoked a mandatory two-week furlough program during the Company’s first six months of fiscal 2010, with one week to be taken in each of the first and second quarters of fiscal 2010.  Finally, the Company adjusted its commission plans to reduce commission rates in fiscal 2010.  The Company will continue to evaluate these cost-reduction actions in future periods.

The Company is continuing to fully cooperate with the investigation by the SEC in the action captioned "In the Matter of Vitesse Semiconductor Corp." The SEC investigation and the related internal investigation are collectively referred to herein as the "Vitesse Matter".  On April 9, 2009, the Audit Committee announced the completion of its related internal investigation and provided a summary of its conclusions.  The Company’s cooperation with the SEC investigation and its own internal investigation has required the Company to incur significant expenses for professional fees and related expenses. For the three- and nine-month periods ended November 30, 2009, the Company has incurred approximately $113,000, and $798,000, compared to $752,000 and $3,086,000 respectively, for the three- and nine-month periods ended November 30, 2008. Cumulatively, $7,052,000 of expense for professional fees has been incurred to date since fiscal 2007 related to the Vitesse Matter.  Management believes that as a result of the completion of the internal investigation, the Company’s expenditures for professional fees will continue to decline in future fiscal periods when compared to the prior comparable periods.  However, management is presently unable to predict the outcome of the SEC investigation and related cost to be incurred by the Company.  In addition, although the internal investigation is completed, if any new or additional evidence becomes available, the Audit Committee will consider such additional evidence to determine whether any further investigation or action is warranted.
 
 
18

 

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

Overview (continued):

The tables below provide a summary of sales by operating segment for active electronic components and passive components for the Company for the three and nine months ended November 30, 2009 and 2008:

Analysis of Sales by Segment
   
Quarters Ended November 30,
   
Percentage
Change
 
   
2009
   
% of Total
   
2008
   
% of Total
   
2009 to 2008
 
Sales by Segment:
                             
Active electronic components
  $ 166,315,000       92.7 %   $ 174,703,000       92.8 %     (4.8 )%
Passive components
    13,131,000       7.3 %     13,516,000       7.2 %     (2.8 )%
    $ 179,446,000       100 %   $ 188,219,000       100 %     (4.7 )%

Analysis of Sales by Segment
   
Nine Months Ended November 30,
   
Percentage
Change
 
   
2009
   
% of Total
   
2008
   
% of Total
   
2009 to 2008
 
Sales by Segment:
                             
Active electronic components
  $ 451,659,000       93.4 %   $ 556,447,000       92.7 %     (18.8 )%
Passive components
    32,146,000       6.6 %     43,737,000       7.3 %     (26.5 )%
    $ 483,805,000       100 %   $ 600,184,000       100 %     (19.4 )%
 
19

 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The tables below provide a summary of sales by geographic area for the Company for the three and nine months ended November 30, 2009 and 2008:

Analysis of Sales by Geography
   
Quarters Ended November 30,
   
Percentage
Change
 
   
2009
   
% of Total
   
2008
   
% of Total
   
2009 to 2008
 
Sales by Geography:
                             
North America
  $ 102,521,000       57.1 %   $ 118,813,000       63.1 %     (13.7 )%
Asia
    59,377,000       33.1 %     53,976,000       28.7 %     10.0 %
Europe
    17,548,000       9.8 %     15,430,000       8.2 %     13.7 %
    $ 179,446,000       100 %   $ 188,219,000       100 %     (4.7 )%
 
Analysis of Sales by Geography
   
Nine Months Ended November 30,
   
Percentage
Change
 
   
2009
   
% of Total
   
2008
   
% of Total
   
2009 to 2008
 
Sales by Geography:
                             
North America
  $ 279,794,000       57.8 %   $ 388,097,000       64.7 %     (27.9 )%
Asia
    151,778,000       31.4 %     163,308,000       27.2 %     (7.1 )%
Europe
    52,233,000       10.8 %     48,779,000       8.1 %     7.1 %
    $ 483,805,000       100 %   $ 600,184,000       100 %     (19.4 )%

The following table sets forth, for the three- and nine-month periods ended November 30, 2009 and 2008, certain items in the Company’s consolidated statements of operations expressed as a percentage of net sales.

   
Three Months Ended November 30
   
Nine Months Ended November 30
 
   
2009
   
2008
   
2009
   
2008
 
Net sales
    100.0 %     100.0 %     100.0 %     100.0 %
Cost of sales
    86.0       84.9       85.8       85.0  
Gross profit
    14.0       15.1       14.2       15.0  
Selling, general and administrative expenses
    12.7       15.2       13.9       14.3  
Interest expense
    0.3       0.4       0.2       0.4  
Income (loss) before taxes
    1.1       (0.5 )     -       0.3  
Income tax provision (benefit)
    0.7       (0.6 )     -       -  
Consolidated net income
    0.4       0.1       0.1       0.3  
Noncontrolling interest
    -       -       -       0.1  
Net income attributed to shareholders
    0.4       0.1       0.1       0.2  
 
 
20

 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Results of Operations:

Three Months Ended November 30, 2009 compared to Three Months Ended November 30, 2008

Consolidated net sales for the three months ended November 30, 2009 were $179,446,000 as compared to $188,219,000 for the comparable period of the prior year, a decrease of $8,773,000 or 4.7%.

Sales of active electronic components for the three months ended November 30, 2009 were $166,315,000 as compared to $174,703,000 for the comparable period of the prior year, a decrease of approximately $8,388,000 or 4.8%.  Passive components sales for the three months ended November 30, 2009 were $13,131,000 compared to $13,516,000 for the three months ended November 30, 2008, a decrease of $385,000 or 2.8%.  The sales decrease in both segments is primarily due to the global economic recession.

Consolidated gross margin was 14.0% for the three months ended November 30, 2009 as compared to 15.1% for the comparable period of the prior year.  The decline in gross margin for the three months ended November 30, 2009 is primarily attributed to a change in product mix to include a higher amount of low margin business in Asia/Pacific and North America.  For the three-month period ended November 30, 2009 Asia/Pacific sales were 33.1% of total sales as compared to 28.7% of total sales in the comparable period due to both an increase in sales in Asia/Pacific and a decrease in North America sales.

Selling, general and administrative expenses decreased $5,832,000 or 20.4% over the prior period primarily due to (i) a decrease of $3,090,000 in selling and administrative expenses due to a reduction in workforce during the third and fourth quarters of fiscal 2009, a salary reduction program implemented in the fourth quarter of fiscal 2009 and lower commission expense as a result of lower sales; (ii) a $2,060,000 decrease in other selling and general administrative expenses primarily due to decreases in freight out, repair, maintenance and supplies, non-Vitesse professional fees, bank charges, foreign exchange expense and travel and entertainment; (iii) a $639,000 decrease in professional fees related to the Vitesse Matter; and (iv) a $295,000 decrease in severance.  These deceases were partially offset by an increase of $252,000 of salary expenses primarily associated with our new business with Alcatel-Lucent.

Interest expense decreased 39.2% to $454,000 for the three months ended November 30, 2009 from $747,000 from the prior period primarily due to lower average borrowings primarily due to lower sales compared to the prior year period.
 
In fiscal 2009 and the first and second quarters of fiscal 2010, the Company estimated its quarterly income taxes by applying an estimated annual effective tax rate to interim period pre-tax income to calculate the income tax provision or benefit for each quarter. During the three months ended November 30, 2009, the Company used an alternative method to calculate the effective tax rate since it is unable to make a reliable estimate of pre-tax income for the remainder of the fiscal year. Under this alternative method, interim period federal income taxes are based on each discrete quarter's pre-tax income.  Due to the recent volatility and uncertainty in the current economic market, the Company applied the alternative method to compute the income tax expense beginning in the third quarter of 2009. The change in method resulted in a decrease of approximately $255,000 to income tax expense for the three months ended November 30, 2009.
 
Income tax provision as a percentage of income (loss) before provision for income tax and non-controlling interest (“effective tax rate”) was a provision of 61.7% for the three months ended November 30, 2009. Our effective tax rate was a benefit of 127.6% for the three months ended November 30, 2008.  The effective tax rate differs significantly from the statutory rate of 35% for the three months ended November 30, 2009, primarily due to reversal of estimated tax benefits taken in prior quarters, an increase in the valuation allowance for certain foreign net operating losses, partially offset by tax benefits generated as a result of a U.S. net operating loss, foreign income earned at tax rates lower than the U.S. tax rate, lower state taxes, foreign tax credit and tax benefits derived from research and development activities.
 
The comparison of the effective tax provision rate between periods is significantly influenced by the level and mix of earnings and losses by taxing jurisdictions.   Each quarter a cumulative adjustment is recorded for any fluctuation in the estimated effective tax rate as compared to the prior quarter.  Furthermore, the effective tax rate may fluctuate as a result of positive or negative changes to the valuation allowance for net deferred tax assets.  As a result of these factors, and due to potential changes in the Company’s period to period results, fluctuation in the Company’s effective tax provision (benefit) may occur.
 
Net income for the three months ended November 30, 2009 was $650,000 or $.04 per basic and diluted share as compared to net income of $150,000 or $0.01 per basic and per diluted share for the three months ended November 30, 2008.

 
21

 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Nine Months Ended November 30, 2009 compared to Nine Months Ended November 30, 2008

Consolidated net sales for the nine months ended November 30, 2009 were $483,805,000 as compared to $600,184,000 for the comparable period of the prior year, a decrease of $116,379,000 or 19.4%.

Sales of active electronic components for the nine months ended November 30, 2009 were $451,659,000 as compared to $556,447,000 for the comparable period of the prior year, a decrease of approximately $104,788,000 or 18.8%.  Passive components sales for the nine months ended November 30, 2009 were $32,146,000 compared to $43,737,000 for the nine months ended November 30, 2008, a decrease of $11,591,000 or 26.5%. The sales decrease in both segments is primarily due the global economic recession and a one-time sale in the nine-month period ended November 30, 2008, to a large customer on a product that was being discontinued.

Consolidated gross margin was 14.2% for the nine months ended November 30, 2009 as compared to 15.0% for the comparable period of the prior year.  The decline in gross margin for the nine months ended November 30, 2009 is primarily attributed to a change in product mix to include a higher amount of low margin business in Asia/Pacific and North America.  For the nine-month period ended November 30, 2009, Asia/Pacific sales were 31.4% of total sales as compared to 27.2% of total sales in the comparable period.

Selling, general and administrative expenses decreased $18,711,000 or 21.7% over the prior period primarily due to (i) a decrease of  $13,637,000 in selling and administrative expenses due to a reduction in workforce during the third and fourth quarters of fiscal 2009, a salary reduction program implemented in the fourth quarter of fiscal 2009, lower commission expense as a result of lower sales and a mandatory two-week furlough program invoked during each of the first and second quarters of 2010; (ii) a $2,288,000 decrease in professional fees related to the Vitesse Matter; (iii) a $1,458,000 decrease in travel and entertainment expense primarily attributed to the decrease in sales force as compared to the prior period; (iv) a decrease of $1,283,000 in freight out expense primarily attributed to a decrease in sales; (v) a decrease of $654,000 in other selling and general administrative expenses consisting primarily of repair, maintenance and supplies and other non-Vitesse professional fees; and (vi) a $590,000 decrease in severance.  These decreases were partially offset by an increase of $1,199,000 for operating expenses attributed to our acquisition of C-88 in the third quarter of fiscal 2009 and an increase of $252,000 of salary expenses primarily associated with our new business with Alcatel-Lucent.

Interest expense decreased 55.3% to $1,146,000 for the nine months ended November 30, 2009 from $2,563,000 from the prior period primarily due to lower average borrowings primarily due to lower sales compared to the prior year period.

In fiscal 2009 and the first and second quarters of fiscal 2010, the Company estimated its quarterly income taxes by applying an estimated annual effective tax rate to interim period pre-tax income to calculate the income tax provision or benefit for each quarter. During the nine months ended November 30, 2009, the Company used an alternative method to calculate the effective tax rate since it is unable to make a reliable estimate of pre-tax income for the remainder of the fiscal year. Under this alternative method, interim period federal income taxes are based on each discrete quarter's pre-tax income.  Due to the recent volatility and uncertainty in the current economic market, the Company applied the alternative method to compute the income tax expense beginning in the third quarter of 2009. The change in method resulted in a decrease of approximately $255,000 to income tax expense for the nine months ended November 30, 2009.
 
Income tax provision (benefit) as a percentage of income (loss) before provision for income tax and non-controlling interest (“effective tax rate”) was a benefit of 126.3% for the nine months ended November 30, 2009.  Our effective tax rate was a benefit of 9.1% for the nine months ended November 30, 2008.  The effective tax rate differs significantly from the statutory rate of 35% for the nine months ended November 30, 2009, primarily due to tax benefits generated as a result of a U.S. net operating loss, foreign income earned at tax rates lower than the U.S. tax rate, lower state taxes, foreign tax credit and tax benefits derived from research and development activities, partially offset by reversal of estimated tax benefits taken in prior quarters and an increase in the valuation allowance for certain foreign net operating losses.
 
The comparison of the effective tax provision (benefit) rate between periods is significantly influenced by the level and mix of earnings and losses by taxing jurisdictions.   Each quarter a cumulative adjustment is recorded for any fluctuation in the estimated effective tax rate as compared to the prior quarter.  Furthermore, the effective tax rate may fluctuate as a result of positive or negative changes to the valuation allowance for net deferred tax assets.  As a result of these factors, and due to potential changes in the Company’s period to period results, fluctuation in the Company’s effective tax provision (benefit) may occur.
 
Net income for the nine months ended November 30, 2009 was $249,000 or $.01 per basic and diluted share as compared to net income of $1,497,000 or $0.08 per basic and per diluted share for the nine months ended November 30, 2008.
 
 
22

 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Liquidity and Capital Resources:

The Company's current ratio (current assets divided by current liabilities) was 3.1:1 at November 30, 2009. Working capital was $167,390,000 at November 30, 2009 as compared to $147,141,000 at February 28, 2009. As of November 30, 2009 the Company had approximately $11,502,000 of cash and total bank debt of $35,105,000.

On January 31, 2007, the Company entered into an amended and restated secured revolving line of credit agreement with eight banks, which currently provides for maximum borrowings of $120,000,000 (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.  At November 30, 2009, borrowings under the Revolving Credit Line incurred interest at either (i) the lead bank’s prime rate plus 1.75% or (ii) LIBOR plus 3.5%, at the option of the Company, through September 30, 2011, the due date of the loan.  The interest rate at November 30, 2009 was 5.00%.  Direct borrowings under the Revolving Credit Line were $30,100,000 and $14,950,000 at November 30, 2009 and February 28, 2009, respectively.  As of November 30, 2009, the Company was in compliance with all of the required bank covenants.

On November 20, 2006, the Company entered into 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 (the "Singapore Credit Line").  On November 20, 2009, the Singapore Credit Line expired and the Company repaid all of its direct borrowings outstanding under the Singapore Credit Line aggregating $5,000,000.

The Company also has a receivable financing agreement with a bank in England (the "U.K. Credit Line") which provides for maximum borrowings of £4,000,000 (approximately $6,654,000) at November 30, 2009, which bear interest at the bank's base rate plus 1.55%.  The interest rate at November 30, 2009 was 2.28%.  The Company owed $3,788,000 and $1,944,000 at November 30, 2009 and February 28, 2009, respectively.  The U.K. Credit Line renews annually in July.

The Company has a credit agreement with a bank in Denmark (the “Danish Credit Line") which provides for maximum borrowings of 10,072,000 Danish Kroner (approximately $2,033,000) as of November 30, 2009, at the current prevailing interest rate (6.14% at November 30, 2009).  Borrowings under the Danish Credit Line were 6,030,000 Danish Kroner ($1,217,000) and 8,953,000 Danish Kroner ($1,506,000) at November 30, 2009 and February 28, 2009, respectively.  The Danish Credit Line has no expiration date and is reviewed quarterly by the bank in Denmark.

At November 30, 2009, the Company had approximately $39,850,000 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 its currently-outstanding bank agreements will be sufficient to finance its operations for at least the next twelve-month period.

Off-Balance Sheet Arrangements:

As of November 30, 2009, the Company had no off-balance sheet arrangements.

Critical Accounting Policies and Estimates:

There have been no changes in our critical accounting policies from those disclosed in Item 8 of our Annual Report on Form 10-K for the year ended February 28, 2009.
 
 
23

 
 
 
Interest Rate 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 fluctuating interest rates.  The interest rate under its Revolving Credit Line is tied to the prime or LIBOR rate and the interest rate under its UK Credit Line is tied to the Bank of England's base rate; each of these interest rates 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 $53,000 for the three months ended November 30, 2009 and $179,000 for the nine months ended November 30, 2009.  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 not entered into any instruments, such as interest rate swaps, in an effort to manage its interest rate risk.

Foreign Currency Exchange Rate Risk:

The Company has several foreign subsidiaries in Asia, the United Kingdom, Germany, Denmark and Canada.  The Company does business in more than one dozen countries and currently generates approximately 43% of its revenues 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 were $93,992,000 and $93,707,000 at November 30, 2009 and February 28, 2009, respectively, translated into U.S. dollars at the closing exchange rates on such dates. The Company also acquires certain inventory from foreign suppliers at prices denominated in foreign currencies and, as such, faces risk due to adverse movements in foreign currency exchange rates.  These risks are not expected to have a material impact on the Company’s results in future periods as the Company purchases most of its inventory in U.S. dollars. The potential gain or loss based on end-of-period balances and prevailing exchange rates resulting from a hypothetical 10% change (either stronger or weaker) in the value of the dollar against foreign currencies was not material in the nine-month period ended November 30, 2009 or 2008.  The Company does not currently employ any currency derivative instruments, futures contracts or other currency hedging techniques to mitigate its risks in this regard.

Industry Risk:

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.
 
 
24

 
 
Item 4.  Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of management, including our Executive Chairman and Interim Chief Executive Officer ("CEO") and our Executive Vice President-Finance and Chief Financial Officer ("CFO"), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this quarterly report.  Based on this evaluation, our CEO and CFO concluded that as of November 30, 2009 our disclosure controls and procedures were effective in ensuring that the information required to be disclosed in the reports the Company files or submits under the Exchange Act has been recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms and that information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of an internal control system are met.  Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
 
 
25

 
 
PART II - OTHER INFORMATION
 
Item 1.
Legal Proceedings.
 
None.
   
Item 1A.
Risk Factors.
 
Refer to the Company’s Annual Report on Form 10-K for the year ended February 28, 2009.
   
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.

 
26

 
 
PART II - OTHER INFORMATION
 
Item 6.   Exhibits.

3.1
 
Certificate of Incorporation, as amended (Incorporated by Reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2000).
     
3.2
 
Amended and Restated By-Laws, (Incorporated by Reference to Exhibit 3.2 to Form 8-K dated May 11, 2009).
     
4.1
 
Specimen Common Stock Certificate (Incorporated by Reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1, Registration No. 2-89176).
     
*10.1
 
Compensation of Chief Financial Officer.
     
*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.

* Included herewith.
 
 
27

 
 
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 7, 2010
/s/ Arthur Nadata
 
Arthur Nadata
 
Executive Chairman
 
and Interim Chief Executive Officer
   
Date: January 7, 2010
/s/ Kurt Freudenberg
 
Kurt Freudenberg
 
Executive Vice President
 
and Chief Financial Officer
 
 
28

 
 
EXHIBIT INDEX
 
Exhibits:

3.1
 
Certificate of Incorporation, as amended (Incorporated by Reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2000).
     
3.2
 
Amended and Restated By-Laws, (Incorporated by Reference to Form 8-K dated May 11, 2009).
     
4.1
 
Specimen Common Stock Certificate (Incorporated by Reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1, Registration No. 2-89176).
     
*10.1
 
Compensation of Chief Financial Officer
     
*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.

* Included herewith.
 
 
29

 
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