FORM
10-Q
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended August 31, 2010
|
¨
|
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 :
|
Common Stock – Par Value
$.0066
|
|
18,525,911
|
|
Class
|
|
Outstanding
Shares
|
NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
INDEX
|
|
|
Page(s)
|
|
PART
I.
|
FINANCIAL
INFORMATION
|
|
|
|
|
|
|
Item
1.
|
Financial
Statements.
|
|
|
|
|
|
|
|
Consolidated
Condensed Statements of Operations (unaudited) -
|
|
|
|
Three
and Six Months Ended August 31, 2010 and 2009
|
3.
|
|
|
|
|
|
|
Consolidated
Condensed Balance Sheets -
|
|
|
|
August
31, 2010 (unaudited) and February 28, 2010
|
4.
|
|
|
|
|
|
|
Consolidated
Condensed Statements of Cash Flows (unaudited) -
|
|
|
|
Six
Months Ended August 31, 2010 and 2009
|
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.-20.
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
20.
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures.
|
21.
|
|
|
|
|
|
PART
II.
|
OTHER
INFORMATION
|
22.
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings.
|
22.
|
|
|
|
|
|
Item
1A.
|
Risk
Factors.
|
22.-23
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
23.
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities.
|
23.
|
|
|
|
|
|
Item
4.
|
Removed
and Reserved.
|
23.
|
|
|
|
|
|
Item
5.
|
Other
Information.
|
23.
|
|
|
|
|
|
Item
6.
|
Exhibits.
|
24.
|
|
|
|
|
|
SIGNATURES
|
25.
|
|
|
|
|
EXHIBIT
INDEX
|
26.
|
|
|
|
|
CERTIFICATIONS
|
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements.
NU
HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
SALES
|
|
$
|
164,130,000
|
|
|
$
|
156,600,000
|
|
|
$
|
374,892,000
|
|
|
$
|
304,360,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
138,189,000
|
|
|
|
134,125,000
|
|
|
|
318,859,000
|
|
|
|
260,846,000
|
|
|
Selling,
general and administrative expenses
|
|
|
23,239,000
|
|
|
|
22,852,000
|
|
|
|
48,156,000
|
|
|
|
44,545,000
|
|
|
|
|
|
161,428,000
|
|
|
|
156,977,000
|
|
|
|
367,015,000
|
|
|
|
305,391,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME (LOSS)
|
|
|
2,702,000
|
|
|
|
(377,000
|
)
|
|
|
7,877,000
|
|
|
|
(1,031,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSE (INCOME)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
853,000
|
|
|
|
270,000
|
|
|
|
1,513,000
|
|
|
|
693,000
|
|
|
Interest
income
|
|
|
(71,000
|
)
|
|
|
(7,000
|
)
|
|
|
(83,000
|
)
|
|
|
(10,000
|
)
|
|
|
|
|
782,000
|
|
|
|
263,000
|
|
|
|
1,430,000
|
|
|
|
683,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
(LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES AND
NONCONTROLLING INTEREST
|
|
|
1,920,000
|
|
|
|
(640,000
|
)
|
|
|
6,447,000
|
|
|
|
(1,714,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
|
611,000
|
|
|
|
(1,253,000
|
)
|
|
|
1,597,000
|
|
|
|
(1,414,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET INCOME (LOSS)
|
|
|
1,309,000
|
|
|
|
613,000
|
|
|
|
4,850,000
|
|
|
|
(300,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to noncontrolling interest
|
|
|
153,000
|
|
|
|
70,000
|
|
|
|
320,000
|
|
|
|
101,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) ATTRIBUTED TO NU HORIZONS ELECTRONICS CORP.
|
|
$
|
1,156,000
|
|
|
$
|
543,000
|
|
|
$
|
4,530,000
|
|
|
$
|
(401,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO NU HORIZONS ELECTRONICS
CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.06
|
|
|
$
|
.03
|
|
|
$
|
.25
|
|
|
$
|
(.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
.06
|
|
|
$
|
.03
|
|
|
$
|
.25
|
|
|
$
|
(.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,147,113
|
|
|
|
18,103,244
|
|
|
|
18,139,793
|
|
|
|
18,095,668
|
|
|
Diluted
|
|
|
18,299,469
|
|
|
|
18,156,640
|
|
|
|
18,283,177
|
|
|
|
18,095,668
|
|
See
accompanying notes
NU
HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
-
ASSETS -
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
20,508,000
|
|
|
$
|
6,632,000
|
|
|
Accounts
receivable – net of allowance for doubtful accounts
of $3,133,000 and $3,659,000 as of August 31, 2010 and February
28, 2010, respectively
|
|
|
112,774,000
|
|
|
|
131,883,000
|
|
|
Inventories
|
|
|
105,880,000
|
|
|
|
117,377,000
|
|
|
Deferred
tax asset
|
|
|
375,000
|
|
|
|
434,000
|
|
|
Prepaid
expenses and other current assets
|
|
|
3,986,000
|
|
|
|
7,095,000
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
243,523,000
|
|
|
|
263,421,000
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT – NET
|
|
|
4,510,000
|
|
|
|
4,924,000
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
2,308,000
|
|
|
|
2,308,000
|
|
|
Intangibles
– net
|
|
|
3,235,000
|
|
|
|
3,404,000
|
|
|
Other
assets
|
|
|
2,126,000
|
|
|
|
2,087,000
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
255,702,000
|
|
|
$
|
276,144,000
|
|
|
|
|
|
|
|
|
|
|
|
|
-
LIABILITIES AND EQUITY -
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
57,494,000
|
|
|
$
|
78,791,000
|
|
|
Accrued
expenses
|
|
|
9,102,000
|
|
|
|
7,696,000
|
|
|
Bank
debt
|
|
|
135,000
|
|
|
|
4,192,000
|
|
|
Income
taxes payable
|
|
|
2,328,000
|
|
|
|
1,746,000
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
69,059,000
|
|
|
|
92,425,000
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG
TERM LIABILITIES
|
|
|
|
|
|
|
|
|
|
Bank
debt
|
|
|
32,218,000
|
|
|
|
35,000,000
|
|
|
Other
long term liabilities
|
|
|
3,514,000
|
|
|
|
3,355,000
|
|
|
TOTAL
LONG TERM LIABILITIES
|
|
|
35,732,000
|
|
|
|
38,355,000
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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; 18,512,982 and
18,549,305 shares issued and outstanding as of August 31, 2010 and
February 28, 2010, respectively
|
|
|
122,000
|
|
|
|
122,000
|
|
|
Additional
paid-in capital
|
|
|
58,085,000
|
|
|
|
57,227,000
|
|
|
Retained
earnings
|
|
|
89,619,000
|
|
|
|
85,089,000
|
|
|
Other
accumulated comprehensive income
|
|
|
80,000
|
|
|
|
240,000
|
|
|
Total
Nu Horizons stockholders' equity
|
|
|
147,906,000
|
|
|
|
142,678,000
|
|
|
Noncontrolling
interest
|
|
|
3,005,000
|
|
|
|
2,686,000
|
|
|
TOTAL
EQUITY
|
|
|
150,911,000
|
|
|
|
145,364,000
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND EQUITY
|
|
$
|
255,702,000
|
|
|
$
|
276,144,000
|
|
See
accompanying notes
NU
HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
August 31,
2010
|
|
|
August 31,
2009
|
|
|
INCREASE
IN CASH AND CASH EQUIVALENTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Cash
received from customers
|
|
$
|
394,191,000
|
|
|
$
|
310,056,000
|
|
|
Cash
paid to suppliers and employees
|
|
|
(370,798,000
|
)
|
|
|
(290,482,000
|
)
|
|
Interest
received
|
|
|
83,000
|
|
|
|
10,000
|
|
|
Interest
paid
|
|
|
(1,441,000
|
)
|
|
|
(712,000
|
)
|
|
Income
taxes paid
|
|
|
(1,028,000
|
)
|
|
|
(543,000
|
)
|
|
Net
cash provided by operating activities
|
|
|
21,007,000
|
|
|
|
18,329,000
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(198,000
|
)
|
|
|
(811,000
|
)
|
|
Net
cash used in investing activities
|
|
|
(198,000
|
)
|
|
|
(811,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Borrowings
under revolving credit lines and bank credit lines
|
|
|
166,140,000
|
|
|
|
95,998,000
|
|
|
Repayments
under revolving credit lines and bank credit lines
|
|
|
(172,978,000
|
)
|
|
|
(99,241,000
|
)
|
|
Net
cash used by financing activities
|
|
|
(6,838,000
|
)
|
|
|
(3,243,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT
OF EXCHANGE RATE CHANGE
|
|
|
(95,000
|
)
|
|
|
(22,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
13,876,000
|
|
|
|
14,253,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
6,632,000
|
|
|
|
4,793,000
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
20,508,000
|
|
|
$
|
19,046,000
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NET INCOME
(LOSS) TO NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
NET INCOME (LOSS)
|
|
|
4,850,000
|
|
|
$
|
(300,000
|
)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
778,000
|
|
|
|
1,029,000
|
|
|
Bad
debt reserve
|
|
|
(379,000
|
)
|
|
|
(75,000
|
)
|
|
Deferred
income tax
|
|
|
59,000
|
|
|
|
(1,852,000
|
)
|
|
Stock
based compensation
|
|
|
858,000
|
|
|
|
551,000
|
|
|
Other
long term liabilities
|
|
|
159,000
|
|
|
|
349,000
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
19,299,000
|
|
|
|
5,696,000
|
|
|
Inventories
|
|
|
11,497,000
|
|
|
|
21,960,000
|
|
|
Prepaid
expenses and other current assets
|
|
|
3,121,000
|
|
|
|
(757,000
|
)
|
|
Other
assets
|
|
|
(118,000
|
)
|
|
|
947,000
|
|
|
Accounts
payable and accrued expenses
|
|
|
(18,089,000
|
)
|
|
|
(8,676,000
|
)
|
|
Income
taxes
|
|
|
(1,028,000
|
)
|
|
|
(543,000
|
)
|
|
NET
CASH PROVIDED BY OPERATING ACTIVITIES
|
|
$
|
21,007,000
|
|
|
$
|
18,329,000
|
|
See
accompanying notes
NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
|
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") and 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 Pty Ltd ("NUZ"), Razor Electronics Asia Private Limited
("RAA"), Nu Horizons Electronics NZ Limited ("NUN"), Nu Horizons
Electronics GmbH ("NUD"), Nu Horizons Electronics (Shanghai) Co. Ltd.
("NUS"), Nu Horizons Electronics Europe Limited ("NUE"), Nu Horizons
Electronics AS ("NOD", formerly known as C-88 ("C-88")), 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 Hong Kong Ltd. ("NUO"), NUH Electronics India Private Limited
("NUY"), Nu Horizons Electronics Mexico, S.A. de C.V. ("NUM"), Nu Horizons
Electronics Services Mexico, S.A. de C.V. ("NSM") and Nu Horizons
Electronics Limited ("NUL") and its majority-owned subsidiaries, NIC
Components Europe Limited ("NIE"), and NIC Components Asia PTE LTD.
("NIA") contain all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the Company’s financial position
as of August 31, 2010 and February 28, 2010 and the results of its
operations and cash flows for the six-month periods ended August 31, 2010,
and 2009.
|
All
references in this report to "the Company," "Nu Horizons," "we," "our" and "us"
are 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, 2010. 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 six-month period ended August 31, 2010 are not
necessarily indicative of the results to be expected for the full
year.
Prior to
the third quarter of fiscal 2010, the Company’s quarterly tax provision for
(benefit from) income taxes was measured using an estimated annual effective tax
rate for the period, adjusted for discrete items that occurred within the
periods presented. For the third and fourth quarters of fiscal 2010,
the Company used an alternative method to calculate the effective tax rate since
it was 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 quarter's discrete pre-tax income. Due to the
uncertainty in the current economic market, the Company continued to apply the
alternative method to compute income tax expense in the first half of fiscal
2011.
On
September 20, 2010, the Company announced the signing of a definitive agreement
providing for the acquisition of Nu Horizons Electronics Corp. by Arrow
Electronics, Inc. in an all-cash transaction (the
“
Merger
”
) in which the
Company's stockholders will receive $7.00 for each share of the Company's common
stock. The transaction is subject to the approval of the Company's
stockholders, as well as customary conditions and regulatory
approval. The Company expects this transaction to close in the fourth
quarter of calendar year 2010.
Use of
Estimates
The
preparation of financial statements in conformity with GAAP requires our
management to make estimates and assumptions, which may affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
|
|
B.
|
Termination
of Xilinx Distribution Agreement:
|
On March
1, 2010, the Company announced that Xilinx had formally notified the Company of
its intention to terminate its distribution agreement with the
Company. The termination was effective on June 5,
2010. Pursuant to the terms of the distribution agreement, the
Company returned all unsold Xilinx inventory to Xilinx, at Xilinx’s expense, for
a full refund of the original purchase price. Xilinx product sales were
approximately 32% of the Company's total sales for fiscal 2010 and 17% of total
sales for the six months ended August 31, 2010.
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 North America, Asia
and Europe.
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.
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.
|
PROPERTY,
PLANT AND EQUIPMENT:
|
Property,
plant and equipment, which are recorded at cost, consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture,
fixtures and equipment
|
|
$
|
10,787,000
|
|
|
$
|
11,092,000
|
|
|
Computer
equipment
|
|
|
9,824,000
|
|
|
|
9,744,000
|
|
|
Leasehold
improvements
|
|
|
1,605,000
|
|
|
|
1,517,000
|
|
|
|
|
|
22,216,000
|
|
|
|
22,353,000
|
|
|
Less: Accumulated
depreciation and amortization
|
|
|
(17,706,000
|
)
|
|
|
(17,429,000
|
)
|
|
|
|
$
|
4,510,000
|
|
|
$
|
4,924,000
|
|
Depreciation
expense for the three months ended August 31, 2010 and 2009 was $311,000 and
$397,000, respectively.
Depreciation
expense for the six months ended August 31, 2010 and 2009 was $615,000 and
$860,000, respectively.
Bank
Debt: Bank Credit Lines
On June
28, 2010, the Company executed a new asset-based loan facility (the "ABL") with
three lenders. The credit facility established under the ABL provides for
maximum borrowings of $80 million with an option to increase the facility to a
maximum borrowing of $110 million under certain circumstances. Up to $60 million
of the ABL is to be used to finance the Company’s United States (“U.S.”)
operations, with the $20 million balance to be used to finance the Company’s
United Kingdom (“U.K.”) and Asian operations. Based on the
asset-based formula the Company may only borrow the consolidated excess
available net of non qualifying inventories’ and receivables. The Company
utilized the ABL to pay off and terminate its pre-existing U.S. Revolving Credit
Line, consisting of a $120 million secured revolving line of credit, and U.K.
Credit Line, consisting of a £4 million receivable financing
agreement.
NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
The ABL
provides for borrowings at variable interest rates utilizing an asset-based
formula predicated on a percent of qualifying accounts receivable and inventory
at any given month end and taking into account the excess credit availability
under the ABL. The Company may also borrow under the ABL by utilizing
London Interbank Notes (“Libor Notes”). At August 31, 2010 the Company had
outstanding approximately $10.0 million in Libor Notes. The Company is required
to pay interest on any Base Rate loan outstanding monthly in arrears and is
required to pay interest on each Eurodollar loan outstanding in arrears at the
end of each applicable interest period. For the purposes of the ABL,
“Base Rate” shall mean the highest of (i) the rate from time to time
publicly announced by the lead lender, or its successors, as its “prime rate”,
subject to each increase or decrease in such prime rate, effective as of the day
any such change occurs, whether or not such announced rate is the best rate
available at such bank, (ii) the Federal Funds Rate from time to time plus
one-half (.50%) percent, or (iii) the three (3) month London Interbank Offered
Rate plus one (1.00%) percent. The margin applied to borrowings under
the ABL is as follows:
|
Quarterly Average
Consolidated Excess Availability under the ABL
|
|
Applicable Eurodollar
Rate Margin
|
|
|
Applicable Base
Rate Margin
|
|
|
Less
than $20,000,000
|
|
|
3.50
|
%
|
|
|
1.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Less
than $30,000,000 and greater than or equal to $20,000,000
|
|
|
3.25
|
%
|
|
|
1.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Greater
than or equal to $30,000,000
|
|
|
3.00
|
%
|
|
|
1.25
|
%
|
The
blended interest rate at August 31, 2010 was 4.12%. Direct borrowings under the
ABL were $32,218,000 at August 31, 2010.
The
Company has a bank credit agreement with a bank in Denmark (the "Danish Credit
Line") which provides for maximum borrowings of 10,072,000 Danish Kroner
(approximately $1,725,000) as of August 31, 2010, at the current prevailing
interest rate 5.84%. Borrowings under the Danish Credit Line were
795,000 ($136,000) and 6,146,000 Danish Kroner ($1,121,000) at August 31, 2010
and February 28, 2010, respectively. The Danish Credit Line has no
expiration date and is reviewed quarterly by the bank in Denmark.
At August 31, 2010, the Company had
excess availability aggregating approximately $40,112,000 under all of its bank
credit facilities
.
We
incurred interest expense on our borrowings under our credit facilities of
$412,000 and $778,000 during the three and six months ended August 31,
2010, respectively, and $221,000 and $514,000 during the three and six months
ended August 31, 2009, respectively. We also recorded amortization of
our deferred debt issuance costs of $333,000 and $374,000, reported within
interest expense, during the three and six months ended August 31, 2010,
respectively, inclusive of a $268,000 write-off associated with the ABL
refinancing.
4.
ACCRUED EXPENSES:
Accrued
expenses consist of the following:
|
|
|
August 31, 2010
|
|
|
February 28, 2010
|
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
$
|
1,919,000
|
|
|
$
|
2,089,000
|
|
|
Goods
and services tax
|
|
|
1,352,000
|
|
|
|
752,000
|
|
|
Compensation
and related benefits
|
|
|
1,669,000
|
|
|
|
969,000
|
|
|
Sales
returns
|
|
|
831,000
|
|
|
|
739,000
|
|
|
Professional
fees
|
|
|
853,000
|
|
|
|
332,000
|
|
|
Deferred
rent
|
|
|
518,000
|
|
|
|
464,000
|
|
|
Other
|
|
|
1,960,000
|
|
|
|
2,351,000
|
|
|
Total
|
|
$
|
9,102,000
|
|
|
$
|
7,696,000
|
|
NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
|
5.
|
NET
INCOME (LOSS) PER SHARE:
|
Basic
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average shares outstanding during the period. Diluted
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares used in the basic earnings (loss) 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NUMERATOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) attributed to Nu Horizons Electronics Corp.
|
|
$
|
1,156,000
|
|
|
$
|
543,000
|
|
|
$
|
4,530,000
|
|
|
$
|
(401,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENOMINATOR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share – weighted-average number of common shares
outstanding
|
|
|
18,147,113
|
|
|
|
18,103,244
|
|
|
|
18,139,793
|
|
|
|
18,095,668
|
|
|
Effect
of dilutive stock options and restricted shares
|
|
|
152,356
|
|
|
|
53,396
|
|
|
|
143,384
|
|
|
|
-
|
|
|
Diluted
earnings per common share – adjusted weighted-average number of common
shares outstanding
|
|
|
18,299,469
|
|
|
|
18,156,640
|
|
|
|
18,283,177
|
|
|
|
18,095,668
|
|
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
.25
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
.25
|
|
|
$
|
( 0.02
|
)
|
For the
three months ended August 31, 2010 and 2009, the above calculation excludes
2,213,250 options and 240,372 restricted shares and 1,383,000 options and
313,026 restricted shares, respectively, as their effect was
antidilutive. For the six months ended August 31, 2010 and 2009, the
above calculation excludes 1,695,750 options and 261,900 restricted shares, and
1,383,000 options and 354,490 restricted shares, respectively, as their effect
was antidilutive.
NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
|
6.
|
STOCK
BASED COMPENSATION:
|
Stock
Options
Stock
options granted to date under each of the Company’s 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
four equal annual installments commencing one year from date of
grant. Stock options granted under the Company’s 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. In addition,
options to purchase 360,000 shares were granted outside of any Company stock
option plan. Such options have a term of ten years and become
exercisable in four equal annual installments commencing one year from date of
grant.
The
following information relates to the stock option activity for the six months
ended August 31, 2010:
|
Options
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding
at March 1, 2010
|
|
|
1,173,250
|
|
|
$
|
7.42
|
|
|
4.2
years
|
|
|
$
|
155,600
|
|
|
Granted
|
|
|
1,125,000
|
|
|
|
3.56
|
|
|
9.7
years
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
Forfeited
|
|
|
(10,000
|
)
|
|
|
8.16
|
|
|
|
-
|
|
|
|
|
|
|
Outstanding
at August 31, 2010
|
|
|
2,288,250
|
|
|
$
|
5.52
|
|
|
6.7
years
|
|
|
$
|
59,150
|
|
|
Exercisable
at August 31, 2010
|
|
|
1,239,636
|
|
|
$
|
7.21
|
|
|
4.1
years
|
|
|
$
|
29,575
|
|
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 second quarter of fiscal 2011 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 August
31, 2010. This amount changes based on the fair market value of the
Company’s common stock. For the six-month period ended August 31,
2010 and 2009, the Company recorded compensation expense aggregating
approximately $497,000 and $124,000, respectively relating to the issuance of
stock options.
No
options were exercised during the six months ended August 31, 2010 and
2009.
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. For the
six-month periods ended August 31, 2010 and 2009, the Company recorded
compensation expense aggregating $361,000 and $427,000, respectively, relating
to the issuance of restricted stock.
Summary of Non-Vested
Shares
The
following information summarizes the changes in non-vested restricted stock for
the six months ended August 31, 2010:
|
|
|
Shares
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
Non-vested
shares at March 1, 2010
|
|
|
432,216
|
|
|
$
|
8.73
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
(55,084
|
)
|
|
$
|
8.37
|
|
|
Forfeited
|
|
|
(9,003
|
)
|
|
$
|
7.01
|
|
|
Non-vested
shares at August 31, 2010
|
|
|
368,129
|
|
|
$
|
8.83
|
|
As of
August 31, 2010, there was total unrecognized compensation cost of $4,373,000
related to non-vested shares and stock options which is expected to be
recognized over a weighted average period of 2.6 years.
NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
|
7.
|
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 North America,
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. As part of the active electronic components segment, the
Company also distributes systems from IBM Corporation, Oracle Corporation
(formerly Sun Microsystems Inc.), and Alcatel-Lucent. Passive
components distributed by NIC and its majority-owned subsidiaries, principally
to OEMs, contractors and other distributors globally, 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 is led by a group president
and includes regional presidents within the segment that manage 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 marketing within each
operating group are structured to transact business with its customers and
suppliers along specific product lines or geography. Both segments
rely on the support services provided at the corporate level.
Sales and
operating income (loss), by segment, for the three and six months ended August
31, 2010 and 2009 are as follows:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Sales:
|
|
August 31, 2010
|
|
|
August 31, 2009
|
|
|
August 31, 2010
|
|
|
August 31, 2009
|
|
|
Active
electronic components
|
|
$
|
146,542,000
|
|
|
$
|
146,146,000
|
|
|
$
|
341,131,000
|
|
|
$
|
285,345,000
|
|
|
Passive
components
|
|
|
17,588,000
|
|
|
|
10,454,000
|
|
|
|
33,761,000
|
|
|
|
19,015,000
|
|
|
|
|
$
|
164,130,000
|
|
|
$
|
156,600,000
|
|
|
$
|
374,892,000
|
|
|
$
|
304,360,000
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Operating income (loss):
|
|
August 31, 2010
|
|
|
August 31, 2009
|
|
|
August 31, 2010
|
|
|
August 31, 2009
|
|
|
Active
electronic components
|
|
$
|
2,481,000
|
|
|
$
|
334,000
|
|
|
$
|
8,050,000
|
|
|
$
|
978,000
|
|
|
Passive
components
|
|
|
1,920,000
|
|
|
|
236,000
|
|
|
|
3,173,000
|
|
|
|
(237,000
|
)
|
|
Corporate
|
|
|
(1,699,000
|
)
|
|
|
(947,000
|
)
|
|
|
(3,346,000
|
)
|
|
|
(1,772,000
|
)
|
|
|
|
$
|
2,702,000
|
|
|
$
|
(377,000
|
)
|
|
$
|
7,877,000
|
|
|
$
|
(1,031,000
|
)
|
Total
assets, by segment, as of August 31, 2010 and February 28, 2010 are as
follows:
|
|
|
August 31,
2010
|
|
|
February 28,
2010
|
|
|
Total
assets
|
|
|
|
|
|
|
|
Active
electronic components
|
|
$
|
206,290,000
|
|
|
$
|
231,408,000
|
|
|
Passive
components
|
|
|
49,412,000
|
|
|
|
44,736,000
|
|
|
|
|
$
|
255,702,000
|
|
|
$
|
276,144,000
|
|
The
Company’s business is conducted in North America, Europe and
Asia/Pacific.
NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
Revenues,
by geographic area, for the three and six months ended August 31, 2010 and 2009
are as follows:
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
Revenue:
|
|
August 31, 2010
|
|
|
August 31, 2009
|
|
|
August 31, 2010
|
|
|
August 31, 2009
|
|
|
North
America
|
|
$
|
87,086,000
|
|
|
$
|
93,596,000
|
|
|
$
|
200,997,000
|
|
|
$
|
177,273,000
|
|
|
Europe
|
|
|
16,235,000
|
|
|
|
15,803,000
|
|
|
|
37,255,000
|
|
|
|
34,686,000
|
|
|
Asia
Pacific
|
|
|
60,809,000
|
|
|
|
47,201,000
|
|
|
|
136,640,000
|
|
|
|
92,401,000
|
|
|
|
|
$
|
164,130,000
|
|
|
$
|
156,600,000
|
|
|
$
|
374,892,000
|
|
|
$
|
304,360,000
|
|
Total
assets, by geographic area, as of August 31, 2010 and February 28, 2010 are as
follows:
|
|
|
August 31,
2010
|
|
|
February 28, 2010
|
|
|
Total
assets
|
|
|
|
|
|
|
|
North
America
|
|
$
|
150,587,000
|
|
|
$
|
174,516,000
|
|
|
Europe
|
|
|
13,371,000
|
|
|
|
16,235,000
|
|
|
Asia/Pacific
|
|
|
91,744,000
|
|
|
|
85,393,000
|
|
|
|
|
$
|
255,702,000
|
|
|
$
|
276,144,000
|
|
The net
book value of long-lived assets, by geographic area, as of August 31, 2010 and
February 28, 2010 is as follows:
|
|
|
August 31,
2010
|
|
|
February 28,
2010
|
|
|
Long
–lived assets
|
|
|
|
|
|
|
|
North
America
|
|
$
|
4,012,000
|
|
|
$
|
4,378,000
|
|
|
Europe
|
|
|
199,000
|
|
|
|
269,000
|
|
|
Asia/Pacific
|
|
|
299,000
|
|
|
|
277,000
|
|
|
|
|
$
|
4,510,000
|
|
|
$
|
4,924,000
|
|
|
8.
|
COMPREHENSIVE
INCOME (LOSS):
|
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 six months
ended August 31, 2010 and 2009 is as follows:
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
August 31,
2010
|
|
|
August 31,
2009
|
|
|
August 31,
2010
|
|
|
August 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
net income (loss)
|
|
$
|
1,309,000
|
|
|
$
|
613,000
|
|
|
$
|
4,850,000
|
|
|
$
|
(300,000
|
)
|
|
Other
comprehensive (loss) income
|
|
|
55,000
|
|
|
|
(115,000
|
)
|
|
|
(160,000
|
)
|
|
|
87,000
|
|
|
Consolidated
comprehensive income (loss)
|
|
|
1,364,000
|
|
|
|
498,000
|
|
|
|
4,690,000
|
|
|
|
(213,000
|
)
|
|
Less: Comprehensive
income attributed to noncontrolling interest
|
|
|
153,000
|
|
|
|
70,000
|
|
|
|
320,000
|
|
|
|
101,000
|
|
|
Comprehensive
income (loss) attributed to Nu Horizons Electronics Corp.
|
|
$
|
1,211,000
|
|
|
$
|
428,000
|
|
|
$
|
4,370,000
|
|
|
$
|
(314,000
|
)
|
NU HORIZONS ELECTRONICS
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(CONTINUED)
On
September 20, 2010, the Company announced the signing of a definitive agreement
providing for the acquisition of Nu Horizons Electronics Corp. by Arrow
Electronics, Inc. in an all-cash transaction in which the Company's stockholders
will receive $7.00 for each share of the Company's common stock. The
transaction is subject to the approval of the Company's stockholders, as well as
customary conditions and regulatory approval. The Company
currently expects this transaction to close in the fourth quarter of fiscal
year 2011.
After the
announcement of our proposed Merger with Arrow on September 20, 2010, four class
action lawsuits were filed against the Company, its directors, Arrow
Electronics, Inc. and a wholly-owned subsidiary of Arrow. All of the
lawsuits were filed in New York State Supreme Court in Suffolk
County. Generally, the lawsuits allege breaches of fiduciary duty by
the individual defendants and aiding and abetting in such breaches by the
Company, and seek to enjoin or rescind the Merger as well as to recover
unspecified damages and costs. The Company intends to defend against
each lawsuit vigorously. In addition, four law firms have announced
that they are investigating whether our directors breached their fiduciary duty
in connection with the determination to enter into the Merger
Agreement.
On
September 14, 2010, the Company entered into a Settlement Agreement with its
former independent registered public accounting firm and certain former partners
of that firm. Pursuant to the Settlement Agreement, $1.9 million was paid to the
Company, on October 4, 2010, upon which payment both parties released one
another from claims related to the arbitration proceeding commenced by the
Company. This income will be recorded by the Company during the three
months ending November 30, 2010.
Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Shareholders of Nu
Horizons Electronics Corp.
We have reviewed the condensed consolidated balance
sheet of Nu Horizons Electronics Corp. (the "Company") as of August 31, 2010,
and the related condensed consolidated statements of operations for the
three-month and six-month periods ended August 31, 2010 and 2009 and the
condensed consolidated statements of cash flows for the six-month periods ended
August 31, 2010 and 2009. These financial statements are the
responsibility of the Company's management.
We conducted our review 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 review, we are not aware of any
material modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in conformity with US
generally accepted accounting principles.
We have previously audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of the Company as of February 28, 2010, and the
related consolidated statements of operations, equity, and cash flows for the
year then ended (not presented herein) and in our report dated May 6, 2010, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of February 28, 2010, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
Jericho,
New York
October
7, 2010
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, 2010 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 the risk that the acquisition of
the Company by Arrow Electronics, Inc. does not close, including the risk that
the requisite stockholder and regulatory approvals may not be obtained; the
level of business and consumer spending for electronic products; the competitive
environment within the electronics industry; the ability of the Company to
expand its operations; the financial strength of the Company's customers and
suppliers; the cyclical nature of the distributor industry; pricing and gross
margin pressures; loss of key customers; the ability to control of costs and
expenses; the threat or occurrence of international armed conflict and terrorist
activities both in the United States and internationally; risks and costs
associated with increased and new regulation of corporate governance and
disclosure standards (including pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002); and risks involving governmental regulation. 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
six-month periods ended August 31, 2010 and 2009, 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,
2010.
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 OEMs of electronic products.
On
September 20, 2010, the Company announced the signing of a definitive agreement
providing for the acquisition of Nu Horizons by Arrow Electronics, Inc. (NYSE:
ARW) (the
“
Merger
”
). Under
the terms of the agreement, which has been approved by both boards of directors,
Nu Horizons stockholders will receive $7.00 per share in cash for Nu Horizons
common stock. The transaction is subject to certain conditions,
including, among others, (1) approval of the principal terms of the Merger
by the Company’s stockholders, (2) the expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and obtaining antitrust approvals in certain other
jurisdictions, (3) subject to certain materiality exceptions, the accuracy
of the representations and warranties made by Arrow and the Company,
respectively, and compliance by Arrow and the Company with their respective
obligations under the Merger Agreement, (4) the absence of any Material
Adverse Effect (as defined in the Merger Agreement) and (5) the delivery of
certain required consents. The companies expect the transaction to
close in the fourth quarter of fiscal 2011.
During
the quarter ended May 31, 2010, the Company successfully completed the
termination of its Xilinx distribution agreement. All Xilinx
inventories were sold to customers or returned to Xilinx for
cash. Xilinx product sales were approximately 32% of the Company's
total sales for fiscal 2010 and 17% of total sales for the six-month period
ended August 31, 2010. In order to remain profitable without Xilinx,
the Company will have to continue to increase sales in future
quarters. During the fiscal quarter, the Company and Oracle Corporation
entered into discussions relating to the non-renewal of their
supplier/distributor relationship following the acquisition of Sun Microsystems
by Oracle Corporation. Sun Microsystems product sales contributed 4.1% of Nu
Horizons consolidated revenue in the first quarter of fiscal 2011. During the
quarter ended August 31, 2010, it was agreed that the termination will be
effective November 30, 2010.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
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 fiber optic components, transistors and diodes. As
part of the active electronic components segment, the Company has distributed
systems from IBM Corporation, Oracle Corporation (formerly Sun Microsystems
Inc.) and Alcatel-Lucent. The Company and Oracle have agreed to
terminate their supplier/distributor relationship effective November 30,
2010. Sun Microsystems product sales contributed 4% of Nu
Horizons consolidated revenue in the six-month period ended August 31, 2010. In
connection with the elimination of this business from the Company’s consolidated
results effective November 30, 2010, Nu Horizons intends to continue its
strategy of concentrating on product lines with anticipated higher growth and
higher profit margin contributions.
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 10,000 OEMs worldwide.
The
Company's business, financial condition, operating results and cash flows can be
impacted by a number of factors, including but not limited to those set forth
below, any one of which could cause our actual results to vary materially from
recent results or from our anticipated future results.
The
Company operates in North America, Europe and Asia/Pacific. In recent
years, there has been a shift in production of electronic components to Asia due
to lower cost.
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
tables below provide a summary of sales by operating segment for active
electronic components and passive components for the Company for the three and
six months ended August 31, 2010 and 2009:
Analysis
of Sales by Segment
|
|
|
Quarters Ended August 31,
|
|
|
Percentage
Change
|
|
|
|
|
2010
|
|
|
% of Total
|
|
|
2009
|
|
|
% of Total
|
|
|
2010 to 2009
|
|
|
Sales
by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
Electronic Components
|
|
$
|
146,542,000
|
|
|
|
89.3
|
%
|
|
$
|
146,146,000
|
|
|
|
93.3
|
%
|
|
|
.3
|
%
|
|
Passive
Components
|
|
|
17,588,000
|
|
|
|
10.7
|
%
|
|
|
10,454,000
|
|
|
|
6.7
|
%
|
|
|
68.2
|
%
|
|
|
|
$
|
164,130,000
|
|
|
|
100.0
|
%
|
|
$
|
156,600,000
|
|
|
|
100.0
|
%
|
|
|
4.8
|
%
|
Analysis
of Sales by Segment
|
|
|
Six Months Ended August 31,
|
|
|
Percentage
Change
|
|
|
|
|
2010
|
|
|
% of Total
|
|
|
2009
|
|
|
% of Total
|
|
|
2010 to 2009
|
|
|
Sales
by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
Electronic Components
|
|
$
|
341,131,000
|
|
|
|
91.0
|
%
|
|
$
|
285,345,000
|
|
|
|
93.8
|
%
|
|
|
19.6
|
%
|
|
Passive
Components
|
|
|
33,761,000
|
|
|
|
9.0
|
%
|
|
|
19,015,000
|
|
|
|
6.2
|
%
|
|
|
77.5
|
%
|
|
|
|
$
|
374,892,000
|
|
|
|
100.0
|
%
|
|
$
|
304,360,000
|
|
|
|
100.0
|
%
|
|
|
23.2
|
%
|
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 six months ended August 31, 2010 and 2009:
Analysis
of Sales by Geography
|
|
|
Quarters Ended August 31,
|
|
|
Percentage
Change
|
|
|
|
|
2010
|
|
|
% of Total
|
|
|
2009
|
|
|
% of Total
|
|
|
2010 to 2009
|
|
|
Sales
by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
87,086,000
|
|
|
|
53.1
|
%
|
|
$
|
93,596,000
|
|
|
|
59.8
|
%
|
|
|
(7.0
|
)%
|
|
Asia
|
|
|
60,809,000
|
|
|
|
37.0
|
%
|
|
|
47,201,000
|
|
|
|
30.1
|
%
|
|
|
28.8
|
%
|
|
Europe
|
|
|
16,235,000
|
|
|
|
9.9
|
%
|
|
|
15,803,000
|
|
|
|
10.1
|
%
|
|
|
2.7
|
%
|
|
|
|
$
|
164,130,000
|
|
|
|
100
|
%
|
|
$
|
156,600,000
|
|
|
|
100
|
%
|
|
|
4.8
|
%
|
Analysis
of Sales by Geography
|
|
|
Six Months Ended August 31,
|
|
|
Percentage
Change
|
|
|
|
|
2010
|
|
|
% of Total
|
|
|
2009
|
|
|
% of Total
|
|
|
2010 to 2009
|
|
|
Sales
by Geography:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
$
|
200,997,000
|
|
|
|
53.6
|
%
|
|
$
|
177,273,000
|
|
|
|
58.2
|
%
|
|
|
13.4
|
%
|
|
Asia
|
|
|
136,640,000
|
|
|
|
36.5
|
%
|
|
|
92,401,000
|
|
|
|
30.4
|
%
|
|
|
47.9
|
%
|
|
Europe
|
|
|
37,255,000
|
|
|
|
9.9
|
%
|
|
|
34,686,000
|
|
|
|
11.4
|
%
|
|
|
7.4
|
%
|
|
|
|
$
|
374,892,000
|
|
|
|
100
|
%
|
|
$
|
304,360,000
|
|
|
|
100
|
%
|
|
|
23.2
|
%
|
The
following table sets forth, for the three- and six-month periods ended August
31, 2010 and 2009, certain items in the Company’s consolidated statements of
operations expressed as a percentage of net sales.
|
|
|
Three Months Ended August 31
|
|
|
Six Months Ended August 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
Cost
of sales
|
|
|
84.2
|
|
|
|
85.6
|
|
|
|
85.1
|
|
|
|
85.7
|
|
|
Gross
profit
|
|
|
15.8
|
|
|
|
14.4
|
|
|
|
14.9
|
|
|
|
14.3
|
|
|
Selling,
general and administrative expenses
|
|
|
14.2
|
|
|
|
14.6
|
|
|
|
12.8
|
|
|
|
14.6
|
|
|
Interest
expense
|
|
|
0.5
|
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
0.2
|
|
|
Net
income (loss)
|
|
|
0.7
|
|
|
|
0.3
|
|
|
|
1.2
|
|
|
|
(0.1
|
)
|
Prior to
the third quarter of fiscal 2010, the Company’s quarterly tax provision for
(benefit from) income taxes was measured using an estimated annual effective tax
rate for the period, adjusted for discrete items that occurred within the
periods presented. For the third and fourth quarters of fiscal 2010,
the Company used an alternative method to calculate the effective tax rate since
it was 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 quarters’ discrete pre-tax income. Due to the
uncertainty in the current economic market, the Company continued to apply the
alternative method to compute income tax expense in the first half of fiscal
2011.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Results of
Operations:
Three
Months Ended August 31, 2010 compared to Three Months Ended August 31,
2009
Consolidated
net sales for the three months ended August 31, 2010 were $164,130,000 as
compared to $156,600,000 for the comparable period of the prior year, an
increase of $7,530,000 or 4.8%.
Excluding
Xilinx product sales, active electronic component sales were $144,872,000 for
the three months ended August 31, 2010 as compared to $96,557,000 for the
comparable period of the prior year, an increase of approximately $48,315,000 or
50.0%. Passive components sales for the three months ended August 31,
2010 were $17,588,000 compared to $10,454,000 for the three months ended August
31, 2009, an increase of $7,135,000 or 68.2%.
Consolidated
gross margin was 15.8% for the three months ended August 31, 2010 as compared to
14.4% for the comparable period of the prior year.
Selling,
general and administrative expenses increased $387,000 to $23,239,000 for the
quarter ended August 31, 2010. The increase relates primarily to an
increase in selling expenses of $468,000 as a result of higher sales and a net
decrease in general and administrative expenses of $81,000 primarily associated
with higher professional fees offset by lower provision for doubtful
accounts. As a percentage of sales, selling, general and
administrative expenses decreased to 14.2% for the quarter ended August 31, 2010
from 14.6% for the comparable prior year quarter.
Net
interest expense increased to $782,000 for the three months ended August 31,
2010 from $263,000 from the prior period primarily due to the write-off of
approximately $268,000 of unamortized deferred financing costs as a result of
the new asset-based loan facility and higher debt levels and rates.
For the
three months ended August 31, 2010, the Company recorded an income tax
provision of $611,000, primarily due to tax on income earned by foreign
subsidiaries and state and local income taxes, with no tax benefit taken on any
net operating losses. For the three months ended August 31, 2009, the Company
recorded an income tax benefit of $1,253,000, primarily due to tax benefits
generated on U.S. net operating losses, partially offset by tax on income earned
by foreign subsidiaries and state and local income taxes.
Net
income attributable to the Company for the three months ended August 31, 2010
was $1,156,000 or $.06 per basic and diluted share as compared to net income of
$543,000 or $0.03 per basic and diluted share for the three months ended August
31, 2009.
Six
Months Ended August 31, 2010 compared to Six Months Ended August 31,
2009
Consolidated
net sales for the six months ended August 31, 2010 were $374,892,000 as compared
to $304,360,000 for the comparable period of the prior year, an increase of
$70,532,000 or 23.2%.
Excluding
Xilinx product sales, active electronic component sales were $278,713,000 for
the six months ended August 31, 2010, compared to $186,247,000 for the
comparable period of the prior year, an increase of approximately
$92,466,000. Passive components sales for the six months ended August
31, 2010 were $33,761,000 compared to $19,015,000 for the six months ended
August 31, 2009, an increase of $14,746,000 or 77.5%.
Consolidated
gross margin was 14.9% for the six months ended August 31, 2010 as compared to
14.3% for the comparable period of the prior year.
Selling,
general and administrative expenses increased $3,611,000 or 8.1% over the prior
period primarily due to increased selling expenses of $3,159,000 as a result of
higher sales levels and an increase of $700,000 in professional fees offset by a
lower provision for doubtful accounts and other decreases in general and
administrative expenses.
Net
interest expense increased 109.4% to
$1,430,000 from $683,000
from the prior period primarily due to higher debt levels and rates and the
write-off of approximately $268,000 of unamortized deferred financing costs as a
result of the new asset-based loan facility.
For the
six months ended August 31, 2010, the Company recorded an income tax
provision of $1,597,000, primarily due to tax on income earned by foreign
subsidiaries, state and local income taxes, with no tax benefit taken on any net
operating losses. For the six months ended August 31, 2009, the Company recorded
an income tax benefit of $1,414,000, primarily due to tax benefits generated on
U.S. net operating losses, partially offset by tax on income earned by foreign
subsidiaries and state and local income taxes.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
Net
income attributable to the Company for the six months ended August 31, 2010 was
$4,530,000 or $.25 per basic and diluted share as compared to a net loss of
$(401,000) or $(0.02) per basic and diluted share for the six months ended
August 31, 2009.
Liquidity and Capital
Resources:
The
Company's current ratio (current assets divided by current liabilities) was
3.5:1 at August 31, 2010. Working Capital was $174,464,000 at August
31, 2010 as compared to $170,996,000 at February 28, 2010.
Bank
Debt: Bank Credit Lines
On June
28, 2010, the Company executed a new asset-based loan facility (the
"ABL") with three lenders. The credit facility established under the ABL
provides for maximum borrowings of $80 million with an option to increase the
facility to a maximum borrowing of $110 million under certain circumstances. Up
to $60 million of the ABL is to be used to finance the Company’s United States
(“U.S.”) operations, with the $20 million balance to be used to finance the
Company’s United Kingdom (“U.K.”) and Asian operations. Based on the
asset-based formula the Company may only borrow the consolidated excess
available net of non qualifying inventories’ and receivables. The Company
utilized the ABL to pay off and terminate its pre-existing U.S. Revolving Credit
Line, consisting of a $120 million secured revolving line of credit, and U.K.
Credit Line, consisting of a £4 million receivable financing
agreement.
The ABL
provides for borrowings at variable interest rates utilizing an asset-based
formula predicated on a percent of qualifying accounts receivable and inventory
at any given month end and taking into account the excess credit availability
under the ABL. The Company may also borrow under the ABL by utilizing
London Interbank Notes (“Libor Notes”). At August 31 2010 the Company had
outstanding approximately $10.0 million in Libor Notes. The Company is required
to pay interest on any Base Rate loan outstanding monthly in arrears and is
required to pay interest on each Eurodollar loan outstanding in arrears at the
end of each applicable interest period. For the purposes of the ABL,
“Base Rate” shall mean the highest of (i) the rate from time to time
publicly announced by the lead lender, or its successors, as its “prime rate”,
subject to each increase or decrease in such prime rate, effective as of the day
any such change occurs, whether or not such announced rate is the best rate
available at such bank, (ii) the Federal Funds Rate from time to time plus
one-half (.50%) percent, or (iii) the three (3) month London Interbank Offered
Rate plus one (1.00%) percent. The margin applied to borrowings under
the ABL is as follows:
|
Quarterly Average
Consolidated Excess Availability under the
ABL
|
|
Applicable
Eurodollar Rate
Margin
|
|
|
Applicable Base
Rate Margin
|
|
|
Less
than $20,000,000
|
|
|
3.50
|
%
|
|
|
1.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Less
than $30,000,000 and greater than or equal to $20,000,000
|
|
|
3.25
|
%
|
|
|
1.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Greater
than or equal to $30,000,000
|
|
|
3.00
|
%
|
|
|
1.25
|
%
|
The
blended interest rate at August 31, 2010 was 4.12%. Direct borrowings under the
ABL were $32,218,000 at August 31, 2010.
The
Company has a bank credit agreement with a bank in Denmark (the "Danish Credit
Line") which provides for maximum borrowings of 10,072,000 Danish Kroner
(approximately $1,725,000) as of August 31, 2010, at the current prevailing
interest rate 5.84%. Borrowings under the Danish Credit Line were
795,000 ($136,000) and 6,146,000 Danish Kroner ($1,121,000) at August 31, 2010
and February 28, 2010, respectively. The Danish Credit Line has no
expiration date and is reviewed quarterly by the bank in Denmark.
At August 31, 2010, the Company had
excess availability aggregating approximately $40,112,000 under all of its bank
credit facilities
.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
We
incurred interest expense on our borrowings under our credit facilities of $
412,000 and $778,000 during the three and six months ended August 31, 2010,
respectively, and $221,000 and $514,000 during the three and six months ended
August 31, 2009, respectively. We also recorded amortization of our
deferred debt issuance costs of $333,000 and $374,000, reported within
interest expense, during the three and six months ended August 31, 2010,
respectively, inclusive of a $268,000 write-off associated with the ABL
refinancing.
The
Company anticipates that its resources provided by its cash flow from operations
and the aforementioned bank agreements will be sufficient to finance its
operations for at least the next twelve-month period.
Off-Balance
Sheet Arrangements:
As of
August 31, 2010, the Company had no off-balance sheet arrangements.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk.
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 prior and
current credit facilities bear interest based on fluctuating interest
rates. The interest rate under the ABL is tied to the bank's base
rate or LIBOR rate, and under the Danish Credit Line is tied to the prevailing
rate; both 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 $89,000 for the three months ended August 31, 2010 and $197,000
for the three months ended August 31, 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, to mitigate its interest rate
risk.
Foreign
Currency Exchange Rate Risk:
The
Company has foreign subsidiaries in Asia, the United Kingdom, Germany, Denmark,
Canada and Mexico. The Company does business in more than one dozen
countries and, during the quarter ended August 31, 2010, generated approximately
46.4% of its revenues from outside the United States. 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 $105,115,000 and
$101,628,000 at August 31, 2010 and February 28, 2010, 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. The potential loss based on end of period
balances and prevailing exchange rates resulting from a hypothetical 10% change
of the dollar against foreign currencies was not material in the quarters ended
August 31, 2010 or 2009. These risks could have a material impact on
the Company’s results in future periods. 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. In the last five fiscal years, sales have grown from
$499,515,000 in fiscal 2006 to $750,954,000 in fiscal 2009 and decreased to
$670,727,000 in fiscal 2010. It is difficult to predict the timing of
the changing cycles in the electronic components industry.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Under the
supervision and with the participation of management, including our President
and 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 August 31, 2010 our disclosure controls and
procedures were effective in ensuring that the information required to be
disclosed in the reports it files or submits under the Exchange Act have 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 August 31, 2010 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.
PART II
OTHER
INFORMATION
|
Item 1.
|
Legal
Proceedings.
|
None.
In
addition to the Risk Factors disclosed in Part I, Item 1A of the Company’s
Annual Report on Form 10-K for the year ended February 28, 2010, we face certain
additional material risks. Such additional risks are set forth
below:
The
pending merger of the Company with Arrow Electronics, Inc. (the "Merger")
pursuant to the Agreement and Plan of Merger dated September 19, 2010 (the
“Merger Agreement”), is subject to a number of conditions that must be satisfied
prior to closing. If we are unable to satisfy these conditions, the
Merger may not occur. Should the Merger fail to close for any reason,
our business, financial condition, results of operations and cash flows may be
materially adversely affected. In addition, our stock price is likely
to decline.
The
Merger Agreement contains a number of conditions that must be satisfied before
the closing of the Merger can occur, including, among others, (1) approval
of the principal terms of the Merger by the Company’s stockholders, (2) the
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and obtaining
antitrust approvals in certain other jurisdictions, (3) subject to certain
materiality exceptions, the accuracy of the representations and warranties made
by Arrow and the Company, respectively, and compliance by Arrow and the Company
with their respective obligations under the Merger Agreement, (4) the
absence of any Material Adverse Effect (as defined in the Merger Agreement) and
(5) the delivery of certain required consents. If we are unable to satisfy
one or more of these conditions, and as a result, unable to complete the Merger,
we may lose suppliers, customers, and key employees, which would materially
adversely affect our business, financial condition, results of operations and
cash flows.
In
addition, both the Company and Arrow have the right to terminate the Merger
Agreement under certain circumstances. Under certain of those circumstances, the
Company will be required to reimburse Arrow for its fees and expenses, up to
$3.0 million, and in some cases pay Arrow a termination fee of 3% of the
total consideration payable upon the consummation of the Merger, approximately
$4,039,800, plus expenses, less any reimbursement of fees and expenses
already made. If we are required to reimburse Arrow for its fees and
expenses or pay Arrow a termination fee, our business, financial condition,
results of operations and cash flows would be materially adversely
affected. In addition, even if we are not required to reimburse
Arrow, the Company will still be responsible for the costs incurred by it in
connection with the Merger, which are currently estimated to be approximately
$1.1 million. The costs will adversely affect the Company’s results of
operations which may result in a decline in the market price of our common
stock.
Following
the execution of the Merger Agreement, our stock price began trading at
approximately $6.90, $0.10 less than the price proposed to be paid upon
consummation of the merger. In the event that our stockholders fail to approve
the Merger Agreement, our stock price is likely to decline.
The
Company and certain of our current and former directors and executive officers
have been named as defendants in purported class action lawsuits related to the
Merger. These lawsuits, and any other similar lawsuits, may require
significant management time and attention and result in significant legal
expenses, which could materially adversely affect our business, financial
condition, results of operations and cash flows.
After the
announcement of our proposed Merger with Arrow on September 20, 2010, four class
action lawsuits were filed against the Company, its directors, Arrow
Electronics, Inc. and a wholly-owned subsidiary of Arrow. All of the
lawsuits were filed in New York State Supreme Court in Suffolk
County. Generally, the lawsuits allege breaches of fiduciary duty by
the individual defendants and aiding and abetting in such breaches by the
Company, and seek to enjoin or rescind the Merger as well as to recover
unspecified damages and costs. The Company intends to defend against
each lawsuit vigorously. In addition, four law firms have announced
that they are investigating whether our directors breached their fiduciary duty
in connection with the determination to enter into the Merger
Agreement.
PART II
OTHER
INFORMATION
|
Item 1A.
|
Risk
Factors (Continued).
|
We cannot
predict the outcome of the pending lawsuits or whether other lawsuits may be
commenced. Regardless of the outcome, this lawsuit, and any other
litigation that may be brought against us or our officers and directors, could
be time-consuming, result in significant expense to us and divert the attention
and resources of our management and other key employees, which could have a
material adverse effect on our business, financial condition, results of
operations and cash flows. An unfavorable outcome in any of such
litigation matters could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
In
addition, these lawsuits seek to enjoin the closing of our Merger with
Arrow. Should one or more of the plaintiffs be successful in
obtaining an injunction prohibiting or significantly delaying the closing of the
Merger, such prohibition or delay could result in the Merger failing to close,
and such failure could cause a loss of our suppliers, customers, and key
employees, which would materially adversely affect our business, financial
condition, results of operations and cash flows.
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
None.
|
Item 3.
|
Defaults
Upon Senior Securities.
|
None.
|
Item 4.
|
Removed
and Reserved.
|
|
Item 5.
|
Other
Information.
|
None.
PART II
OTHER
INFORMATION
|
Item 6.
|
|
Exhibits.
|
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger between Nu Horizons Electronics Corp., Arrow
Electronics, Inc. and Neptune Acquisition Corporation, Inc. (Incorporated
by reference to Exhibit 2.1 to Form 8-K dated September 20,
2010).
|
|
|
|
|
|
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, as amended (Incorporated by reference to Exhibit 3.1
to Form 8-K dated April 28, 2010).
|
|
|
|
|
|
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
|
|
Loan
and Security Agreement dated June 28, 2010, by and among Nu Horizons
Electronics Corp., a Delaware corporation, NIC Components Corp., Nu
Horizons International Corp., Razor Electronics, Inc., Titan Supply Chain
Services Corp., Nu Horizons Electronics Limited, NIC Components Europe
Limited, Nu Horizons Electronics Asia Pte Ltd, NIC Components Asia Pte
Ltd, Titan Supply Chain Services Pte Ltd, Nu Horizons Electronics Europe
Limited, Titan Supply Chain Services Limited, NuXchange B2B Services,
Inc., and Wachovia Capital Finance Corporation (New England), HSBC
Business Credit (USA) Inc. and Capital One Bank, N.A. (Incorporated by
reference to Exhibit 10.1 to Form 8-K dated June 28,
2010).
|
|
|
|
|
|
10.2
|
|
2010
Outside Directors’ Stock Incentive Plan (Incorporated by reference to
Exhibit 10.1 to Form 8-K dated July 29, 2010).
|
|
|
|
|
|
10.3
|
|
General
Release and Settlement Agreement dated September 14, 2010 between Nu
Horizons Electronics Corp. and Lazar, Levine & Felix, LLP, Nazeleen
Sataur, Amiram Bielory, Michael Dinkes, and ParenteBeard LLC (Incorporated
by reference to Exhibit 10.1 to Form 8-K dated September 16,
2010).
|
|
|
|
|
|
10.4
|
|
Agreement
and Plan of Merger between Nu Horizons Electronics Corp., Arrow
Electronics, Inc. and Neptune Acquisition Corporation, Inc. (Incorporated
by reference to Exhibit 2.1 to Form 8-K dated September 20,
2010).
|
|
|
|
|
|
*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.
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:
|
October
7, 2010
|
/s/ Martin Kent
|
|
|
|
Martin
Kent
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
Date:
|
October
7, 2010
|
/s/ Kurt Freudenberg
|
|
|
|
Kurt
Freudenberg
|
|
|
|
Executive
Vice President
|
|
|
|
and
Chief Financial
Officer
|
|
Exhibits:
|
|
|
|
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger between Nu Horizons Electronics Corp., Arrow
Electronics, Inc. and Neptune Acquisition Corporation, Inc. (Incorporated
by reference to Exhibit 2.1 to Form 8-K dated September 20,
2010).
|
|
|
|
|
|
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).
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3.2
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Amended
and Restated By-laws, as amended (Incorporated by reference to Exhibit 3.1
to Form 8-K dated April 28, 2010).
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4.1
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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).
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10.1
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Loan
and Security Agreement dated June 28, 2010, by and among Nu Horizons
Electronics Corp., a Delaware corporation, NIC Components Corp., Nu
Horizons International Corp., Razor Electronics, Inc., Titan Supply Chain
Services Corp., Nu Horizons Electronics Limited, NIC Components Europe
Limited, Nu Horizons Electronics Asia Pte Ltd, NIC Components Asia Pte
Ltd, Titan Supply Chain Services Pte Ltd, Nu Horizons Electronics Europe
Limited, Titan Supply Chain Services Limited, NuXchange B2B Services,
Inc., and Wachovia Capital Finance Corporation (New England), HSBC
Business Credit (USA) Inc. and Capital One Bank, N.A. (Incorporated by
reference to Exhibit 10.1 to Form 8-K dated June 28,
2010).
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10.2
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2010
Outside Directors’ Stock Incentive Plan (Incorporated by reference to
Exhibit 10.1 to Form 8-K dated July 29, 2010).
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10.3
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General
Release and Settlement Agreement dated September 14, 2010 between Nu
Horizons Electronics Corp. and Lazar, Levine & Felix, LLP, Nazeleen
Sataur, Amiram Bielory, Michael Dinkes, and ParenteBeard LLC (Incorporated
by reference to Exhibit 10.1 to Form 8-K dated September 16,
2010).
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10.4
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Agreement
and Plan of Merger between Nu Horizons Electronics Corp., Arrow
Electronics, Inc. and Neptune Acquisition Corporation, Inc. (Incorporated
by reference to Exhibit 2.1 to Form 8-K dated September 20,
2010).
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*31.1
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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.
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*31.2
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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.
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*32.1
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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.
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*32.2
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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.
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*Included
herewith.
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