<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT
ON FORM 10K
Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended Commission file number
February 28, 1998 1-8798
- ------------------------------------- -----------------------------------
Nu Horizons Electronics Corp.
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(Exact name of registrant as specified in its charter)
Delaware 11-2621097
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
70 Maxess Road, Melville, New York 11747
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(Address of principal executive offices) (Zip Code)
(516) 396-5000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
- --------------------------------------------------------------------------------
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock Par Value $.0066 Per Share NASDAQ National Market System
- --------------------------------------- ------------------------------------
- --------------------------------------- ------------------------------------
(Title of class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 1-K or any amendment to this
Form 10K [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 1, 1998.
Common Stock Par Value $.0066 8,753,076
- ------------------------------------- -----------------------------------
Class Outstanding Shares
Aggregate Market Value of Non-Affiliate Stock at May 1, 1998 approximately
$59,100,000
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
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PART I:
<S> <C> <C> <C>
ITEM 1. Business Pages 3 - 7
ITEM 2. Properties Pages 7 8
ITEM 3. Legal Proceedings Page 8
ITEM 4. Submission of Matters to a Vote of Security Holders Page 8
PART II:
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters Page 8
ITEM 6. Selected Financial Data Page 9
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations Pages 10 13
ITEM 8. Financial Statements and Supplementary Data Pages F1 F18
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures Page 14
PART III:
ITEM 10. Directors and Executive Officers of the Company Pages 14 15
ITEM 11. Executive Compensation Pages 16 25
ITEM 12. Security Ownership of Certain Beneficial Owners and Management Page 26
ITEM 13. Certain Relationships and Related Transactions Page 26
PART IV:
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Pages 27 34
Signatures Page 35
Exhibit Index
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Page 2
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PART I.
ITEM 1. BUSINESS
GENERAL:
Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
subsidiaries, NIC Components Corp. ("NIC") and Nu Horizons/Merit
Electronics Corp. ("NUM"), are engaged in the distribution of high
technology active and passive electronic components. Nu Horizons
International Corp. ("International"), another wholly-owned subsidiary,
is an export distributor of electronic components. Nu Visions
Manufacturing, Inc. ("NUV" or "Nu Visions") located in Springfield,
Massachusetts, another wholly-owned subsidiary of the Company, is a
contract assembler of circuit boards and related electromechanical
devices for various OEMs. All references herein to the Company shall,
unless the context otherwise requires, be deemed to refer to the
Company and its subsidiaries.
In March 1998, subsequent to the fiscal year end, the Company formed
another wholly-owned subsidiary, NIC Eurotech, Ltd., which then began
foreign operations in the United Kingdom.
Active components distributed by the Company, principally to original
equipment manufacturers (OEMs) in the United States, include mainly
commercial semiconductor products such as memory chips,
microprocessors, digital and linear circuits, microwave, RF and
fiberoptic components, transistors and diodes. Passive components
distributed by NIC, principally to OEMs and other distributors
nationally, consist of a high technology line of chip and leaded
components including capacitors, resistors and related networks.
The active and passive components distributed by the Company are
utilized by the electronics industry and other industries in the
manufacture of sophisticated electronic products including: industrial
instrumentation, computers and peripheral equipment, consumer
electronics, telephone and telecommunications equipment, satellite
communications equipment, cellular communications equipment, medical
equipment, automotive electronics, and audio and video electronic
equipment.
Manufacturers of electronic components augment their marketing
programs through the use of independent distributors and contract
assemblers such as the Company, upon which the Company believes they
rely to a considerable extent to market their products. Distributors
and assemblers, such as the Company, offer their customers the
convenience of diverse inventories and rapid delivery, design and
technical assistance, and the availability of product in smaller
quantities than generally available from manufacturers. Generally,
companies engaged in the distribution of active and passive electronic
components, such as the Company, are required to maintain a relatively
significant investment in inventories and accounts receivable. To meet
these requirements, the Company, and other companies in the industry,
typically depend on internally generated funds as well as external
borrowings.
Management's policy is to manage, maintain and control all
inventories from its principal headquarters and stocking facility on
Long Island, New York and stocking facility in San Jose, California. As
additional franchise line opportunities become available to the
Company, the need for branch level inventories may be necessary and
desirable, in order to better serve the specific needs of local
markets.
Page 3
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ITEM 1. BUSINESS (Continued):
Semiconductor Products (Active Components):
The Company is a distributor of a broad range of semiconductor
products to commercial and military OEM's principally in the United
States. The Company is a franchised distributor of active components
for approximately thirty product lines. Significant franchised product
lines include Allegro, Cirrus Logic, Crystal, Elantec, Exar, Maxim
Integrated Products, Quality Semiconductor, SGS-Thomson
Microelectronics, Sun Microsystems, TDK Semiconductor, Toshiba and
Xilinx.
The Company's franchise agreements authorize it to sell all or part
of the product line of a manufacturer on a non-exclusive basis. Under
these agreements, each manufacturer will grant credits for any
subsequent price reduction by such manufacturer and inventory return
privileges whereby the Company can return to each such manufacturer for
credit or exchange a percentage ranging from 5% to 20% of the inventory
purchased from said manufacturer during a semi-annual period. The
franchise agreements generally may be cancelled by either party upon
written notice. The Company anticipates, in the future, entering into
additional franchise agreements and increasing its inventory levels in
accordance with business demands.
Passive Components and Relationship with Nippon:
NIC has been the exclusive outlet in North America for Nippon
Industries Co. Ltd.'s (Japan) brand of passive components and does not
anticipate any change in this relationship. While the Company does not
have a written agreement with Nippon in this regard, it believes that a
formal written agreement is not material to its ongoing business
relationship with Nippon.
Due to certain market situations, NIC, with Nippon's assent, has also
established several manufacturing associations with U.S. and Taiwan
based companies. NIC intends to continue to give Nippon priority,
however, in acquiring its products whenever the technology and pricing
are commensurate with the North American market's requirements.
Contract Assembly:
As discussed above, the Company's core business is the distribution
of active components to OEM's and passive components to OEM's and
distributors nationally in the United States.
Those components are then placed on printed circuit boards by the
OEM's themselves or are contracted for placement to outside contract
assembly companies (domestically or offshore). The Company believes
that the latter outside contract assembly is becoming more prevalent
nationally, especially among small to midsize OEM's.
With a view towards maximizing the Company's current customer base as
well as offering new customers additional services, the Company decided
that contract circuit board assembly was a natural extension to its
business since 80% of the components found on most printed circuit
boards can be provided through the Company's active and NIC's passive
products.
Page 4
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ITEM 1. BUSINESS (Continued):
Contract Assembly (continued):
Nu Visions provides both surface mount and through-hole circuit board
assembly services to the aforementioned OEMs. In order to expand and
enhance this segment of the business, the Company has acquired
approximately $2,500,000 of automated circuit board assembly equipment
and is in the process of tripling the size of Nu Vision's facility to
45,000 square feet in anticipation of continued growth.
Sales and Marketing:
Management's strategy for long-term success has been to focus the
Company's sales and marketing efforts towards the following industry
segments: industrial, telecom/datacom, medical instrumentation,
microwave and RF, fiberoptic, consumer electronics, security and
protection devices, office equipment, computers and computer
peripherals, factory automation and robotics, in each case both
domestically and abroad. In order to help achieve these goals, the
Company may enter into new franchise agreements for a broad base of
commodity semiconductor products including those used in the key niche
industries referred to above.
As of February 28, 1998, the Company had approximately 13,000
customers. All sales are made through customers' purchase orders.
Semiconductors are sold primarily via telephone by the Company's in-
house staff of approximately 90 salespersons, and by a field sales
force of approximately 110 salespersons. The Company maintains branch
sales facilities located as follows:
EAST COAST
----------
Massachusetts Boston
New York Melville (Long Island) and Rochester
New Jersey Mt. Laurel (Philadelphia) and Pine Brook
Ohio Cleveland
Maryland Columbia
North Carolina Raleigh
Georgia Atlanta
Alabama Huntsville
Florida Ft. Lauderdale and Orlando
MIDWEST
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Arizona Phoenix
Illinois - Chicago
Minnesota Minneapolis
Texas Austin and Dallas
WEST COAST
----------
California Irvine, Los Angeles, San Diego and San Jose
NIC's passive components are marketed through the services of a
national network of approximately 20 independent sales representative
organizations, employing over 200 salespersons, as well as through
NIC's in-house sales and engineering personnel. The independent
representative organizations do not represent competing product lines
but sell other related products. Commissions to such organizations are
generally equal to 5% of all sales in a representative's exclusive
territory.
Page 5
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ITEM 1. BUSINESS (Continued):
Sales and Marketing (continued):
NIC has developed a national network of approximately 75 regional
distributor locations, which market passive components on a non-
exclusive basis. Approximately 35 of the regional distributors have
entered into agreements with NIC whereby they are required to purchase
from NIC a prescribed initial inventory. These distributors are
protected by NIC against price reductions and are granted certain
inventory return and other privileges. Due to the efforts of NIC and
its distributors, NIC's passive components have been tested and
"designed in" as a prime source of qualified product by over 7,000
OEM's in the United States.
Nu Visions' contract manufacturing facilities are marketed through
the services of several East Coast independent sales representatives,
as well as the Company's field sales force.
No single customer accounted for more than 2% of the Company's
consolidated sales for the year ended February 28, 1998. The Company's
sales practice is to require payment within thirty days of delivery.
Source of Supply:
The Company inventories an extensive stock of active and passive
components, however, if the Company's customers order products for
which the Company does not maintain inventory, the Company's marketing
strategy is to obtain such products from its franchise manufacturers,
or, if a product is unobtainable, to identify and recommend
satisfactory interchangeable alternative components. For this purpose,
the Company devotes considerable efforts to familiarizing itself with
component product movement throughout the industry, as well as to
constant monitoring of its own inventories.
As of February 28, 1998, there was one manufacturer that represented
more than 10% of the Company's inventory on a consolidated basis. That
supplier accounted for 20% of total inventory. Electronic components
distributed by the Company generally are presently readily available;
however, from time to time the electronics industry has experienced
shortages or surplus of certain electronic products.
For the year ended February 28, 1998, the Company purchased inventory
from one supplier that was in excess of 10% of the Company's total
purchases. Purchases from this supplier aggregated approximately
$18,872,000 for the fiscal year.
Competition and Regulation:
The Company competes with many companies that distribute
semiconductor and passive electronic components and, to a lesser
extent, companies which manufacture such products and sell them
directly to OEM's and other distributors. Many of these companies have
substantially greater assets and possess greater financial and
personnel resources than those of the Company. In addition, certain of
these companies possess independent franchise agreements to carry
semiconductor product lines which the Company does not carry, but which
it may desire to have. Competition is based primarily upon inventory
availability, quality of service, knowledge of product and price. The
Company believes that the distribution of passive electronic components
under its own label is a competitive advantage.
Page 6
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ITEM 1. BUSINESS (Continued):
Competition and Regulation (continued):
The Company's competitive ability to price its imported active and
passive components could be adversely affected by increases in tariffs,
duties, changes in the United States' trade treaties with Japan, Taiwan
or other foreign countries, transportation strikes and the adoption of
Federal laws containing import restrictions. In addition, the cost of
the Company's imports could be subject to governmental controls and
international currency fluctuations. Because imports are paid for with
U.S. dollars, the decline in value of United States currency as against
foreign currencies would cause increases in the dollar prices of the
Company's imports from Japan and other foreign countries. Although the
Company has not experienced any material adverse effect to date in its
ability to compete or maintain its profit margins, as of result of any
of the foregoing factors, no assurance can be given that such factors
will not have a material adverse effect in the future.
Backlog:
The Company defines backlog as orders, believed to be firm, received
from customers and scheduled for shipment, no later than 60 days for
active components and no later than 90 days for passive components from
the date of the order. As of May 1, 1998, the Company's backlog was
approximately $20,000,000 as compared to a backlog of approximately
$24,000,000 at May 1, 1997.
Employees:
As of February 28, 1998, the Company employed approximately 488
persons: 10 in management, 258 in sales and sales support, 30 in
product and purchasing, 17 in accounting and finance, 10 in MIS, 31 in
operations, 88 in manufacturing, and 44 in quality control, shipping,
receiving and warehousing. The Company believes that its employee
relations are satisfactory.
ITEM 2. PROPERTIES
In December 1996, the Company leased an approximately 80,000 square
foot facility in Melville, Long Island, New York to serve as its
executive offices and main distribution center. In June 1997, the
Company completed moving its executive offices and distribution
operations. The lease term is from December 17, 1996, to December 16,
2008 at an annual base rental of $601,290 and provision for a 4% annual
escalation in each of the last ten years of the term.
The Amityville facility, which served as corporate headquarters until
April 1997 was sold in August 1997.
The Company leases approximately 14,400 square feet of manufacturing
and office space in Springfield, Massachusetts for its Nu Visions
subsidiary. The lease term is from February 17, 1992 to February 16,
2002 at an annual base rental of $100,850 subject to annual consumer
price index increases not to exceed 2% annually.
Page 7
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ITEM 2. PROPERTIES (Continued):
On May 1, 1996, the Company leased approximately 25,000 square feet
of warehouse and office space in San Jose, California for its Nu
Horizons/Merit subsidiary. This facility serves as the Company's West
Coast regional sales and distribution headquarters. The lease term is
from May 1, 1996 to April 30, 2001 at an annual base rental of
$225,000.
The Company also leases space for nineteen (19) branch sales offices
which range in size from 1,000 square feet to 5,000 square feet, with
lease terms that expire between September 1996 and January 2002. Annual
base rentals range from $11,400 to $63,400 with aggregate base rentals
approximating $653,000.
ITEM 3. LEGAL PROCEEDINGS:
No material legal proceeding is pending to which the Company is a
party or to which any of its property is or may be subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matters were submitted during the fourth quarter of the fiscal
year ended February 28, 1998 to a vote of security holders through the
solicitation of proxies or otherwise.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:
a) The Company's common stock is traded on the NASDAQ National Market
System under the symbol "NUHC". The following table sets forth,
for the periods indicated, the high and low closing prices for the
Company's common stock, as reported by the NASDAQ National Market
System.
FISCAL YEAR 1997: HIGH LOW
---- ---
First Quarter $17.25 $12.63
Second Quarter 14.75 7.25
Third Quarter 11.13 7.88
Fourth Quarter 10.00 7.88
FISCAL YEAR 1998:
First Quarter 9.50 6.75
Second Quarter 9.00 7.25
Third Quarter 9.25 6.75
Fourth Quarter 7.17 5.50
FISCAL YEAR 1999:
First Quarter (Through May 1, 1998) 7.09 6.12
b) As of May 1, 1998, the Company's common stock was owned by
approximately 4,500 holders of record.
c) The Company has never paid a cash dividend on its common stock. In
addition, the Company's prior revolving credit line agreement
prohibited, without the bank's consent, the payment of cash
dividends. The Company's existing revolving credit line agreement
only permits dividends of up to 25% of the Company's consolidated
net income.
Page 8
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ITEM 6. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 1998 28, 1997 29, 1996 28, 1995 28, 1994
-------- -------- -------- -------- --------
INCOME STATEMENT
DATA:
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Net Sales $233,325,408 $216,612,707 $202,803,184 $130,251,554 $92,418,038
Gross profit on
sales 50,794,325 48,488,124 48,201,148 30,913,305 24,950,478
Gross profit
percentage 21.8% 22.4% 23.8% 23.7% 27.0%
Income before
provision for
income taxes 8,947,537 11,921,256 15,799,592 7,444,147 8,549,534
Net income 5,297,991 7,073,560 9,396,301 4,421,823 5,044,225
Earnings per
common share:
Basic $ .61 $ .81 $ 1.19 $ .57 $ .65
Diluted $ .52 $ .69 $ .97 $ .52 $ .65
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 1998 28, 1997 29, 1996 28, 1995 28, 1994
-------- -------- -------- -------- --------
BALANCE SHEET
DATA:
<S> <C> <C> <C> <C> <C>
Working capital $75,217,607 $51,941,472 $57,954,434 $36,328,941 $23,792,512
Total assets 99,641,428 74,783,314 75,459,586 51,972,606 37,448,040
Long-term debt 32,790,395 15,523,483 27,094,030 20,580,613 9,339,195
Shareholders'
equity 51,542,045 46,950,735 37,617,703 22,541,916 18,051,985
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Introduction:
Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
subsidiaries, Nu Horizons/Merit Electronics Corp. ("NUM"), NIC
Components Corp. ("NIC") and Nu Horizons International Electronics
Corp. ("International"), are engaged in the distribution of high
technology active and passive electronic components to a wide variety
of original equipment manufacturers ("OEM's") of electronic products.
Active components distributed by the Company include semiconductor
products such as memory chips, microprocessors, digital and linear
circuits, microwave/RF and fiberoptic components, transistors and
diodes. Passive components distributed by NIC, principally to OEM's and
other distributors nationally, consist of a high technology line of
chip and leaded components, including capacitors, resistors and related
networks.
Nu Visions Manufacturing, Inc. ("NUV" or "Nu Visions") located in
Springfield, Massachusetts, another wholly-owned subsidiary of the
Company, is a contract assembler of circuit boards, harnesses and
related electromechanical devices for various OEM's.
In March 1998, subsequent to the fiscal year end, the Company formed
another wholly-owned subsidiary, NIC Eurotech, Ltd., which then began
foreign operations in the United Kingdom.
The financial information presented herein includes: (i) Balance sheets
as of February 28, 1998, and February 28, 1997; (ii) Statements of
income for the twelve month periods ended February 28, 1998, February
28, 1997 and February 29, 1996; (iii) Statements of cash flows for the
twelve month periods ended February 28, 1998, February 28, 1997 and
February 29, 1996; and (iv) Consolidated changes in shareholders'
equity for the twelve month periods ended February 28, 1998, February
28, 1997 and February 29, 1996.
Fiscal Year 1998 versus 1997
Results of Operations:
Net sales for the year ended February 28, 1998 aggregated $233,325,408
as compared to $216,612,707 for the year ended February 28, 1997, an
increase of 7.7%. Management attributes this moderate increase in sales
for the period entirely to the core semiconductor distribution business
which experienced excess inventory levels at the semiconductor
manufacturing (supplier) level evidenced by reduced unit pricing in
spite of substantial increases in unit demand resulting in only
moderate increases in sales dollar volume. Management believes that
this situation is temporary and is now in the process of correction;
however, no assurance can be given in this regard.
Gross profit margin as a percentage of net sales was approximately
21.8% for the year ended February 28, 1998 as compared to 22.4% for the
year ended February 28, 1997. Management attributes this lower profit
margin primarily to a general downward correction of selling prices in
the marketplace, for both semiconductors and passive components, during
the period and a greater volume of larger orders at lower gross profit
margins. Although the Company expects that these conditions will not
continue, as long as current market trends prevail, no assurances can
be given in this regard.
Page 10
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 1998 versus 1997 (Continued)
Results of Operations (continued):
Operating expenses increased by $5,259,512 to $40,133,422 for the year
ended February 28, 1998 from $34,873,910 for the year ended February
28, 1997, an increase of approximately 15.1%. The dollar increase in
operating expenses was due to increases in the following expense
categories: Approximately $3,328,000 or approximately 63.3% of the
increases were for personnel related costs commissions, salaries,
travel and fringe benefits. During fiscal 1998 the Company decided to
continue to pursue a policy of upgrading and enlarging its sales and
sales support staff to support anticipated future growth in the near as
well as more distant future. Increased sales levels in the second,
third and fourth quarters of fiscal 1997 did not meet expectations. The
Company continues to believe in this strategy for long-term growth and
expects market conditions to undergo a correction in the near future
although no assurances can be given in this regard. The remaining
increase of approximately $1,931,000 or approximately 36.7% of the
total increment is a result of increases in various other operating
expenses primarily due to increased overhead from the Company's new
corporate headquarters and distribution facility.
Interest expense increased by $22,071 from $1,701,092 for the year
ended February 28, 1997 to $1,723,163 for the year ended February 28,
1998. This relative stability was primarily due to the interest on
higher average levels of bank debt being offset by more favorable
interest rates.
INTEREST COSTS
FOR THE FISCAL
YEARS ENDED
---------------------------------
February February
28, 1998 28, 1997
-------------- --------------
Revolving Bank Credit $1,140,796 $1,116,340
Sub. Convert. Notes 582,367 584,752
Total Interest Expense $1,723,163 $1,701,092
============== ==============
Net income for the year ended February 28, 1998, was $5,297,991 or $.52
per share, diluted, as compared to $7,073,560 or $.69 per share
diluted, for the year ended February 28, 1997. The decrease in earnings
is primarily due to increased operating expenses and the lack of
commensurate increased sales volume.
Results of Operations:
Fiscal Year 1997 versus 1996
Net sales for the year ended February 28, 1997 aggregated $216,612,707
as compared to $202,803,184 for the year ended February 29, 1996, an
increase of 6.8%. Management attributes this moderate increase in sales
for the period entirely to the core semiconductor distribution business
which experienced excess inventory levels at the semiconductor
manufacturing (supplier) level which resulted in reduced unit pricing
and lower overall sales volume.
Gross profit margin as a percentage of net sales was approximately
22.4% for the year ended February 28, 1997 as compared to 23.8% for the
year ended February 29, 1996. Management attributes this lower profit
margin primarily to a general downward correction of selling prices in
the marketplace, for both semiconductors and passive components, during
the period and a greater volume of larger orders at lower gross profit
margins.
Page 11
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued):
Fiscal Year 1997 versus 1996 (Continued)
Results of Operations (continued):
Operating expenses increased by $4,496,530 to $34,873,910 for the year
ended February 28, 1997 from $30,377,380 for the year ended February
29, 1996, an increase of approximately 14.8%. The dollar increase in
operating expenses was due to increases in the following expense
categories: Approximately $3,740,000 or approximately 83.2% of the
increases were for personnel related costs commissions, salaries,
travel and fringe benefits. The remaining increase of approximately
$756,000 or approximately 16.8% of the total increment is a result of
increases in various other operating expenses. Toward the latter part
of fiscal 1996 and early in fiscal 1997, the Company decided to pursue
a policy of upgrading and enlarging its sales and sales support staff
to support anticipated future growth in the near as well as more
distant future. Increased sales levels in the second, third and fourth
quarters of fiscal 1997 did not meet expectations.
Interest expense decreased by $325,625 from $2,026,717 for the year
ended February 29, 1996 to $1,701,092 for the year ended February 28,
1997. This decrease was primarily due to the interest on higher average
levels of bank debt being more than offset by the lower amount of
outstanding subordinated convertible debt (see Note 7 to the
Consolidated Financial Statements).
INTEREST COSTS
FOR THE FISCAL
YEAR ENDED
February February
28, 1997 29, 1996
------------------------------
Revolving Bank Credit $1,116,340 $ 916,226
Sub. Convert. Notes 584,752 1,110,491
Total Interest Expense $1,701,092 $2,026,717
==============================
Net income for the year ended February 28, 1997 was $7,073,560 or $.69
per share, diluted, as compared to $9,396,301 or $.97 per share
diluted, for the year ended February 29, 1996. The decrease in earnings
is primarily due to increased operating expenses and the lack of
commensurate increased sales volume.
Liquidity and Capital Resources:
Fiscal Year 1998 versus 1997
The Company ended its 1998 fiscal year with working capital and cash
aggregating approximately $75,218,000 and $4,334,000, respectively at
February 28, 1998 as compared to approximately $51,941,000 and $946,000
respectively, at February 28, 1997. The Company's current ratio at
February 28, 1998, was 5.9:1. The Company believes that its financial
position at February 28, 1998, will enable it to take advantage of any
new opportunities that may arise.
Page 12
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 1998 versus 1997 (Continued)
Liquidity and Capital Resources (continued):
On May 23, 1997, the Company entered into a new unsecured revolving
line of credit, which currently provides for maximum borrowings of
$35,000,000 through May 23, 2001 with two banks. At February 28, 1998,
$25,300,000 was outstanding under this line of credit as compared to
$8,000,000 at February 28, 1997.
In a private placement completed on August 31, 1994, the Company issued
$15 million principal amount of Subordinated Convertible Notes, which
are due in $5,000,000 increments on August 31, 2000, 2001 and 2002. The
notes are subordinate in right of payment to all existing and future
senior indebtedness of the Company. The notes bear interest at 8.25%,
payable quarterly on November 15, February 15, May 15 and August 15.
The notes are convertible into shares of common stock at a conversion
price of $9.00 per share. The cost of issuing these notes was $521,565
and was amortized over three years. As of February 28, 1998, $7,941,000
of the notes have been converted into 882,333 shares of common stock
and $7,059,000 principal amount of subordinated convertible notes
remained outstanding and are due in increments of $2,353,000 on August
31, 2000, 2001 and 2002. No assurance can be given that the notes will
be converted or that the shares of common stock underlying the notes
will be sold by the holders thereof.
The Company anticipates that its resources provided by its cash flow
from operations and its bank lines of credit will be sufficient to meet
its financing requirements for at least the next twelve-month period.
Impact of Year 2000 Issue:
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could potentially result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage
in other similar normal business activities. The Company has ensured
that its software is already year 2000 compliant, and as such this
issue is not expected to have a material effect on the operations of
the Company. Nevertheless, the Company cannot predict the effect of the
year 2000 problem on the vendors, customers and other entities with
which the Company transacts business, or with whose products the
Company's products interact and there can be no assurance that the
effect of the year 2000 issue on such entities will not adversely
effect the Company's operations.
Inflationary Impact:
Since the inception of operations, inflation has not significantly
affected the operating results of the Company. However, inflation and
changing interest rates have had a significant effect on the economy in
general and therefore could affect the operating results of the Company
in the future.
Other:
Except for historical information contained herein, the matters set
forth above are forward-looking statements that involve certain risks
and uncertainties that could case actual results to differ from those
in the forward-looking statements. Potential risks and uncertainties
include such factors as the level of business and consumer spending for
electronic products, the amount of sales of the Company's products, the
competitive environment within the electronics industry, the ability of
the Company to continue to expand its operations, the level of costs
incurred in connection with the Company's expansion efforts, the
economic conditions in the semiconductor industry and the financial
strength of the Company's customers and suppliers. Investors are also
directed to consider other risks and uncertainties discussed in
documents filed by the Company with the Securities and Exchange
Commission.
Page 13
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
To The Board of Directors
Nu Horizons Electronics Corp.
Melville, New York
We have audited the accompanying consolidated financial statements of Nu
Horizons Electronics Corp. and subsidiaries as of February 28, 1998 and 1997,
and the consolidated statements of income, changes in shareholders' equity and
cash flows for the three years in the period ended February 28, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, referred to the
above, present fairly in all material respects, the financial position of Nu
Horizons Electronics Corp. and subsidiaries at February 28, 1998 and February
28, 1997, and the results of their operations and their cash flows for each of
the three years in the period ended February 28, 1998 in conformity with
generally accepted accounting principles.
/s/ LAZAR LEVINE & FELIX LLP
----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
May 18, 1998
Page F-1
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
-ASSETS- February February
CURRENT ASSETS: 28, 1998 28, 1997
----------- -----------
Cash $ 4,333,669 $ 946,084
Accounts receivable-net of allowance for doubtful
Accounts of $2,362,722 and $2,192,079
For 1998 and 1997, respectively 37,351,029 30,636,645
Inventories 44,004,890 29,764,570
Prepaid expenses and other current assets 4,837,007 2,903,269
----------- -----------
TOTAL CURRENT ASSETS 90,526,595 64,250,568
PROPERTY, PLANT AND EQUIPMENT NET
(Notes 3 and 6) 6,359,775 7,550,356
OTHER ASSETS
Costs in excess of net assets acquired-net 1,752,332 1,909,256
Other assets (Note 4) 1,002,726 1,073,134
----------- -----------
$99,641,428 $74,783,314
=========== ===========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
------------------------------------
CURRENT LIABILITIES:
Accounts payable $12,112,365 $ 7,931,500
Accrued expenses 3,196,623 4,186,802
Current portion of long-term debt (Note 6) - 190,794
----------- -----------
TOTAL CURRENT LIABILITIES 15,308,988 12,309,096
----------- -----------
LONG-TERM LIABILITIES:
Deferred income taxes (Note 9) 431,395 222,148
Revolving credit line (Notes 5) 25,300,000 8,000,000
Long-term debt (Note 6) - 242,335
Subordinated convertible notes (Note 7) 7,059,000 7,059,000
----------- -----------
TOTAL LONG-TERM LIABILITIES 32,790,395 15,523,483
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 5, 10, 11 and 12)
SHAREHOLDERS' EQUITY (Note 8):
Preferred stock, $1 par value, 1,000,000
Shares authorized; none issued or outstanding
Common stock, $.0066 par value, 20,000,000
Shares authorized; 8,753,076 and 8,732,299
shares issued and outstanding for 1998 and 1997,
respectively 57,770 57,633
Additional paid-in capital 19,042,230 18,938,984
Retained earnings 33,532,009 28,234,018
----------- -----------
52,632,009 47,230,635
Less: loan to ESOP (Note 10) 1,089,964 279,900
51,542,045 46,950,735
----------- -----------
$99,641,428 $74,783,314
=========== ===========
See notes to consolidated financial statements.
Page F-2
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
---------------------------------------------------------------------
<S> <C> <C> <C>
FEBRUARY FEBRUARY FEBRUARY
28, 1998 28, 1997 29, 1996
------------------- ------------------ ------------------
NET SALES $233,325,408 $216,612,707 $202,803,184
------------------- ------------------ ------------------
COSTS AND EXPENSES:
Cost of sales (Note 12) 182,531,083 168,124,583 154,602,036
Operating expenses 40,133,422 34,873,910 30,377,380
Interest expense 1,723,163 1,701,092 2,026,717
Interest income (9,797) (8,134) (2,541)
224,377,871 204,691,451 187,003,592
------------------- ------------------ ------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 8,947,537 11,921,256 15,799,592
Provision for income taxes (Note 9) 3,649,546 4,847,696 6,403,291
------------------- ------------------ ------------------
NET INCOME $ 5,297,991 $ 7,073,560 $ 9,396,301
=================== ================== ==================
EARNINGS PER SHARE (Note 2i):
Basic $ .61 $ .81 $ 1.19
=================== ================== ==================
Diluted $ .52 $ .69 $ .97
=================== ================== ==================
</TABLE>
See notes to consolidated financial statements.
Page F-3
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER S' EQUITY
-----------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED LOAN TO SHAREHOLDERS'
SHARES STOCK CAPITAL EARNINGS ESOP EQUITY
------------ --------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1995 7,732,051 $51,032 $10,726,727 $11,764,157 $ - $22,541,916
Exercise of stock options 24,420 161 99,175 - - 99,336
Conversion of subordinated
convertible notes 666,666 4,400 5,995,600 - - 6,000,000
Loan to ESOP - - - - (559,800) (559,800)
Repayment from ESOP - - - - 139,950 139,950
Net income - - - 9,396,301 - 9,396,301
------------ --------- ------------- ------------- ------------- --------------
Balance at February 29, 1996 8,423,137 55,593 16,821,502 21,160,458 (419,850) 37,617,703
Exercise of stock options 93,495 617 177,905 - - 178,522
Conversion of subordinated
convertible notes 215,667 1,423 1,939,577 - - 1,941,000
Repayment from ESOP - - - - 139,950 139,950
Net income - - - 7,073,560 - 7,073,560
------------ --------- ------------- ------------- ------------- --------------
Balance at February 28, 1997 8,732,299 57,633 18,938,984 28,234,018 (279,900) 46,950,735
Exercise of stock options 20,777 137 103,246 - - 103,383
Loan to ESOP - - - - (950,014) (950,014)
Repayment from ESOP - - - - 139,950 139,950
Net income - - - 5,297,991 - 5,297,991
------------ --------- ------------- ------------- ------------- --------------
Balance at February 28, 1998 8,753,076 $57,770 $19,042,230 $33,532,009 $(1,089,964) $51,542,045
============ ========= ============= ============= ============= ==============
</TABLE>
See notes to consolidated financial statements
Page F-4
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-----------------------------------------------------------------------
<S> <C> <C> <C>
FEBRUARY FEBRUARY FEBRUARY
28, 1998 28, 1997 29, 1996
------------------- ------------------- -------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS:
Cash flows from operating activities:
Cash received from customers $ 226,296,024 $ 215,279,744 $ 192,949,945
Cash paid to suppliers and employees (232,653,486) (197,159,875) (196,045,525)
Interest received 9,797 8,134 2,541
Interest paid (1,723,163) (1,701,092) (2,026,717)
Income taxes paid (4,511,763) (1,677,850) (6,034,790)
------------------- ------------------- -------------------
Net cash provided (used) by
operating activities (12,582,591) 14,749,061 (11,154,546)
------------------- ------------------- -------------------
Cash flows from investing activities:
Capital expenditures (1,176,904) (4,936,512) (1,055,558)
Purchase of stock for ESOP (950,014) - (559,800)
Proceeds from sale of building 1,126,840 - -
------------------- ------------------- -------------------
Net cash (used) by investing
activities (1,000,078) (4,936,512) (1,615,358)
------------------- ------------------- -------------------
Cash flows from financing activities:
Borrowings under revolving credit line 51,650,000 21,150,000 65,000,000
Repayments under revolving credit line (34,350,000) (30,450,000) (52,100,000)
Principal payments of long-term debt (433,129) (619,254) (413,884)
Proceeds from exercise of employee
stock options 103,383 178,522 99,336
Proceeds from long-term debt - - 559,800
------------------- ------------------- -------------------
Net cash provided by (used in)
financing activities 16,970,254 (9,740,732) 13,145,252
------------------- ------------------- -------------------
Net increase in cash and cash equivalents 3,387,585 71,817 375,348
Cash and cash equivalents, beginning of year 946,084 874,267 498,919
------------------- ------------------- -------------------
Cash and cash equivalents, end of year $ 4,333,669 $ 946,084 $ 874,267
=================== =================== ===================
</TABLE>
See notes to consolidated financial statements.
Page F-5
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------------------------------------------
<S> <C> <C> <C>
FEBRUARY FEBRUARY FEBRUARY
28, 1998 28, 1997 29, 1996
---------------- ------------------- ------------------
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING
ACTIVITIES:
Net income $ 5,297,991 $ 7,073,560 $ 9,396,301
---------------- ------------------- ------------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,488,057 1,238,967 1,169,816
Bad debts 315,000 701,500 635,000
Contribution to ESOP (compensation) 139,950 139,950 139,950
Loss on sale of building 60,871 - -
Changes in assets and liabilities:
(Increase) in accounts receivable (7,029,384) (1,332,963) (9,853,239)
(Increase) decrease in inventories (14,240,320) 7,044,345 (14,553,370)
(Increase) decrease in prepaid
expenses and other current assets (1,933,738) (1,889,346) 623,688
(Increase) in other assets (80,951) (77,902) (77,969)
Increase in accounts payable
and accrued expenses 3,190,686 1,964,667 1,666,050
Increase (decrease) in income taxes - (220,288) 212,545
(Decrease) in other current liabilities - - (43,686)
(Decrease) increase in deferred taxes 209,247 106,571 (469,632)
Total adjustments (17,880,582) 7,675,501 (20,550,847)
---------------- ------------------- ------------------
Net cash provided (used) by operating activities $(12,582,591) $14,749,061 $(11,154,546)
================ =================== ==================
</TABLE>
NON-CASH FINANCING ACTIVITIES:
During the year ended February 29, 1996, the subordinated debt-holder
(see Note 7) converted $6,000,000 of debt into 666,666 shares of the Company's
common stock.
During the year ended February 28, 1997, the subordinated debt-holder
(see Note 7) converted $1,941,000 of debt into 215,667 shares of the Company's
common stock.
See notes to consolidated financial statements.
Page F-6
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998
-----------------------------------
1. ORGANIZATION:
Nu Horizons Electronics Corp. and its subsidiaries, NIC Components Corp.,
and Nu Horizons International Corp., were incorporated in the State of New
York on October 22, 1982, November 8, 1982, and December 8, 1986,
respectively. Nu Visions Manufacturing, Inc. was incorporated in the State
of Massachusetts on August 9, 1991. On April 15, 1987, Nu Horizons
Electronics Corp. was reincorporated in the State of Delaware. On April 18,
1994, Nu Horizons/Merit Electronics Corp. was incorporated in the State of
Delaware, for the express purpose of acquiring the business of Merit
Electronics Corp. All companies are wholesale distributors throughout the
United States or export distributors of electronic components, except for Nu
Visions Manufacturing, which is a contract assembler of circuit boards and
various electromechanical devices.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation:
The consolidated financial statements include the accounts of Nu
Horizons Electronics Corp., (the "Company") and its wholly-owned
subsidiaries, NIC Components Corp. ("NIC"), Nu Horizons/Merit
Electronics Corp. ("NUM"), Nu Visions Manufacturing, Inc. ("NUV") and Nu
Horizons International Corp. ("International"). All material
intercompany balances and transactions have been eliminated.
b. Use of Estimates:
In preparing financial statements, in accordance with generally accepted
accounting principles, management makes certain estimates and
assumptions, where applicable, that affect the reported amounts of
assets, liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements, as well as reported amounts of
revenues and expenses during the reporting period. While actual results
could differ from those estimates, management does not expect such
variances, if any, to have a material effect on the financial
statements.
c. Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk consists principally of cash and accounts
receivable.
The Company maintains, at times, deposits in federally insured financial
institutions in excess of federally insured limits. Management attempts
to monitor the soundness of the financial institution and believes the
Company's risk is negligible.
Concentrations with regard to accounts receivable are limited due to the
Company's large customer base.
The carrying amounts of cash, accounts receivable, accounts payable and
accrued expenses approximate fair value due to the short-term nature of
these items. The carrying amount of long-term debt also approximates
fair value since the interest rates on these instruments approximate
market interest rates.
d. Inventories:
Inventories, which consist primarily of goods held for resale, are
stated at the lower of cost (first-in, first-out method) or market.
Page F-7
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
e. Depreciation:
Depreciation is provided using the straight-line method as follows:
Office equipment 5 years
Furniture and fixtures 5 - 12 years
Computer equipment 5 years
Leasehold improvements are amortized over the term of the lease.
Maintenance and repairs are charged to operations and major
improvements are capitalized. Upon retirement, sale or other
disposition, the associated cost and accumulated depreciation are
eliminated from the accounts and any resulting gain or loss is
included in operations.
f. Income Taxes:
The Company has elected to file a consolidated federal income tax
return with its subsidiaries. The Company utilizes Financial
Accounting Standards Board Statement No. 109 (SFAS 109) "Accounting
for Income Taxes". SFAS 109 requires use of the asset and liability
approach of providing for income taxes. Deferred income taxes are
provided for on the timing differences for certain items which are
treated differently for tax and financial reporting purposes. These
items include depreciation of fixed assets, inventory capitalization
valuations and the recognition of bad debt expense.
International has elected under Section 995 of the Internal Revenue
Code to be taxed as an "Interest Charge Disc". Based upon these rules,
income taxes are paid when International distributes its income to the
parent company. Until distributions are made, the parent company pays
interest only on the deferred tax liabilities. International's untaxed
income at February 28, 1998 approximates $3,000,000.
g. Goodwill:
Costs in excess of net assets acquired are being amortized on a
straight-line basis over fifteen years. As of February 28, 1998 and
1997, accumulated amortization of goodwill aggregated $601,542 and
$444,618, respectively.
The Company periodically reviews the valuation and amortization of
goodwill to determine possible impairment by comparing the carrying
value to the undiscounted future cash flows of the related assets, in
accordance with Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-lived Assets and for Long-
lived Assets to be Disposed of.
h. Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company considers
all highly liquid investments purchased with a remaining maturity of
three months or less to be cash equivalents.
Page F-8
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
i. Earnings Per Common Share:
Basic and diluted earnings per share have been computed in accordance
with the adoption of SFAS No. 128. In addition, prior period per share
data has been restated in accordance with SFAS No. 128.
The following average shares were used for the computation of basic
and diluted earnings per share:
1998 1997 1996
--------------- --------------- ---------------
Basic 8,753,076 8,732,299 7,903,839
Diluted 10,898,859 10,818,859 10,410,699
j. Reclassifications:
Certain prior year information has been reclassified to conform to the
current year's reporting presentation.
k. Stock-Based Compensation:
SFAS No. 123 "Accounting for Stock Based Compensation", effective
January 1, 1996, requires the Company to either record compensation
expense or to provide additional disclosures with respect to stock
awards and stock option grants made after December 31, 1994. The
accompanying Notes to Consolidated Financial Statements include the
disclosures required by SFAS No. 123. No compensation expense is
recognized pursuant to the Company's stock option plans under SFAS No.
123 which is consistent with prior treatment under APB No. 25.
l. Advertising and Promotion Costs:
Advertising and promotion costs, which are included in general and
administrative expenses, are expensed as incurred. For the three years
ended February 28, 1998, such costs aggregated $774,000, $616,000 and
$615,000, respectively.
m. New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" is effective for years
beginning after December 15, 1997 and early adoption is permitted.
This statement prescribes standards for reporting comprehensive income
and its components. Since the Company currently does not have any
items of other comprehensive income, a statement of comprehensive
income is not required.
SFAS 131 "Disclosures About Segments of an Enterprise and Related
Information", is effective for years beginning after December 15, 1997
and early adoption is encouraged. The Company will adopt this standard
in the next fiscal year.
See also Earnings Per Share, above.
Page F-9
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
n. Impact of the Year 2000 Issue:
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
of the Company's computer programs that has date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. This could potentially result in a system failure or
miscalculations causing disruptions of operations including among
other things, a temporary inability to process transactions, send
invoices, or engage in other similar normal business activities. The
Company has ensured that its software is already year 2000 compliant,
and as such this issue is not expected to have a material effect on
the operations of the Company.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment which is reflected at cost, consists of
the following:
1998 1997
----------- -----------
Land $ - $ 266,301
Building and improvements - 1,747,930
Furniture, fixtures and office
equipment 6,290,449 5,791,946
Computer equipment 3,016,739 2,476,185
Assets held under capitalized leases 919,834 919,834
Leasehold improvements 1,254,364 984,146
----------- -----------
11,481,386 12,186,342
Less: accumulated depreciation
and amortization 5,121,611 4,635,986
----------- -----------
$ 6,359,775 $ 7,550,356
=========== ===========
Depreciation expense including depreciation of capitalized leases for the
years ended February 28, 1998, February 28, 1997 and February 29, 1996
aggregated $1,331,133, $825,960 and $756,808, respectively.
During the current fiscal year the Company completed the sale of the land
and building that served as its prior corporate headquarters.
4. OTHER ASSETS:
Other assets as of February 28, 1998 and February 28, 1997 consists of the
following:
1998 1997
---------- ----------
Net cash surrender value life insurance $ 937,878 $ 869,473
Debt issue costs net (Note 7) - 151,359
Other 64,848 52,302
----------
$1,002,726 $1,073,134
========== ==========
Page F-10
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
5. REVOLVING CREDIT LINE:
On May 23, 1997 the Company entered into a new unsecured revolving line of
credit with two banks, which currently provides for maximum borrowings of
$35,000,000 at either (i) the lead bank's prime rate or (ii) LIBOR plus 57.5
to 112.5 basis points depending on the ratio of the Company's debt to its
earnings before interest, taxes, depreciation and amortization, at the
option of the Company through May 23, 2001. Direct borrowings under lines of
credit were $25,300,000 and $8,000,000 at February 28, 1998 and February 28,
1997, respectively. The credit agreement contains various covenants
including certain restrictions on the payment of cash dividends without the
bank's consent. As of the end of the fiscal year, the Company met all of the
required covenants.
6. LONG-TERM DEBT:
Long-term debt consists of the following:
1998 1997
---------- --------
Term loan payable to bank, due in monthly
installments of $9,321 plus interest at
the bank's prime rate to March 31, 2000 $ - $354,182
Various capitalized equipment leases,
interest rates ranging from
6.78% to 8.38%, maturing in 1997 and 1998. - 78,947
---------- ---------
433,129
Less: current portion - 190,794
---------- ---------
$ - $242,335
========== =========
The term loan payable was secured by a pledge of the shares of the common
stock of the Company purchased with the proceeds of the loans (See Note 10).
Other equipment loans were secured by the specific equipment acquired.
Page F-11
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
7. SUBORDINATED CONVERTIBLE NOTES:
In a private placement completed on August 31, 1994, the Company issued $15
million principal amount of Subordinated Convertible Notes, which are due in
$5,000,000 increments on August 31, 2000, 2001 and 2002. The notes are
subordinate in right of payment to all existing and future senior
indebtedness of the Company. The notes bear interest at 8.25%, payable
quarterly on November 15, February 15, May 15, and August 15. The notes are
convertible into shares of common stock at a conversion price of $9.00 per
share. The cost of issuing these notes was $521,565 and was amortized over
three years.
As of February 28, 1998, $7,941,000 of the notes had been converted into
882,333 shares of common stock and $7,059,000 principal amount of
subordinated convertible notes remained outstanding which are due in
increments of $2,353,000 on August 31, 2000, 2001 and 2002.
8. STOCK OPTIONS:
Stock options granted to date under the Company's Key Employees Stock
Incentive Plan and the 1994 Stock Option Plan generally expire five years
after 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 Outside Director Stock Option Plan expire ten years after the date
of grant and become exercisable in three equal annual installments on the
date of grant and the succeeding two anniversaries thereof.
A summary of options granted and related information for the three years
ended February 28, 1998 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------------- ----------------
<S> <C> <C>
Outstanding, February 28, 1995 717,415 $ 6.46
Granted 323,000 9.33
Exercised (24,420) 4.07
Cancelled (23,023) 2.86
--------------
Outstanding, February 28, 1996 992,972 7.54
Weighted average fair value of options granted during the year $ 4.50
======
Granted 471,500 8.56
Exercised (93,495) 1.91
Canceled (68,750) 10.36
--------------
Outstanding, February 28, 1997 1,302,227 8.16
Weighted average fair value of options granted during the year $ 4.39
======
Granted 118,500 8.30
Exercised (20,777) 4.98
Canceled (38,500) 10.14
--------------
Outstanding, February 28, 1998 1,361,450 8.20
==============
Weighted average fair value of options granted during the year $ 3.13
======
Options exercisable:
February 29, 1996 159,945 7.35
February 28, 1997 381,377 7.86
February 28, 1998 673,825 7.52
</TABLE>
Page F-12
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
8. STOCK OPTIONS (continued):
Exercise prices for options outstanding as of February 28, 1998 ranged from
$5.41 to $14.83. The weighted-average remaining contractual life of these
options is approximately 5 years. Outstanding options at February 28, 1998
are held by 44 individuals.
The Company applies APB 25 and related Interpretations in accounting for the
Option Plans. Accordingly, no compensation cost has been recognized for its
Option Plans. Had compensation cost for the Option Plans been determined
using the fair value based method, as defined in SFAS 123, the Company's net
earnings and earnings per share would have been adjusted to the pro forma
amounts indicated below:
1998 1997 1996
---------- ---------- ----------
Net earnings:
As reported $5,297,991 $7,073,560 $9,396,301
Pro forma 4,827,590 7,051,451 7,996,865
Basic earnings per share:
As reported $ .61 $ .81 $ 1.19
Pro forma .55 .81 1.01
Diluted earnings per share:
As reported $ .52 $ .69 $ .97
Pro forma .47 .68 .83
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for 1998, 1997 and 1996, respectively: expected
volatility of 45.8%, 48.3% and 39.8%, respectively; risk free interest rate
of 6.1%, 6.5% and 6.5% for 1998, 1997 and 1996, respectively; and expected
lives of 1 to 5 years.
The effects of applying SFAS 123 in the above pro forma disclosures are not
indicative of future amounts, as they do not include the effects of awards
granted prior to 1995. Additionally, future amounts are likely to be
affected by the number of grants awarded since additional awards are
generally expected to be made at varying amounts.
9. INCOME TAXES:
The provision for income taxes is comprised of the following:
February February February
28, 1998 28, 1997 29, 1996
---------- ---------- ----------
Current:
Federal $3,103,097 $4,213,767 $5,082,876
State and Local 655,559 900,193 1,107,016
Deferred:
Federal (74,103) (221,867) 178,923
State (35,007) (44,397) 34,476
---------- ----------
$3,649,546 $4,847,696 $6,403,291
========== ========== ==========
Page F-13
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
9. INCOME TAXES (continued):
The components of the net deferred income tax liability, pursuant to SFAS
109, as of February 28, 1998 and February 28, 1997 are as follows:
1998 1997
------------ ------------
Deferred Tax Assets:
Accounts Receivable $ 708,610 $ 679,600
Inventory 100,300 162,400
----------- -----------
Total Deferred Tax Assets 808,910 842,000
----------- -----------
Deferred Tax Liabilities
Fixed Assets (184,500) (112,148)
Income of Interest Charge DISC (1,055,805) (952,000)
Total Deferred Tax Liabilities (1,240,305) (1,064,148)
----------- -----------
Net Deferred Tax Liabilities $ (431,395) $ (222,148)
=========== ===========
The following is a reconciliation of the maximum statutory federal tax rate
to the Company's effective tax rate:
1998 1997 1996
--------- --------- -----------
Statutory rate 35.0% 35.0% 35.0%
State and local taxes 7.1 7.0 6.5
Other (1.3) (1.3) (1.0)
----- ----- -----
Effective tax rate 40.8% 40.7% 40.5%
===== ===== =====
10. EMPLOYEE BENEFIT PLANS:
On January 13, 1987, the Company's Board of Directors approved the
termination of the Company's pension plan and approved the adoption of an
employee stock ownership plan (ESOP) to replace the terminated pension plan.
The ESOP covers all eligible employees and contributions are determined by
the Board of Directors. The ESOP purchases shares of the Company's common
stock using loan proceeds. As the loan is repaid, a pro rata amount of
common stock is released for allocation to eligible employees. The Company
makes cash contributions to the ESOP to meet its obligations. Contributions
to the ESOP for the three years ended February 28, 1998 aggregated $139,950
for each year.
On October 31, 1997, the Company, on behalf of the ESOP, entered into an
additional credit agreement with a bank which provides for a $3,000,000
revolving line of credit at the bank's prime rate until October 31, 2001.
Direct borrowings under this line of credit are payable in forty-eight equal
monthly installments commencing with the fiscal period subsequent to such
borrowings. At February 28, 1998, there were no direct borrowings
outstanding under the ESOP line of credit.
In January 1991, the Company also established a 401-K profit sharing plan to
cover all eligible employees. The Company's contributions to the plan are
discretionary, but may not exceed 1% of compensation. Contributions to the
plan for the three years ended February 28, 1998 were $220,403, $111,585 and
$90,243, respectively.
Page F-14
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
11. COMMITMENTS:
(a) On September 13, 1996, the Company signed employment contracts (the
"Contracts"), as amended, with three of its senior executives for a
continually renewing five year term. The Contracts specify a base
salary of $226,545 for each officer, which shall be increased each
year by the change in the consumer price index, and also entitle each
of the officers to an annual bonus equal to 3.33% (10% in the
aggregate) of the Company's consolidated earnings before income taxes.
Benefits are also payable upon the occurrence of either a change in
control of the Company, as defined, or the termination of the
officer's employment, as defined. The Contracts also provide for
certain payments of the executives' salaries, performance bonuses and
other benefits in event of death or disability of the officer for the
balance of the period covered by the agreement.
(b) In December 1996, the Company leased an approximately 80,000 square
foot facility in Melville, Long Island, New York to serve as its
executive offices and main distribution center. In mid- 1997, the
Company moved its executive offices and distribution operation to the
facility. The lease term is from December 17, 1996 to December 16,
2008 at an annual base rental of $601,290 and provision for a 4%
annual escalation in each of the last ten years of the term. The
Company also leases certain other office, warehouse and other
properties which leases include various escalation clauses, renewal
options, etc. Aggregate minimum rental commitments under noncancelable
operating leases are as follows:
Fiscal 1999 $1,601,614
Fiscal 2000 1,502,220
Fiscal 2001 1,342,167
Fiscal 2002 935,134
Fiscal 2003 683,296
Thereafter 4,243,090
Rent expense was $1,459,325, $712,548, and $587,079 for each of the
prior three years in the period ending February 28, 1998.
(c) The Company has signed a four-year consulting agreement with the
former owner of Merit Electonics that commenced on April 29, 1994 and
terminates on April 28, 1998. The agreement provides for the
consultant to perform advisory services to Nu Horizons/Merit and to
receive consulting fees of approximately $665,000 per annum.
12. MAJOR SUPPLIERS:
For the year ended February 28, 1998, the Company purchased inventory from
one supplier that was in excess of 10% of the Company's total purchases.
Purchases from this supplier aggregated approximately $18,872,000.
For the year ended February 28, 1997, the Company purchased inventory from
one supplier that was in excess of 10% of the Company's total purchases.
Purchases from this supplier aggregated approximately $21,385,000.
For the year ended February 29, 1996, the Company purchased inventory from
two suppliers that were in excess of 10% of the Company's total purchases.
Purchases from these suppliers aggregated approximately $33,505,000.
Page F-15
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
13. BUSINESS SEGMENT INFORMATION:
The Company's operations have been classified into two business segments:
Electronic component distribution and industrial contract manufacturing. The
component distribution segment includes the resale of active and passive
components to various original equipment manufacturers and distributors. The
industrial contract-manufacturing segment consists of a subsidiary, which
provides electronic circuit board and harness assembly services to original
equipment manufacturers. This segment began operations in September 1991.
Summarized financial information by business segment for fiscal 1998 and
1997 is as follows:
1998 1997
- -----------------------------------------------------------------------------
Net sales:
Electronic Component Distribution $221,217,251 $206,417,667
Industrial Contract Manufacturing 12,108,157 10,195,040
- -----------------------------------------------------------------------------
$233,325,408 $216,612,707
Operating income (loss):
Electronic Component Distribution $ 9,430,055 $ 13,019,791
Industrial Contract Manufacturing 1,230,848 594,423
- -----------------------------------------------------------------------------
$ 10,660,903 $ 13,614,214
- -----------------------------------------------------------------------------
Total assets:
Electronic Component Distribution $ 95,519,254 $ 70,577,102
Industrial Contract Manufacturing 4,122,174 4,206,212
- -----------------------------------------------------------------------------
$ 99,641,428 $ 74,783,314
- -----------------------------------------------------------------------------
Depreciation and amortization:
Electronic Component Distribution $ 1,201,732 $ 978,684
Industrial Contract Manufacturing 286,325 260,283
- -----------------------------------------------------------------------------
$ 1,488,057 $ 1,238,967
- -----------------------------------------------------------------------------
Capital expenditures (including capital leases):
Electronic Component Distribution $ 983,419 $ 4,566,196
Industrial Contract Manufacturing 193,485 370,316
- -----------------------------------------------------------------------------
$ 1,176,904 $ 4,936,512
- -----------------------------------------------------------------------------
Page F-16
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1998 (CONTINUED)
-----------------------------------------------
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
THREE MONTH PERIOD ENDED
-------------------------------------------------
FEBRUARY NOVEMBER AUGUST MAY
28,1998 30, 1997 31, 1997 31, 1997
----------- ----------- ----------- -----------
NET SALES $62,347,646 $60,013,458 $56,798,598 $54,165,706
----------- ----------- ----------- -----------
COST OF SALES 48,671,746 47,065,156 44,570,929 42,223,252
----------- ----------- ----------- -----------
OPERATING AND
INTEREST EXPENSES 11,284,786 10,754,379 10,382,809 9,424,814
----------- ----------- ----------- -----------
PROVISION FOR
INCOME TAXES 972,310 888,540 773,444 1,015,252
----------- ----------- ----------- -----------
NET INCOME $ 1,418,804 $ 1,305,383 $ 1,071,416 $ 1,502,388
=========== =========== =========== ===========
BASIC EARNINGS
PER SHARE $.16 $.15 $.12 $.17
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF COMMON
AND COMMON
EQUIVALENT SHARES
OUTSTANDING 8,753,076 8,753,076 8,746,826 8,739,326
=========== =========== =========== ===========
THREE MONTH PERIOD ENDED
FEBRUARY NOVEMBER AUGUST MAY
28,1997 30, 1996 31, 1996 31, 1996
----------- ----------- ----------- -----------
NET SALES $54,198,484 $53,958,639 $50,783,044 $57,672,540
----------- ----------- ----------- -----------
COST OF SALES 42,071,313 41,894,971 39,411,875 44,746,424
----------- ----------- ----------- -----------
OPERATING AND
INTEREST EXPENSES 9,517,539 9,138,969 9,103,283 8,807,077
----------- ----------- ----------- -----------
PROVISION FOR
INCOME TAXES 1,084,131 1,182,805 916,658 1,664,102
----------- ----------- ----------- -----------
NET INCOME $ 1,525,501 $ 1,741,894 $ 1,351,228 $ 2,454,937
=========== =========== =========== ===========
BASIC EARNINGS
PER SHARE $.17 $.20 $.15 $.29
=========== =========== =========== ===========
WEIGHTED AVERAGE
NUMBER OF COMMON
AND COMMON
EQUIVALENT SHARES
OUTSTANDING 8,732,299 8,732,299 8,732,299 8,423,137
=========== =========== =========== ===========
Page F-17
<PAGE>
REPORT OF MANAGEMENT
The management of Nu Horizons Electronics Corp. is responsible for the
preparation of the consolidated financial statements in accordance with
generally accepted accounting principles and for the integrity and objectivity
of all the financial data included in this annual report. In preparing the
financial statements, management makes informed judgments and estimates as to
the expected effects of events and transactions currently being reported.
To meet this responsibility, the Company maintains a system of internal
accounting controls to provide reasonable assurance that assets are safeguarded,
and that transactions are properly executed and recorded. The system includes
policies and procedures, and reviews by officers of the Company.
The Board of Directors, through its Audit Committee, is responsible for
determining that management fulfills its responsibility with respect to the
Company's financial statements and the system of internal accounting controls.
The Audit Committee is composed solely of outside directors. The Committee
meets periodically and, when appropriate, separately with representatives of the
independent accountants and officers of the Company to monitor the activities of
each.
Lazar Levine & Felix LLP, the independent accountants, have been selected by the
Board of Directors to examine the Company's financial statements. Their report
appears herein.
BY: /s/ PAUL DURANDO BY: /s/ ARTHUR NADATA
-------------------------------- -----------------------------
Paul Durando Arthur Nadata
Vice President, Finance and President and
Treasurer Chief Executive Officer
Page F-18
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES:
The Company had no disagreements on accounting or financial
disclosure matters with its accountants, nor did it change accountants,
during the three year period ending February 28, 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY:
NAME AGE POSITION
---- --- --------
Irving Lubman 59 Chief Operating Officer and Chairman
of the Board
Arthur Nadata 52 President, Chief Executive Officer
and Director
Richard S. Schuster 49 Vice-President, Secretary and
Director
Paul Durando 54 Vice President Finance, Treasurer
and Director
Harvey R. Blau 62 Director
Herbert M. Gardner 58 Director
Dominic A. Polimeni 51 Director
The Company's Certificate of Incorporation provides for a Board of
Directors consisting of not less than three nor more than eleven
directors, classified into three classes as nearly equal in number as
possible, whose terms of office expire in successive years. The
following table sets forth the directors of the Company.
<TABLE>
<CAPTION>
Class I Class II Class III
<S> <C> <C>
(To Serve Until the (To Serve Until the (To Serve Until the
Annual Meeting of Annual Meeting of Annual Meeting of
Stockholders in 2000) Stockholders in 1998) Stockholders in 1999)
- --------------------- ----------------------- --------------------
Paul Durando Harvey Blau (1) Irving Lubman
Herbert Gardner (1) Dominic A. Polimeni (1) Arthur Nadata
Richard S. Schuster
</TABLE>
(1) Member of Compensation and Audit Committees
All officers serve at the discretion of the Board. There are no
family relationships among the directors and officers.
Irving Lubman has been Chairman of the Board since October 1982
and Chief Operating Officer since September 1996. Mr. Lubman was Chief
Executive Officer from October 1982 to September 1996. Mr. Lubman has
been actively involved in electronic components' distribution since
1957, when he joined Milgray Electronics Corp., holding the position of
sales manager until 1968. From 1968 through October 1982, when he
joined the Company, Mr. Lubman was corporate vice president of Diplomat
Electronics Corp., also a distributor of electronic components.
Arthur Nadata has been President and a Director since October 1982
and Chief Executive Officer since September 1996. Mr. Nadata was also
the Treasurer of the Company from October 1982 to September 1996. Prior
to joining the Company in October 1982, Mr. Nadata worked for eighteen
years for Diplomat Electronics Corp. in various operational and sales
positions of increasing responsibility, eventually becoming corporate
vice president of sales and marketing.
Page 14
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (Continued):
Richard S. Schuster has been Vice President, Secretary and a Director
since October 1982. For the seven years prior to joining the Company in
November 1982, Mr. Schuster served as manager of Capar Components
Corp., an importer and distributor of passive components, and a wholly-
owned subsidiary of Diplomat Electronics Corp. For the six years prior
to 1975, Mr. Schuster was employed by International Components Corp.,
responsible for production, engineering and sales of imported
semiconductor and passive components.
Paul Durando has been Vice President, Finance since joining the
Company in March 1991, Treasurer since September 1996 and has been a
Director since September 1994. Prior to joining the Company in March
1991, Mr. Durando served for six years as Executive Vice President of
Sigma Quality Foods, Inc. From 1977 to 1984, he was Vice President,
Operations of the Wechsler Coffee Corp. Mr. Durando was also associated
with Deloitte Haskins & Sells for seven years.
Harvey R. Blau has been a director of the Company since May 1984. Mr.
Blau has been a practicing attorney in the State of New York since
1961, and is a member of the law firm of Blau, Kramer, Wactlar &
Lieberman, P.C., Jericho, New York, counsel to the Company. Mr. Blau is
Chairman of the Board of Griffon Corporation and Aeroflex Incorporated
and is a Director of Reckson Associates Realty Corp.
Herbert M. Gardner has been a Director of the Company since May 1984.
For more than the past five years, Mr. Gardner has been Senior Vice
President of Janney Montgomery Scott Inc., investment bankers and
Underwriter of the Company's May 1984 public offering. Mr. Gardner is
Chairman of the Board of Supreme Industries Inc. and a director of
Transmedia Network, Inc., TGC Industries Inc., Hirsch International
Corp., American Country Holdings Company and Inmark Enterprises, Inc.
Dominic A. Polimeni has been a Director of the Company since
September 1997. Mr. Polimeni has been President, Chief Operating
Officer and a Director of Questron Technology, Inc. since March 1995,
and Chairman and Chief Executive Officer of Questron Technology, Inc.
since February 1996. Mr. Polimeni has been a Managing Director of
Gulfstream Financial Group, Inc., a privately held financial consulting
and investment banking firm since August 1990. Prior to that he held
the position of Chief Financial Officer of Arrow Electronics, Inc.
("Arrow") for four (4) years. Mr. Polimeni also practiced as a
Certified Public Accountant for more than 12 years and was a Partner in
the New York office of Arthur Young and Company.
Page 15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION:
The following table sets forth the compensation paid by the Company to
its Chief Executive Officer and each of the three other executive
officers for the years ended February 28, 1998, February 28, 1997 and
February 29, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation (1) Compensation
----------------------- ------------
Securities
Name of Principal Fiscal Underlying All other (2)
and Position Year Salary Bonus Options Compensation
----------------- ------ ------ ----- ---------- -------------
<S> <C> <C> <C> <C> <C>
Irving Lubman 1998 $236,789 $344,370 - $16,781
COO, Chairman 1997 229,893 446,843 100,000 14,945
of the Board 1996 226,545 586,608 50,000 16,660
Arthur Nadata 1998 $236,789 $344,370 - $31,374
President and 1997 229,893 446,843 100,000 18,457
CEO 1996 226,545 586,608 50,000 22,357
Richard Schuster 1998 $236,789 $344,370 - $18,922
Vice President 1997 229,893 446,843 100,000 16,222
Secretary and 1996 226,545 586,608 50,000 17,663
President, NIC
Components Corp.
Paul Durando 1998 $138,942 $ 25,827 15,000 $ 1,389
Vice President, 1997 130,000 33,514 20,000 1,500
Finance and 1996 125,000 45,000 20,000 1,250
Treasurer
</TABLE>
SUMMARY COMPENSATION TABLE Footnotes
(1) No Other Annual Compensation is shown because the amounts of
perquisites and other non-cash benefits provided by the Company do
not exceed the lesser of $50,000 or 10% of the total annual base
salary and bonus disclosed in this table for the respective
officer.
(2) The amounts disclosed in this column include the Company's
contributions on behalf of the named executive officer to the
Company's 401(k)-retirement plan in amounts equal to a maximum of
1% of the executive officer's annual salary and, for Messrs.
Lubman, Nadata and Schuster contributions to life insurance
policies where the Company is not the beneficiary, and the cost to
the Company of the non-business use of Company automobiles used by
executive officers.
Page 16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Employment Contracts
On September 13, 1996 the Company signed employment contracts (the
"Contracts"), as amended, with three of its senior executives for a
continually renewing five year term. The Contracts specify a base
salary of $226,545 for each officer, which shall be increased each year
by the change in the consumer price index, and also entitle each of the
officers to an annual bonus equal to 3.33% (10% in the aggregate) of
the Company's consolidated earnings before income taxes. Benefits are
also payable upon the occurrence of either a change in control of the
Company, as defined, or the termination of the officer's employment, as
defined. In the event the employee terminates his employment within six
months after a change in control of the Company, he will receive a lump
sum payment equal to three-quarters of the remaining compensation under
his employment agreement. The Contracts also provide for certain
payments of the executives' salaries, performance bonuses and other
benefits in the event of death or disability of the officer for the
balance of the period covered by the agreement.
The following table sets forth certain information with respect to
stock options granted to the officers named in the Summary Compensation
Table during the fiscal year ended February 28, 1998.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
% of Total Exercise at Assumed Annual Rates of
Options Options Granted Price Expiration Stock Price Appreciation for
Granted (1) to Employees ($ per share) Date Entire Term (2) (3)
---------- --------------- ------------- ---------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
------- -------
P. Durando 15,000 15.2% $8.56 9/18/02 $35,400 $78,450
</TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR Footnotes
(1) Options were granted for a term of five years, subject to earlier
termination on termination of employment. Options become
exercisable in four equal annual installments commencing one year
from the date of grant.
(2) These amounts represent assumed rates of appreciation, which may
not necessarily be achieved. The actual gains, if any, are
dependent on the market value of the Company's stock at a future
date as well as the option holder's continued employment throughout
the vesting period. Appreciation reported is net of exercise price.
(3) Potential Realizable Value is based on the assumed annual growth
rates for the five-year option term. Annual growth of 5% results in
a stock price of $10.92 per share and 10% results in a price of
$13.79 per share for Mr. Durando on the shares granted at $8.56.
Actual gains, if any, on stock option exercises are dependent on
the future performance of the stock as well as the option holder's
continued employment throughout the vesting period. There can be no
assurance that the amounts reflected in this table will be
achieved. Appreciation reported is net of exercise price.
Page 17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
The following table sets forth certain information as to each exercise
of stock options during the fiscal year ended February 28, 1998 by the
persons named in the Summary Compensation Table and the fiscal year end
value of unexercised options:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR-END
OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY End at FY End
------------ --------------------
Shares Acquired Exercisable/ Exercisable/
on Exercise Value Realized (1) Unexercisable Unexercisable
--------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Irving Lubman - - 161,488 -
137,162 -
Arthur Nadata - - 161,488 -
137,162 -
Richard Schuster - - 161,488 -
137,162 -
Paul Durando - - 24,375 $3,412
41,875 -
</TABLE>
(1) Market value less exercise price, before payment of applicable
federal or state taxes.
Page 18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Directors who are not employees of the Company receive an annual fee of
$2,000 for Board Membership and $500 for each Board of Directors or
Committee meeting attended. There were three meetings of each of the
Board of Directors and the Compensation Committee during the fiscal
year ended February 28, 1998. Each director attended or participated in
all of the meetings of the Board of Directors and the committees
thereof on which he served, except for two directors, who attended two
of three board meetings and one of two board and compensation meetings
respectively.
For the fiscal year ended February 28, 1998, there was one meeting of
the Audit Committee. The Company's Audit Committee is involved in
discussions with the Company's independent public accountants with
respect to the scope and results of the Company's year-end audit, the
Company's internal accounting controls and the professional services
furnished by the independent auditors to the Company. During fiscal
1997, the Company had no standing Nominating Committee or any committee
performing similar functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee consisted during fiscal 1997 of
Messrs. Gardner (Chairman) and Blau. Mr. Gardner is Senior Vice
President of Janney Montgomery Scott, Inc., investment bankers, which
acted as placement agent in connection with the Company's $15 million
private placement of convertible subordinated notes in August 1994. Mr.
Blau is a partner in the law firm of Blau, Kramer, Wactlar & Lieberman,
P.C. The Company has utilized, and anticipates that it will continue to
utilize, the services of Blau, Kramer, Wactlar & Lieberman, P.C. as its
general counsel.
In accordance with rules promulgated by the Securities and Exchange
Commission, the information included under the captions "Compensation
Committee Report on Executive Compensation" and "Company Stock
Performance" will not be deemed to be filed or to be proxy soliciting
material or incorporated by reference in any prior or future filings by
the Company under the Securities Act of 1933 or the Securities Exchange
Act of 1934.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers generally is
determined by the Compensation Committee of the Board of Directors.
Each member of the Compensation Committee is a Director who is not an
employee of the Company or any of its affiliates. The following report
with respect to certain compensation paid or awarded to the Company's
executive officers during fiscal 1997 is furnished by the Compensation
Committee.
GENERAL POLICIES
The Company's compensation programs are intended to enable the Company
to attract, motivate, reward and retain management talent required to
achieve aggressive corporate objectives in a rapidly changing industry,
and thereby increase stockholder value. It is the Company's policy to
provide incentives to its senior management to achieve both short-term
and long-term objectives and to reward exceptional performance and
contributions to the development of the Company's business. To attain
these objectives, the Company's executive compensation program includes
a competitive base salary, coupled with, with respect to certain
executives, a substantial cash bonus which is "at risk" based on the
Company's earnings.
Many of the Company's employees, including its executive officers, also
are eligible to be granted stock options periodically in order to more
directly align their interests with the long-term financial interest of
the Company's stockholders.
Page 19
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
RELATIONSHIP OF COMPENSATION TO PERFORMANCE
The Compensation Committee annually establishes, subject to any
applicable employment agreements, the salaries, which will be paid to
the Company's executive officers during the coming year. In setting
salaries, the Board of Directors takes into account several factors,
including competitive compensation data, the extent to which an
individual may participate in the stock option plan maintained by the
Company and its affiliates, and qualitative factors bearing on an
individual's experience, responsibilities, management and leadership
abilities, and job performance.
Stock options are granted to key employees, including the Company's
executive officers, by the Compensation Committee of the Board of
Directors under the Plans. Among the Company's executive officers, the
number of shares subject to options granted to each individual
generally depends upon his or her base salary and the level of that
officer's management responsibility.
During fiscal 1998, 15,000 options were granted to each outside
director under the Company's Outside Director Stock Option Plan.
Options to purchase 15,000 shares were granted to Mr. Durando under the
Company's Stock Option Plan. Bonuses were paid to three executive
officers, as set forth in the Summary Compensation Table, pursuant to
the terms of their employment agreements with the Company and on a
discretionary basis to Paul Durando, the Company's Vice President,
Finance and Director. This latter bonus was determined to be
appropriate by the Compensation Committee in light of Mr. Durando's
contributions to the Company's performance, his base salary level and
the level of his management responsibilities.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Company has entered into an employment agreement with Arthur
Nadata, the Company's President and Chief Executive Officer, pursuant
to which Mr. Nadata receives a base salary of $226,545, adjusted for
CPI index increases, and an incentive bonus equal to three and thirty-
three one-hundredths percent (3.33%) of the Company's consolidated pre-
tax earnings. In this way, Mr. Nadata's cash compensation is tied
directly to the Company's profitability.
The Compensation Committee
Herbert Gardner
Harvey Blau
Dominic Polimeni
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive
officers, directors and persons who own more than ten percent of a
registered class of the Company's equity securities ("Reporting
Persons") to file report of ownership and changes in ownership on Forms
3, 4 and 5 with the Securities and Exchange Commission (the "SEC") and
the National Association of Securities Dealers (the "NASD"). These
Reporting Persons are required by SEC regulation to furnish the Company
with copies of all Forms 3, 4 and 5 they file with the SEC and NASD.
Page 20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT (CONTINUED)
Based solely on the Company's review of the copies of the forms it has
received, the Company believes that all Reporting Persons complied on a
timely basis with all filing requirements applicable to them with
respect to transactions during fiscal year 1998.
COMPANY STOCK PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock for a five year period (February
28, 1993 to February 28, 1998) with the cumulative total return of the
NASDAQ Market Index (which includes the Company) and a peer group of
companies selected by the Company for purposes of the comparison.
Dividend reinvestment has been assumed and, with respect to companies
in the Peer Group, the returns of each such company have been weighted
to reflect relative stock market capitalization.
COMPARE 5 YEAR CUMLATIVE TOTAL RETURN
AMONG NU-HORIZONS ELECTRONICS CORP.,
NASDAQ MARKET INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
Measurement Period Nu Horizons NASDAQ
(Fiscal Year Covered) Electronics Corp. Market Index Peer Group
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FYE 3/01/93 $100.00 $100.00 $100.00
FYE 2/28/94 219.28 127.41 139.16
FYE 2/28/95 185.30 121.65 133.55
FYE 2/29/96 386.05 167.97 176.67
FYE 2/28/97 228.54 201.61 199.14
FYE 2/28/98 155.96 274.20 204.72
</TABLE>
ASSUMES $100 INVESTED ON MARCH 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING FEBRUARY 28, 1998
Peer group includes All American Semiconductor, Arrow Electronics Inc.,
Avnet Inc., Bell Industries Inc., Bell Microproducts Inc., Jaco
Electronics Inc., Kent Electronics Corp., Marshall Industries, Pioneer
Standard Electronics and Reptron Electronics Inc.
Page 21
<PAGE>
EXECUTIVE COMPENSATION (Continued):
Key Employees Stock Incentive Plan:
The Company has a Key Employees Stock Incentive Plan ("Plan"),
approved by the stockholders in 1984, as amended in September 1987,
which presently covers 712,765 shares of Common Stock. Options are
currently outstanding for 197,450 shares and no shares are currently
available for grant. The Plan is intended to provide an additional
means of inducing executives and other "key salaried employees" of the
Company (which is defined under Section 422A of the Internal Revenue
Code) to join and remain with the Company by offering them a greater
share of the Company's stock and a greater identification with the
Company.
The Board of Directors or a Committee, which may be appointed and
maintained by the Board, shall have the power to administer the Plan.
The Board or Committee has full power and authority: (i) to designate
participants; (ii) to designate options or any portion thereof as
Incentive Stock Options ("ISO"); (iii) to determine the terms and
provisions of respective option agreements (which need not be
identical) including, but not limited to, provisions concerning the
time or times when and the extent to which the stock options
("Options") and Stock Appreciation Rights ("SARs") may be exercised and
the nature and duration of restrictions as to transferability or
constituting substantial risk forfeiture; (iv) to accelerate the right
to an optionee to exercise in whole or in part any previously granted
ISO including any options modified to qualify as ISOs; and (v) to
interpret the provisions and supervise the administration of the Plan.
The Board has appointed the Compensation Committee to administer the
Plan.
The purchase price of each share subject to an Option or any portion
thereof, which has been designated by the Board or the Committee as an
ISO, shall not be less than 100% (or 110%, if at the time of grant the
optionee owns more than 10% of the voting stock of the Company) in the
case of options designated as ISOs or 85% in case of options not
designated as incentive stock options, of the fair market value of such
shares on the date the option is granted. In no event shall the option
price be less than the par value of the stock.
1994 Stock Option Plan:
In September 1994, the Company's stockholders approved the 1994 Stock
Option Plan (the "1994 Plan"), as amended in September 1996, under
which key employees and officers of the Company, its subsidiaries and
affiliates may be granted options to purchase an aggregate of 1,100,000
shares of the Company's Common Stock. The 1994 Plan is administered by
the Compensation Committee, consisting of at least two members of the
Board of Directors. The Compensation Committee, subject to provisions
in the 1994 Plan, has the authority to designate, in its discretion,
which persons are to be granted options, the number of shares subject
to each option, and the period of each option. Each recipient must be
an employee of the Company at the time of grant and throughout the
period ending on the day three months before the date of exercise.
Under the terms of the 1994 Plan, the exercise price of the shares
subject to each option granted will be not less than 85% nor more than
100% of the fair market value at the date of grant or 110% of such fair
market value for options granted to any employee to or director who
owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company. Adjustments will
be made to the purchase price in the event of stock dividends,
corporate reorganizations, or similar events. During fiscal 1998,
98,500 options were granted under the 1994 Plan with exercise prices of
$8.56 and $5.88. Options are currently outstanding for 1,084,000 shares
and 16,000 options are currently available for grant. No options to
purchase shares granted under the 1994 Plan have been exercised.
Page 22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
1994 Stock Option Plan (continued):
The Compensation Committee of the Board of Directors has the
responsibility and authority to administer and interpret the provisions
of the 1994 Plan. The Compensation Committee shall appropriately adjust
the number of shares for which awards may be granted pursuant to the
1994 Plan in the event of reorganization, recapitalization, stock
split, reverse stock split, stock dividend, exchange or combination of
shares, merger, consolidation, rights offering or any change in
capitalization. The Board may, from time to time, amend, suspend or
terminate any or all of the provisions of the 1994 Plan, provided that,
without the participant's approval, no change may be made which would
prevent an ISO granted under the 1994 Plan from qualifying as an ISO
under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code") or results in a modification of the ISO under Section
425(h) of the Code or otherwise alter or impair any right theretofore
granted to any participant; and further provided that, without the
consent and approval of the holders of a majority of the outstanding
shares of Common Stock of the Company present at that meeting at which
a quorum exists, neither the Board not the Committee may make any
amendment which (i) changes the class of persons eligible for options;
(ii) increases (except as provided under Section 1.6 of the 1994 Plan)
the total number of shares or other securities reserved for issuance
under the 1994 Plan; (iii) decreases the minimum option prices stated
in Section 2.2 of the 1994 (other than to change the manner of
determining Fair Market Value to conform to any then applicable
provision of the Code or any regulation thereunder); (iv) extends the
expiration date of the 1994 Plan, or the limit on the maximum term of
options; or (v) withdraws the administration of the 1994 Plan from a
committee consisting of two or more members, each of whom is a
Disinterested Person. With the consent of the Participant affected
thereby, the Committee may amend or modify any outstanding option in
any manner not inconsistent with the terms of the 1994 Plan.
Outside Director Stock Option Plan:
In September 1994, the Company's stockholders approved the Outside
Directors Stock Option Plan (the "Director Plan") which covers 150,000
shares of the Company's Common Stock. The primary purposes of the
Director Plan are to attract and retain well-qualified persons for
service as directors of the Company and to provide such outside
directors with the opportunity to increase their proprietary interest
in the Company's continued success and further align their interests
with the interests of the stockholders of the Company through the grant
of options to purchase shares of the Company's Common Stock.
All directors of the Company who are not employees of the Company, of
which there are presently two, are eligible to participate in the
Director Plan. None of the non-employee directors are eligible to
participate in any of the other compensation plans of the Company.
The Board of Directors of the Company may amend the Director Plan
from time to time in such manner as it may deem advisable. The
provisions of the Director Plan relating to (i) which directors shall
be granted options; (ii) the amount of Shares subject to options
granted; (iii) the price at which shares subject to options may be
purchased; and (iv) the timing of grants of options shall not be
amended more than once every six (6) months, other than to comport with
changes in the Code or the Employee Retirement Income Security Act of
1974, as amended. No amendment to the Director Plan shall adversely
affect any outstanding option, however, without the consent of the
optionee that holds such option.
Page 23
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Outside Director Stock Option (continued):
The Compensation Committee of the Board of Directors has the
responsibility and authority to administer and interpret the provisions
of the Director Plan. The Compensation Committee shall appropriately
adjust the number of shares for which awards may be granted pursuant to
the Director Plan in the event of reorganization, recapitalization,
stock split, reverse stock split, stock dividend, exchange or
combination of shares, merger, consolidation, rights offering, or any
change in capitalization.
Under the Director Plan, each non-employee Director ("Outside
Director") received options to purchase 10,000 shares of Common Stock
at a price of $8.25 per share (the price of shares of Common Stock on
June 1, 1994) and on the June 1 of each subsequent year each non-
employee director has or will be granted options to purchase 10,000
shares of Common Stock at a price equal to the closing price of the
Common Stock on a national securities exchange upon which the Company's
stock is listed or the average of the mean between the last reported
"bid" and "asked prices if the Common Stock is not so listed for the
five business days immediately preceding the date of grant. Options
awarded to each outside director vest in three equal installments over
a period of two years, subject to forfeiture under certain conditions
and shall be exercisable by the Outside Director upon vesting.
Summary of Fiscal 1998 Stock Option Grants:
During fiscal 1998, the Company granted options to purchase 15,000
shares to Mr. Durando at a price of $8.56 per share and options to
purchase 10,000 shares to each of Messrs. Blau and Gardner at at a
price of $8.99 per share.
Employee Stock Ownership Plan:
In January 1987, the Company adopted an Employee Stock Ownership Plan
("ESOP" or "Plan") which covers substantially all of the Company's
employees. The ESOP is managed by three Trustees, Messrs. Lubman,
Nadata and Schuster (the "Trustees"), who vote the securities held by
the Plan (other than securities of the Company which have been
allocated to employees' accounts).
The annual contributions to the Plan are to be in such amounts, as
the Board of Directors in its sole discretion shall determine. Each
employee who participates in the Plan has a separate account and the
annual contribution by the Company to an employee's account is not
permitted to exceed the lesser of $30,000 (or such other limit as may
be the maximum permissible pursuant to the provisions of Section 415 of
the Internal Revenue Code and Regulations issued hereunder) or 25% of
such employee's annual compensation, as defined under the Plan. No
contributions are required/of, nor shall any be accepted from, any
employee.
Page 24
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Employee Stock Ownership Plan (continued):
All contributions to the Plan are invested in the Company's
securities (except for temporary investments), the Trustees having the
right to purchase the Company's securities on behalf of employees. The
Trustees are considered the stockholder for the purpose of exercising
all owners' and stockholders' rights, with respect to the Company's
securities held in the Plan, except for voting with respect to the
Company's securities held in the Plan, except for voting rights which
insure to the benefit of each employee who can vote all shares held in
his account, even if said shares are not vested. Vesting is based upon
an employee's years of service, employees generally becoming fully
vested after six years.
Benefits are payable to employees at retirement or upon death,
disability or termination of employment, with payments commencing no
later than sixty days following the last day of the Plan year in which
such event occurred. Subject to the right of the employee to demand
payment in the form of the Company's Common Stock, all benefits are
payable in cash or in Common Stock, at the discretion of the Trustees.
The Trustees are empowered to borrow funds for the purpose of
purchasing the Company's securities. The securities so purchased are
required to be held in an acquisition indebtedness account, to be
released and made available for reallocation as principal is repaid. In
May, 1997 the Company, on behalf of the ESOP, entered into a revolving
credit agreement with its bank which provides for a $3,000,000
revolving line of credit at the bank's prime rate until May 22, 2001.
Direct borrowings under this line of credit are payable in forty-eight
equal monthly installments commencing with the fiscal period subsequent
to such borrowings. At February 28, 1998, the ESOP owned 446,487 shares
at an average price of approximately $3.79 per share.
401(k) Savings Plan
The Company sponsors a retirement plan intended to be qualified under
Section 401(k) of the Code. All non-union employees over age 21 who
have been employed by the Company for at least six months are eligible
to participate in the plan. Employees may contribute to the plan on a
tax-deferred basis up to 15% of their total annual salary, but in no
event more than the maximum permitted by the Code ($9,500 in calendar
1997). Company contributions are discretionary. Effective with the plan
year ended February 28, 1998, the Company has elected to make matching
contributions at the rate of $ .25 per dollar contributed by each
employee up to a maximum of 1% of an employee's salary vesting at the
cumulative rate of 20% per year of service starting one year after
commencement of service and, accordingly, after five years of any
employee's service with Company, matching contributions by the Company
are fully vested. As of February 28, 1998 approximately 250 employees
had elected to participate in the plan. For the fiscal year ended
February 28, 1998, the Company contributed approximately $220,404 to
the plan, of which $8,457 was a matching contribution of $2,356 for
each of Mr. Lubman, Mr. Nadata, Mr. Schuster and $1,389 for Mr.
Durando.
Page 25
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The following table sets forth, as of May 1, 1998, certain
information with regard to the record and beneficial ownership of the
Company's Common Stock by (i) all persons known to the Company to be
beneficial owners of more than 5% of the company's outstanding Common
Stock, based on filings with the Commission; (ii) each Director, (iii)
the Company's Chief Executive Officer and the three other most highly
compensated executive officers of the Company; and (iv) all executive
officers and Directors as a group.
<TABLE>
<CAPTION>
NAME SHARES PERCENT
----------------------------------------------------- ----------------------- ----------------
<S> <C> <C>
Paul Durando 35,768 (1) (2) *
Herbert M. Gardner 42,862 (3) *
Harvey R. Blau 37,075 (3) *
Irving Lubman 232,087 (4) (5) 2.1%
Arthur Nadata 472,247 (4) (5) (6) 4.3%
Richard S. Schuster 491,650 (4) (5) 4.5%
Dominic Polimeni 0 *
All officers and directors as a group (7 persons) 1,311,689 11.9%
</TABLE>
NOTES:
------
(*) Less than 1% of the Company's outstanding stock.
(1) Includes options exercisable within 60 days for 31,250 shares of
common stock under the Company's Key Employees Stock Option Plan
and the 1994 Stock Option Plan.
(2) Includes 4,518 shares of fully vested common stock owned through
the Employee's Stock Ownership Plan, which include voting power.
(3) Includes options exercisable within 60 days for 36,667 shares of
common stock under the Company's Outside Director Stock Option
Plan.
(4) Includes options exercisable within 60 days for 186,150 shares of
common stock under the Company's Key Employees Stock Option Plan
and the 1994 Stock Option Plan.
(5) Includes 14,399 shares of fully vested common stock owned through
the Employees Stock Ownership Plan, which include voting power.
These Officers are also Trustees of the Plan.
(6) Includes 45,398 shares held by his children as to which Mr. Nadata
disclaims beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Harvey R. Blau, a Director of the Company, is a member of Blau,
Kramer, Wactlar & Lieberman, P.C., general counsels to the Company. For
the fiscal year ended February 28, 1998, the Company paid $71,614 in
legal fees to Blau, Kramer, Wactlar & Lieberman, P.C.
For the fiscal year ended February 28, 1998, the Company received an
aggregate $740,514 in respect of various electronic components sold to
Procomponents, Inc. and PCI Manufacturing, two corporations in which
Mitchell Lubman, Mr. Lubman's brother, is an officer and owns greater
than ten percent equity interest.
For the fiscal year ended February 28, 1998, the Company received an
aggregate $589,676 in respect of various electronic components sold to
Brevan Electronics, a corporation in which Stuart Schuster, Mr.
Schuster's brother, is an officer and owns a greater than ten percent
equity interest.
Page 26
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(a) (1) The following consolidated financial statements of the registrant and
its subsidiaries are filed as a part of this report:
<TABLE>
<CAPTION>
Page
-------------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of February 28, 1998 and February 28, 1997 F-2
Consolidated Statements of Income for the three years in the period ended February 28, 1998 F-3
Consolidated Statements of Changes in Shareholders' Equity for the three years in the
period ended February 28, 1998 F-4
Consolidated Statements of Cash Flows for the three years in the period ended February 28,
1998 F-5
Notes to Consolidated Financial Statements F-7
Schedule II Valuation and Qualifying Accounts and Reserves 34
(a) (3) See exhibits required Item (c) below
(b) No reports were filed by the Company on Form 8-K during the last quarter of
the fiscal year.
(c) Exhibits
</TABLE>
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended (Incorporated by
Reference to Exhibit 3.1 to the Company's Annual Report on Form
10-K for the year ended February 29, 1988)
3.2 By-laws, as amended (Incorporated by Reference to Exhibit 3.2
to the Company's Annual Report on Form 10-K for the year ended
February 29, 1988)
3.3 Certificate of Amendment to Certificate of Incorporation
(Incorporated by Reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended August 31,
1994)
4.1 Specimen Common Stock Certificate (Incorporated by Reference as
Exhibit 4.1 to the Company's Registration Statement on Form S-
1, Registration No. 2-89176).
Page 27
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(c) Exhibits (continued):
EXHIBIT
NUMBER DESCRIPTION
-----------------------------------------------------------------------
10.1 The Registrant's Key Employee Incentive Stock Option Plan, as
amended (Incorporated by Reference to the Company's
Registration statement on form S-8 Registration No. 33-20661).
10.2 Agreement between the Company and Trustees relating to the
Company's Employee Stock Ownership Plan (Incorporated by
Reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended February 28, 1987).
10.3 Employment Agreements, as amended, between the Company and
Messrs. Lubman, Nadata and Schuster. (Incorporated by Reference
to Exhibit 10.7 to the Company's annual report on Form 10-K for
the year ended February 28, 1994).
10.4 Amended and restated Revolving Credit Agreement with National
Westminster Bank USA dated as of April 29, 1994 (Incorporated
by Reference to Exhibit 10 to the Company's Report on Form 8-K
dated April 29, 1994).
10.5 Asset Purchase Agreement dated April 29, 1994 between Nu
Horizons/Merit Electronics Corp., Merit Electronics, Inc. and
Robert G. Pipkin (Incorporated by Reference to Exhibit 2 to the
Company's Report on Form 8-K dated April 29, 1994).
10.6 Note Agreement dated August 15, 1994 between the Company and
Massachusetts Mutual Life Insurance Company (Incorporated by
Reference to Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 31, 1994).
10.7 Amendment No. 1 to Amended and Restated Revolving Credit
Agreement dated as of August 24, 1994 between the Company and
National Westminster Bank USA (Incorporated by Reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended August 31, 1994).
10.8 1994 Stock Option Plan (Incorporated by Reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended August 31, 1994).
10.9 Outside Director Stock Option Plan (Incorporated by Reference
to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 31, 1994).
10.10 Agreement dated September 22, 1995 between the Company and Paul
Durando (Incorporated by Reference to Exhibit 10.13 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
August 31, 1995).
Page 28
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(d) Exhibits (continued):
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
10.11 Amendment No. 2 to Amended and Restated Revolving Credit
Agreement and Tenth Amendment to Revolving Credit and Term
Loan Agreement dated as of November 29, 1995, between the
Company and National Westminster bank, USA. (Incorporated by
Reference to Exhibit 10.14 to the Company's Quarterly Report
on Form 10Q for the quarter ended November 30, 1995).
10.12 Amendment No. 3 to Amended and Restated Revolving Credit
Agreement and Eleventh Amendment to Revolving Credit and Term
Loan Agreement dated as of November 30, 1995, between the
Company and National Westminster Bank, USA. (Incorporated by
Reference to Exhibit 10.15 to the Company's Quarterly Report
on Form 10Q for the quarter ended November 30, 1995).
10.13 Amendment No. 4 to Amended and Restated Revolving Credit
Agreement and Twelfth Amendment to Revolving Credit and Term
Loan Agreement dated as of April 8, 1996, between the Company
and NatWest Bank N.A. (formerly known as National Westminster
Bank, USA). (Incorporated by Reference to Exhibit 10.13 to the
Company's Annual Report on Form 10K for the fiscal year ended
February 28, 1997).
10.14 Amendment No. 5 to Amended and Restated Revolving Credit
Agreement and Thirteenth Amendment to Revolving Credit and
Term Loan Agreement dated as of June 10, 1996, between the
Company and Fleet Bank, N.A., formerly known as NatWest Bank
N.A., formerly known as National Westminster Bank USA.
(Incorporated by Reference to Exhibit 10.14 to the Company's
Quarterly Report on Form 10Q for the quarter ended May 31,
1996).
10.15 Employment and Change of Control Agreements dated September
13, 1996, between and Company and Irving Lubman. (Incorporated
by Reference to Exhibit 10.15 to the Company's Quarterly
Report on Form 10Q for the quarter ended August 31, 1996).
10.16 Employment and Change of Control Agreements dated September
13, 1996, between and Company and Arthur Nadata. (Incorporated
by Reference to Exhibit 10.16 to the Company's Quarterly
Report on Form 10Q for the quarter ended August 31, 1996).
10.17 Employment and Change of Control Agreements dated September
13, 1996, between and Company and Richard Schuster.
(Incorporated by Reference to Exhibit 10.17 to the Company's
Quarterly Report on Form 10Q for the quarter ended August 31,
1996).
Page 29
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(e) Exhibits (continued):
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
10.18 Revolving Credit Agreement dated May 23, 1997, between the
Company and two banks, Mellon Bank, N.A. and KeyBank National
Association.
10.19 Indemnity Agreements Dated May 23, 1997 between the Company
and Messrs. Blau, Durando, Gardner, Lubman, Nadata and
Schuster
11. Computation of Per Share Earnings
22. The following is a list of the Company's subsidiaries:
State of
Name Incorporation
----------------------------------- --------------------
NIC Components Corp. New York
NIC Eurotech Limited United Kingdom
Nu Horizons International Corp. New York
Nu Visions Manufacturing, Inc. Massachusetts
Nu Horizons/Merit Electronics Corp. Delaware
Nu Horizons Eurotech Limited United Kingdom
23. Accountant's Consent
27. Financial Data Schedule
99. Additional Exhibit
Page 30
<PAGE>
24. Accountant's Consent
--------------------
We consent to the incorporation by reference in Registration
Statement numbers 33-11032, 33-20661, 33-88952 and 33-88958 on Form
S-8 of our opinion dated May 18, 1998 on the consolidated financial
statements of Nu Horizons Electronics Corp. and subsidiaries included
in the Corporation's annual report on Form 10-K for the fiscal year
ended February 28, 1998.
/s/ LAZAR LEVINE & FELIX LLP
---------------------------------------
LAZAR LEVINE & FELIX LLP
Certified Public Accountants
New York, New York
May 22, 1998
Page 31
<PAGE>
99. Additional Exhibit:
-------------------
The following undertakings are incorporated by reference into the
Company's Registration Statement on Form S-8 (Registration Nos. 33-11032,
22-20661, 33-88952 and 33-88958).
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a) (3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii) do
not apply if the registration statement is on Form S-3 or Form S-
8, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 periodic reports
filed by the registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered, which remain,
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Page 32
<PAGE>
99. Additional Exhibit (Continued):
------------------
(f) (1) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus to each employee to whom the
prospectus is sent or given a copy of the registrant's annual report to
stockholders for its last fiscal year, unless such employee otherwise has
received a copy of such report, in which case the registrant shall state
in the prospectus that it will promptly furnish, without charge, a copy
of such report on written request of the employee. If the last fiscal
year of the registrant has ended with 120 days prior to the use of the
prospectus, the annual report for the fiscal year will be furnished to
each such employee.
(2) The undersigned registrant hereby undertakes to transmit or
cause to be transmitted to all employees participating in the plan
who do not otherwise receive such material as stockholders of the
registrant, at the time and in the matter such material is sent to
its stockholders, copies of all reports, proxy statements and other
communications distributed to its stockholders generally.
(3) Where interests in a plan are registered herewith, the
undersigned registrant and plan hereby undertake to transmit or
cause to be transmitted promptly, without charge, to any participant
annual report of the plan filed pursuant to section 15(d) of the
Securities Exchange Act of 1934 (Form 11-K). If such report is filed
separately on Form 11-K, such form shall be delivered upon written
request. If such report is filed as a part of the registrant's
annual report to stockholders delivered pursuant to paragraph (1) or
(2) of this undertaking, additional delivery shall not be required.
(4) If the registrant is a foreign private issuer, eligible to use
Form 20-F, then the registrant shall undertake to deliver or cause
to be delivered with the prospectus to each employee to whom the
prospectus is sent or given, a copy of the registrant's latest
filing on Form 20-F in lieu of the annual report to stockholders.
(i) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the act and will be
governed by the final adjudication of such issue.
Page 33
<PAGE>
SCHEDULE II
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
SCHEDULE II--VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
Three Years Ended February 28, 1998
<TABLE>
<CAPTION>
Balance at Additions
Beginning charged to costs Balance at end
Description of period and expenses Deductions (A) of period
----------- ----------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
Valuation account
deducted in the
balance sheet from
the asset to which
it applies:
Allowance for
doubtful accounts-
accounts receivable
1998 $2,192,079 $315,000 $144,357 $2,362,722
=============== ==================== ==================== ===================
1997 $1,509,802 $701,500 $ 19,223 $2,192,079
=============== ==================== ==================== ===================
1996 $ 898,359 $635,000 $ 23,557 $1,509,802
=============== ==================== ==================== ===================
</TABLE>
(A) Accounts written off.
Page 34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NU HORIZONS ELECTRONICS CORP.
(Registrant)
By: /s/ ARTHUR NADATA
-----------------------------------------
Arthur Nadata,
President (Principal Operating Officer)
By: /s/ PAUL DURANDO
-----------------------------------------
Vice President, Finance
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated:
SIGNATURE CAPACITY DATE
--------- -------- ----
By: /s/ IRVING LUBMAN Chairman of The Board, May 22, 1998
------------------------- Chief Operating Officer
Irving Lubman
By: /s/ ARTHUR NADATA President, Chief Executive May 22, 1998
------------------------- Officer and Director
Arthur Nadata
By: /s/ RICHARD SCHUSTER Vice President, Secretary May 22, 1998
------------------------- and Director
Richard Schuster
By: /s/ PAUL DURANDO Vice President, Finance, May 22, 1998
------------------------- Treasurer and Director
Paul Durando
By: /s/ HARVEY R. BLAU Director May 22, 1998
-------------------------
Harvey R. Blau
By: /s/ HERBERT M. GARDNER Director May 22, 1998
-------------------------
Herbert M. Gardner
By: /s/ DOMINIC A. POLIMENI Director May 22, 1998
-------------------------
Dominic A. Polimeni
Page 35
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
EXHIBIT INDEX
to
FORM 10-K
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------------------
NU HORIZONS ELECTONICS CORP.
(Exact Name of Registrant as Specified in Its Charter)
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
11 Computation of Per Share Earnings
27A Financial Data Schedule
<PAGE>
NU HORIZONS ELECTRONICS CORP.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1998 28, 1997 29, 1996
----------- ------------ ------------
<S> <C> <C> <C>
BASIC EARNINGS:
- ---------------
NET INCOME $ 5,297,991 $ 7,073,560 $ 9,396,301
=========== ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
8,753,076 8,732,299 7,903,839
----------- ------------ ------------
BASIC EARNINGS PER
COMMON SHARE $ .61 $ .81 $ 1.19
=========== =========== ===========
DILUTED EARNINGS:
- ----------------
Net Income $ 5,297,991 $ 7,073,560 $ 9,396,301
Net (after tax) interest expense related
to convertible debt 340,000 359,289 661,826
----------- ------------ ------------
NET INCOME AS ADJUSTED $ 5,637,991 $ 7,432,849 $10,058,127
=========== ============ ============
SHARES:
Weighted average number of common
shares outstanding 8,753,076 8,732,299 7,903,839
Stock options 1,361,450 1,302,227 992,972
Assuming Conversion of convertible
Debt 784,333 784,333 1,513,888
----------- ------------ ------------
Weighted average number of common
Shares outstanding as adjusted 10,898,859 10,818,859 10,410,699
=========== ============ ============
DILUTED EARNINGS PER COMMON SHARE
=========== ============ ============
$ .52 $ .69 $ .97
=========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 28, 1998,
FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 AND THE QUARTERS ENDED NOVEMBER 30,
1997, AUGUST 31, 1997, MAY 31, 1997, NOVEMBER 30, 1996, AUGUST 31, 1996 AND MAY
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<RESTATED>
<CAPTION>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1997 FEB-29-1996
<PERIOD-START> MAR-01-1997 MAR-01-1996 MAR-01-1995
<PERIOD-END> FEB-28-1998 FEB-28-1997 FEB-29-1996
<S> <C> <C> <C>
<CASH> 4,333,669 946,084 874,267
<SECURITIES> 0 0 0
<RECEIVABLES> 39,713,751 32,828,724 31,514,984
<ALLOWANCES> 2,362,722 2,192,079 1,509,802
<INVENTORY> 44,004,890 29,764,570 36,808,915
<CURRENT-ASSETS> 90,526,595 64,250,568 68,702,287
<PP&E> 11,481,386 12,186,342 7,249,830
<DEPRECIATION> 5,121,611 4,635,986 3,810,026
<TOTAL-ASSETS> 99,641,428 74,783,314 75,459,586
<CURRENT-LIABILITIES> 15,308,988 12,309,096 10,747,853
<BONDS> 32,790,395 15,523,483 27,094,030
<COMMON> 57,770 57,633 55,593
0 0 0
0 0 0
<OTHER-SE> 51,484,275 46,893,102 37,562,110
<TOTAL-LIABILITY-AND-EQUITY> 99,641,428 74,783,314 75,459,586
<SALES> 233,325,408 216,612,707 202,803,184
<TOTAL-REVENUES> 233,325,408 216,612,707 202,803,184
<CGS> 182,531,083 168,124,583 154,602,036
<TOTAL-COSTS> 182,531,083 168,124,583 154,602,036
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 315,000 701,500 635,000
<INTEREST-EXPENSE> 1,723,163 1,701,092 2,026,717
<INCOME-PRETAX> 8,947,537 11,921,256 15,799,592
<INCOME-TAX> 3,649,546 4,847,696 6,403,291
<INCOME-CONTINUING> 5,297,991 7,073,560 9,396,301
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 5,297,991 7,073,560 9,396,301
<EPS-PRIMARY> .61 .81 1.19
<EPS-DILUTED> .52 .69 .97
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 28, 1998,
FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 AND THE QUARTERS ENDED NOVEMBER 30,
1997, AUGUST 31, 1997, MAY 31, 1997, NOVEMBER 30, 1996, AUGUST 31, 1996 AND MAY
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<RESTATED>
<CAPTION>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1998 FEB-28-1998
<PERIOD-START> MAR-01-1997 MAR-01-1997 MAR-01-1997
<PERIOD-END> NOV-30-1997 AUG-31-1997 MAY-31-1997
<S> <C> <C> <C>
<CASH> 3,392,321 70,204 2,050,847
<SECURITIES> 0 0 0
<RECEIVABLES> 36,557,636 35,051,753 33,086,029
<ALLOWANCES> 2,157,304 2,268,270 2,267,424
<INVENTORY> 39,494,487 37,017,501 33,455,503
<CURRENT-ASSETS> 81,265,597 74,228,499 68,630,354
<PP&E> 11,168,247 10,620,583 12,447,547
<DEPRECIATION> 4,793,560 4,504,195 4,838,562
<TOTAL-ASSETS> 90,417,584 83,176,805 79,143,130
<CURRENT-LIABILITIES> 12,498,049 11,490,715 11,985,041
<BONDS> 26,881,262 22,036,169 18,655,146
<COMMON> 57,769 57,728 57,769
0 0 0
0 0 0
<OTHER-SE> 50,980,504 49,592,193 48,445,264
<TOTAL-LIABILITY-AND-EQUITY> 90,417,584 83,176,805 79,143,130
<SALES> 170,977,763 110,964,305 54,165,706
<TOTAL-REVENUES> 170,977,763 110,964,305 54,165,706
<CGS> 133,859,337 86,794,180 42,223,252
<TOTAL-COSTS> 133,859,337 86,794,180 42,223,252
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 315,000 120,000 105,000
<INTEREST-EXPENSE> 1,203,275 767,171 326,893
<INCOME-PRETAX> 6,556,423 4,362,499 2,517,640
<INCOME-TAX> 2,677,236 1,788,696 1,015,252
<INCOME-CONTINUING> 3,879,187 2,573,803 1,502,388
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 3,879,187 2,573,803 1,502,388
<EPS-PRIMARY> .44 .29 .17
<EPS-DILUTED> .38 .25 .15
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED FEBRUARY 28, 1998,
FEBRUARY 28, 1997 AND FEBRUARY 29, 1996 AND THE QUARTERS ENDED NOVEMBER 30,
1997, AUGUST 31, 1997, MAY 31, 1997, NOVEMBER 30, 1996, AUGUST 31, 1996 AND MAY
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<RESTATED>
<CAPTION>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-28-1997 FEB-28-1997
<PERIOD-START> MAR-1-1996 MAR-01-1996 MAR-01-1996
<PERIOD-END> NOV-30-1996 AUG-31-1996 MAY-31-1996
<S> <C> <C> <C>
<CASH> 1,330,341 2,561,058 1,353,780
<SECURITIES> 0 0 0
<RECEIVABLES> 31,201,269 30,982,594 33,384,625
<ALLOWANCES> 1,937,947 1,811,619 1,583,429
<INVENTORY> 37,001,112 39,697,232 37,178,825
<CURRENT-ASSETS> 70,811,068 73,938,285 71,252,756
<PP&E> 7,697,811 7,385,972 7,345,293
<DEPRECIATION> 4,405,082 4,197,305 4,003,094
<TOTAL-ASSETS> 77,344,564 80,451,468 78,005,895
<CURRENT-LIABILITIES> 11,212,054 12,112,327 12,743,559
<BONDS> 20,742,265 24,725,777 23,067,779
<COMMON> 57,632 57,633 62,035
0 0 0
0 0 0
<OTHER-SE> 45,332,613 43,555,731 42,132,522
<TOTAL-LIABILITY-AND-EQUITY> 77,344,564 80,451,468 78,005,895
<SALES> 162,414,223 108,455,584 57,672,540
<TOTAL-REVENUES> 162,414,223 108,455,584 57,672,540
<CGS> 126,053,270 84,158,299 44,746,424
<TOTAL-COSTS> 126,053,270 84,158,299 44,746,424
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 439,000 239,500 0
<INTEREST-EXPENSE> 1,341,656 809,292 433,128
<INCOME-PRETAX> 9,311,623 6,386,924 4,119,039
<INCOME-TAX> 3,763,565 2,580,760 1,664,102
<INCOME-CONTINUING> 5,548,058 3,806,164 2,454,937
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 5,548,058 3,806,164 2,454,937
<EPS-PRIMARY> .64 .44 .28
<EPS-DILUTED> .54 .38 .25
</TABLE>
