<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, 1999 1-8798
- ------------------------------ ----------------------------
Nu Horizons Electronics Corp.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2621097
- -------------------------------- ----------------------------
(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
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(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, 1999.
Common Stock - Par Value $.0066 8,753,076
- ------------------------------- -----------------------------
Class Outstanding Shares
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Aggregate Market Value of Non-Affiliate Stock at May 1, 1999 - approximately $40,485,000
- --------------------------------------------------------------------------------------------------------
</TABLE>
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
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PART I:
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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. nagement's Discussion and Analysis of Financial Condition and
Results of Operations Pages 10 - 14
ITEM 8. Financial Statements and Supplementary Data Pages F1 - F17
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures Page 15
PART III:
ITEM 10. Directors and Executive Officers of the Company Pages 15 - 16
ITEM 11. Executive Compensation Pages 17 - 26
ITEM 12. Security Ownership of Certain Beneficial Owners and Management Page 27
ITEM 13. Certain Relationships and Related Transactions Page 27
PART IV:
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Pages 28 - 34
Signatures Page 35
Exhibit Index
</TABLE>
<PAGE>
PART I.
ITEM 1. BUSINESS
GENERAL:
Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
subsidiaries, NIC Components Corp. ("NIC") , Nu Horizons/Merit
Electronics Corp. ("NUM"), Titan Logistics Corp. ("Titan"), Nu Horizons
Eurotech Ltd. ("NUE") and NIC Eurotech Ltd. ("NIE") 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.
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>
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, Elantec, Exar, Hyundai, Maxim
Integrated Products, ST Microelectronics, Sun Microsystems, TDK
Semiconductor 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 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>
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 in fiscal 1999 has expanded 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, 1999, 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 100 salespersons, and by a field sales
force of approximately 120 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, Orlando and Tampa
MIDWEST
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Arizona - Phoenix
Illinois - Chicago
Minnesota - Minneapolis
Texas - Austin and Dallas
WEST COAST
----------
California - Irvine, Los Angeles, Sacramento, San Diego and San Jose
Oregon - Portland
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>
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 OEMs
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, 1999. 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, 1999, there were three manufacturers that
represented more than 10% of the Company's inventory on a consolidated
basis. Those suppliers accounted for approximately 36% 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, 1999, the Company purchased
inventory from two suppliers that was in excess of 10% of the Company's
total purchases. Purchases from these suppliers aggregated
approximately $45,040,000 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 OEMs 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>
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, 1999, the Company's backlog was
approximately $24,000,000 as compared to a backlog of approximately
$20,000,000 at May 1, 1998.
Employees:
As of February 28, 1999, the Company employed approximately 497
persons: 12 in management, 260 in sales and sales support, 32 in
product and purchasing, 17 in accounting and finance, 10 in MIS, 31 in
operations, 90 in manufacturing, and 45 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. 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 leases approximately 45,000 square feet of manufacturing
and office space in Springfield, Massachusetts for its Nu Visions
subsidiary. The lease term is from June 15, 1998 to June 15, 2008 at an
annual base rental of $244,260 subject to annual consumer price index
increases not to exceed 2% annually.
<PAGE>
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 twenty two (22) branch sales
offices which range in size from 1,000 square feet to 5,000 square
feet, with lease terms that expire between August 1999 and January
2004. Annual base rentals range from $15,600 to $100,800 with aggregate
base rentals approximating $825,000.
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, 1999 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 1998: HIGH LOW
------ -----
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 $7.09 $6.00
Second Quarter 6.62 4.00
Third Quarter 6.87 3.50
Fourth Quarter 6.50 4.25
FISCAL YEAR 2000:
First Quarter (Through May 3, 1999) $5.87 $3.87
b) As of May 3, 1999, 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. The
Company's current revolving credit line agreement permits dividends
of up to 25% of the Company's consolidated net income.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA:
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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, 1999 28, 1998 28, 1997 29, 1996 28, 1995
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INCOME STATEMENT
DATA:
Net Sales $253,872,325 $233,325,408 $216,612,707 $202,803,184 $130,251,554
Gross profit on
sales 55,036,322 50,794,325 48,488,124 48,201,148 30,913,305
Gross profit
percentage 21.7% 21.8% 22.4% 23.8% 23.7%
Income before
provision for
income taxes 7,624,158 8,947,537 11,921,256 15,799,592 7,444,147
Net income 4,544,831 5,297,991 7,073,560 9,396,301 4,421,823
Earnings per
common share:
Basic $ .52 $.61 $.81 $ 1.19 $.57
Diluted $.43 $.52 $.69 $.97 $.52
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997 29, 1996 28, 1995
-------- -------- -------- -------- --------
BALANCE SHEET
DATA:
Working capital $68,849,897 $75,217,607 $51,941,472 $57,954,434 $36,328,941
Total assets 99,758,895 99,641,428 74,783,314 75,459,586 51,972,606
Long-term debt 22,377,852 32,790,395 15,523,483 27,094,030 20,580,613
Shareholders'
equity 56,337,068 51,542,045 46,950,735 37,617,703 22,541,916
</TABLE>
<PAGE>
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"), Nu Horizons Eurotech Limited ("NUE"), NIC
Eurotech Limited ("NIE"), Titan Logistics Corp. ("TITAN") 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
("OEMs") of electronic products. Active components distributed by the
Company include semiconductor products such as memory chips,
microprocessors, digital and linear circuits, microwave/RF and
fiberoptic components, transistors and diodes. Passive components
distributed by NIC, principally to OEMs and other distributors
nationally, 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 OEMs.
In March 1998, the Company formed another wholly-owned subsidiary, NIC
Eurotech, Ltd., which then began operations in the United Kingdom.
The financial information presented herein includes: (i) Balance sheets
as of February 28, 1999, and February 28, 1998; (ii) Statements of
income for the twelve month periods ended February 28, 1999, February
28, 1998 and February 28, 1997; (iii) Statements of cash flows for the
twelve month periods ended February 28, 1999, February 28, 1998 and
February 28, 1997; and (iv) Consolidated changes in shareholders'
equity for the twelve month periods ended February 28, 1999, February
28, 1998 and February 28, 1997.
Results of Operations:
Fiscal Year 1999 versus 1998
Net sales for the year ended February 28, 1999 aggregated $253,872,325
as compared to $233,325,408 for the year ended February 29, 1998, an
increase of 8.8%. Management attributes this increase in sales for the
period entirely to the core semiconductor distribution business which
experienced demand but, due to reduced unit pricing as a result of
excess inventory levels at the semiconductor manufacturing (supplier)
level resulted in only moderate increases in net sales.
Gross profit margin as a percentage of net sales was 21.7% for the year
ended February 28, 1999 as compared to 21.8% for the year ended
February 28, 1998. Management attributes this relative stability in
profit margins to substantial inventory oversupplies at the supplier
level, as mentioned above and resulting reduced unit pricing.. No
assurance can be given that gross profit stabilization will continue in
future periods.
Operating expenses increased by $5,037,184 to $45,170,606 for the year
ended February 28, 1999 from $40,133,422 for the year ended February
28, 1998, an increase of approximately 12.5%. The dollar increase in
operating expenses was due to increases in the following expense
categories: Approximately $3,290,000 or approximately 65% of the
increases were for personnel related costs -commissions, salaries,
travel and fringe benefits. The remaining increase of approximately
$1,747,000 or approximately 35% of the total increment is a result of
increases in various other operating expenses including, but not
limited to, freight out, rent, telephone, computer expenses and various
general and administrative expenses. Toward the latter part of fiscal
1998 and early in fiscal 1999, the Company decided to pursue and
continue with a policy of upgrading and enlarging its sales and sales
support staff as well as physical branch facilities 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 1998 and in fiscal 1999 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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 1999 versus 1998 (continued)
Interest expense increased by $519,998 from $1,723,163 for the year
ended February 28, 1998 to $2,243,161 for the year ended February 28,
1999. This increase was primarily due to the interest on higher average
levels of bank debt during the year resulting from an increase in
average receivables and inventories which were necessary to support
increased sales.
INTEREST COSTS
FOR THE FISCAL
YEAR ENDED
February February
28, 1999 28, 1998
--------------------------
Revolving Bank Credit $1,660,794 $1,140,796
Sub. Convert. Notes 582,367 582,367
--------------------------
Total Interest Expense $2,243,161 $1,723,163
==========================
Net income for the year ended February 28, 1999 was $4,544,831 or $.43
per share diluted, as compared to $5,297,991 or $.52 per share diluted,
for the year ended February 28, 1998. The decrease in earnings is
primarily due to increased operating expenses and the lack of a
commensurate increase in gross margin on sales.
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 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.
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 1998 did not meet expectations. 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.
<PAGE>
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):
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 END
----------------------------------------
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.
Liquidity and Capital Resources:
Fiscal Year 1999 versus 1998
The Company ended its 1999 fiscal year with working capital and cash
aggregating approximately $68,850,000 and $504,000, respectively at
February 28, 1999 as compared to approximately $75,218,000 and
$4,334,000 respectively, at February 28, 1998. The Company's current
ratio at February 28, 1999, was 4.3:1. The Company believes that its
financial position at February 28, 1999, will enable it to take
advantage of any new opportunities that may arise.
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, 1999,
$14,900,000 was outstanding under this line of credit as compared to
$25,300,000 at February 28, 1998.
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, 1999, $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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 1999 versus 1998 (Continued)
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.
Assessment. The Year 2000 problem could affect computers, software and
other equipment which the Company uses, operates or maintains.
Accordingly, the Company reviewed its internal computer programs and
systems to ensure that the programs and systems will be Year 2000
compliant. The Company has ensured that its software is already year
2000 compliant.
Vendors. The Company has initiated communications, including surveys,
with its vendors (and customers) to identify and, to the extent
possible, to resolve issues involving the Year 2000 problem. However,
the Company has limited or no control over responses to our inquiries
and the actions of these third parties. Thus, while the company does
not anticipate any significant Year 2000 problems with its vendors,
there can be no assurance that these vendors will resolve any or all of
their Year 2000 problems before the occurrence of a disruption to its
business or that of its customers. Since there are many suppliers of
alternative products, the Company does not anticipate that the failure
of its vendors to resolve Year 2000 problems with their systems in a
timely manner will have a material adverse effect on the Company's
business, financial condition, and results of operation; however no
assurances can be given in this regard.
Most Likely Consequences of Year 2000 Problems. The Company believes it
has identified and resolved all potential internal Year 2000 problems
that could materially adversely affect its business operations.
However, the Company does not believe that it is possible to determine
with complete certainty that all Year 2000 problems which affect it
have been identified or corrected. The number of devices that could be
affected and the interactions among these devices are simply too
numerous. In addition, one cannot accurately predict how many Year 2000
problem-related failures will occur or the severity, duration or
financial consequences of these perhaps inevitable failures. In
addition, the Company is unable to determine with any degree of
certainty, the changes in buying habits of its current and potential
customers due to their concerns over Year 2000 issues and whether its
vendors will be Year 2000 compliant. As a result, the Company expects
that it could likely experience a significant number of operational
inconveniences and inefficiencies for its and its customers that may
divert management's time and attention and financial and human
resources from its ordinary business activities.
Contingency Plans. Since the Company has ensured that its software is
Year 2000 compliant, it does not believe that it needs to develop
contingency plans to identify and correct Year 2000 problems affecting
its internal systems. The Company expects to develop contingency plans
by the end of June 1999 to deal with any Year 2000 problems identified
by its vendors. If the Company is required to implement any of these
contingency plans, it could have a material adverse effect on the
Company's financial condition and results of operations.
Disclaimer. The discussion of the Company's efforts, and management's
expectations , relating to Year 2000 compliance are forward-looking
statements. The Company's ability to achieve Year 2000 compliance and
the level of incremental costs associated with such compliance, could
be adversely impacted by, among other things, the availability and cost
of programming and testing resources, vendors' ability to modify
proprietary software, and unanticipated problems identified in our
ongoing compliance review.
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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 1999 versus 1998 (Continued)
Other:
Except for historical information contained herein, the matters set
forth above are forward-looking statements that involve certain risks
and uncertainties that could cause actual results to differ from those
in the forward-looking statements. Potential risks and uncertainties
include such factors as the level of business and consumer spending for
electronic products, the amount of sales of the Company's products, the
competitive environment within the electronics industry, the ability of
the Company to continue to expand its operations, the level of costs
incurred in connection with the Company's expansion efforts, 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>
ITEM 8. 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, 1999 and 1998,
and the consolidated statements of income, changes in shareholders' equity and
cash flows for the three years in the period ended February 28, 1999. 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, 1999 and 1998, and
the results of their operations and their cash flows for each of the three years
in the period ended February 28, 1999 in conformity with generally accepted
accounting principles.
/s/ LAZAR LEVINE & FELIX LLP
----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
May 17, 1999
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
-ASSETS- February February
CURRENT ASSETS: ------ 28, 1999 28, 1998
--------------------- ---------------------
<S> <C> <C>
Cash $ 504,320 $ 4,333,669
Accounts receivable-net of allowance for doubtful
accounts of $2,630,984 and $2,362,722
for 1999 and 1998, respectively 41,920,403 37,351,029
Inventories 45,113,894 44,004,890
Prepaid expenses and other current assets 2,355,255 4,837,007
--------------------- ---------------------
TOTAL CURRENT ASSETS 89,893,872 90,526,595
PROPERTY, PLANT AND EQUIPMENT - NET
(Note 3) 7,130,794 6,359,775
OTHER ASSETS
Costs in excess of net assets acquired-net 1,595,408 1,752,332
Other assets (Note 4) 1,138,821 1,002,726
--------------------- ---------------------
$99,758,895 $99,641,428
===================== =====================
</TABLE>
-LIABILITIES AND SHAREHOLDERS' EQUITY-
------------------------------------
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $14,369,712 $12,112,365
Accrued expenses 6,674,263 3,196,623
--------------------- ---------------------
TOTAL CURRENT LIABILITIES 21,043,975 15,308,988
--------------------- ---------------------
LONG-TERM LIABILITIES:
Deferred income taxes (Note 8) 418,852 431,395
Revolving credit line (Notes 5) 14,900,000 25,300,000
Subordinated convertible notes (Note 6) 7,059,000 7,059,000
--------------------- ---------------------
TOTAL LONG-TERM LIABILITIES 22,377,852 32,790,395
--------------------- ---------------------
COMMITMENTS AND CONTINGENCIES
(Notes 9, 10 and 11)
SHAREHOLDERS' EQUITY (Note 7):
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 shares issued
and outstanding for February 28, 1999 and
1998, respectively 57,770 57,770
Additional paid-in capital 19,042,230 19,042,230
Retained earnings 38,076,840 33,532,009
--------------------- ---------------------
57,176,840 52,632,009
Less: loan to ESOP (Note 9) 839,772 1,089,964
--------------------- ---------------------
56,337,068 51,542,045
--------------------- ---------------------
$99,758,895 $99,641,428
===================== =====================
</TABLE>
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
---------------------------------------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
------------------- ------------------ ------------------
NET SALES $253,872,325 $233,325,408 $216,612,707
------------------- ------------------ ------------------
<S> <C> <C> <C>
COSTS AND EXPENSES:
Cost of sales (Note 11) 198,836,003 182,531,083 168,124,583
Operating expenses 45,170,606 40,133,422 34,873,910
Interest expense 2,243,161 1,723,163 1,701,092
Interest income (1,603) (9,797) (8,134)
------------------- ------------------ ------------------
246,248,167 224,377,871 204,691,451
------------------- ------------------ ------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 7,624,158 8,947,537 11,921,256
Provision for income taxes (Note 8) 3,079,327 3,649,546 4,847,696
------------------- ------------------ ------------------
NET INCOME $ 4,544,831 $ 5,297,991 $ 7,073,560
=================== ================== ==================
EARNINGS PER SHARE (Note 2i):
Basic $.52 $.61 $.81
=================== ================== ==================
Diluted $.43 $.52 $.69
=================== ================== ==================
</TABLE>
See notes to consolidated financial statements.
Page F-3
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' 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 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
------------ --------- ------------- ------------- -------------- --------------
Repayment from ESOP - - - - 250,192 250,192
Net income - - - 4,544,831 - 4,544,831
------------ --------- ------------- ------------- -------------- --------------
Balance at February 28, 1999 8,753,076 $57,770 $19,042,230 $38,076,840 $ (839,772) $56,337,068
============ ========= ============= ============= ============== ==============
</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
-----------------------------------------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS:
Cash flows from operating activities:
Cash received from customers $ 248,540,451 $ 226,296,024 $ 215,279,744
Cash paid to suppliers and employees (236,336,921) (232,653,486) (197,159,875)
Interest received 1,602 9,797 8,134
Interest paid (2,243,161) (1,723,163) (1,701,092)
Income taxes paid (1,359,716) (4,511,763) (1,677,850)
------------------- ------------------- -------------------
Net cash provided (used) by
operating activities 8,602,255 (12,582,591) 14,749,061
------------------- ------------------- -------------------
Cash flows from investing activities:
Capital expenditures (2,031,604) (1,176,904) (4,936,512)
Purchase of stock for ESOP - (950,014) -
Proceeds from sale of building - 1,126,840 -
------------------- ------------------- -------------------
Net cash (used) by investing
activities (2,031,604) (1,000,078) (4,936,512)
------------------- ------------------- -------------------
Cash flows from financing activities:
Borrowings under revolving credit line 43,950,000 51,650,000 21,150,000
Repayments under revolving credit line (54,350,000) (34,350,000) (30,450,000)
Principal payments of long-term debt - (433,129) (619,254)
Proceeds from exercise of employee
stock options - 103,383 178,522
------------------- ------------------- -------------------
Net cash provided by (used in)
financing activities (10,400,000) 16,970,254 (9,740,732)
------------------- ------------------- -------------------
Net (decrease) increase in cash and cash
equivalents (3,829,349) 3,387,585 71,817
Cash and cash equivalents, beginning of year 4,333,669 946,084 874,267
------------------- ------------------- -------------------
Cash and cash equivalents, end of year $ 504,320 $ 4,333,669 $ 946,084
=================== =================== ===================
</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
----------------------------------------------------------------------
FEBRUARY FEBRUARY FEBRUARY
28, 1999 28, 1998 28, 1997
-------------------- ------------------- ------------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING
ACTIVITIES:
Net income $ 4,544,831 $ 5,297,991 $ 7,073,560
-------------------- ------------------- ------------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,417,509 1,488,057 1,238,967
Bad debts 762,500 315,000 701,500
Contribution to ESOP (compensation) 250,192 139,950 139,950
Loss on sale of building - 60,871 -
Changes in assets and liabilities:
(Increase) in accounts receivable (5,331,874) (7,029,384) (1,332,963)
(Increase) decrease in inventories (1,109,004) (14,240,320) 7,044,345
(Increase) decrease in prepaid
expenses and other current assets 2,481,752 (1,933,738) (1,889,346)
(Increase) in other assets (136,095) (80,951) (77,902)
Increase in accounts payable
and accrued expenses 5,734,987 3,190,686 1,964,667
(Decrease) in income taxes - - (220,288)
(Decrease) increase in deferred taxes (12,543) 209,247 106,571
-------------------- ------------------- ------------------
Total adjustments 4,057,424 (17,880,582) 7,675,501
-------------------- ------------------- ------------------
Net cash provided (used) by operating
activities $ 8,602,255 $(12,582,591) $14,749,061
==================== =================== ==================
</TABLE>
NON-CASH FINANCING ACTIVITIES:
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, 1999
-----------------------------------
1. ORGANIZATION:
Nu Horizons Electronics Corp. and its subsidiaries, 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.
During fiscal 1999 the Company incorporated two new subsidiaries in the
United Kingdom, one of which is currently inactive.
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"), Nu
Horizons International Corp. ("International"), NIC Eurotech Limited
("NIE"), Nu Horizons Eurotech ("NUE") and Titan Logistics Corp.
("Titan"). 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 consist 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, 1999 (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,
1999 approximates $3,200,000.
g. Goodwill:
Costs in excess of net assets acquired are being amortized on a straight-
line basis over fifteen years. As of February 28, 1999 and 1998, accumulated
amortization of goodwill aggregated $758,466 and $601,542, 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, 1999 (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:
1999 1998 1997
------------- ------------ ------------
Basic 8,753,076 8,753,076 8,732,299
Diluted 11,271,859 10,898,859 10,818,859
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, 1999, such costs aggregated $909,156, $774,000 and
$616,000, respectively.
m. New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" is effective for years
beginning after December 15, 1997. This statement prescribes standards
for reporting other 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.
The Company has adopted this standard for the current fiscal year.
Page F-9
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED)
-----------------------------------------------
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment which is reflected at cost, consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Furniture, fixtures and office equipment $ 7,839,268 $ 6,290,449
Computer equipment 3,499,524 3,016,739
Assets held under capitalized leases 919,834 919,834
Leasehold improvements 1,254,364 1,254,364
---------------- ----------------
13,512,990 11,481,386
Less: accumulated depreciation and amortization 6,382,196 5,121,611
---------------- ----------------
$ 7,130,794 $ 6,359,775
================ ================
</TABLE>
Depreciation expense including depreciation of capitalized leases for the
years ended February 28, 1999, February 28, 1998 and February 28, 1997
aggregated $1,260,585, $1,331,133 and $1,082,043, respectively.
During the year ended February 28, 1998, 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, 1999 and February 28, 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Net cash surrender value - life insurance $1,023,832 $ 937,878
Other 114,989 64,848
--------------- ---------------
$1,138,821 $1,002,726
=============== ===============
</TABLE>
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 $14,900,000 and $25,300,000 at February 28, 1999 and 1998,
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.
Page F-10
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED)
-----------------------------------------------
6. 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, 1999, $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.
7. STOCK OPTIONS:
Stock options granted to date under the Company's Key Employees Stock
Incentive Plan and the 1994 and 1998 Stock Option Plans 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, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- --------------
<S> <C> <C>
Outstanding, February 29, 1996 992,972 $ 7.54
Granted 471,500 8.56
Exercised (93,495) 1.91
Cancelled (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
======
Granted 378,000 5.87
Canceled (5,000) 5.41
--------------
Outstanding, February 28, 1999 1,734,450 6.81
==============
Weighted average fair value of options granted during the year $ 3.05
======
Options exercisable:
February 28, 1997 381,377 7.86
February 28, 1998 673,825 7.52
February 28, 1999 997,950 8.06
</TABLE>
Page F-11
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED)
-----------------------------------------------
7. STOCK OPTIONS (continued):
Exercise prices for options outstanding as of February 28, 1999 ranged from
$4.62 to $14.50. The weighted-average remaining contractual life of these
options is approximately 5 years. Outstanding options at February 28, 1999
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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Net earnings:
<S> <C> <C> <C>
As reported $4,544,831 $5,297,991 $7,073,560
Pro forma 4,311,690 4,827,590 7,051,451
Basic earnings per share:
As reported $ .52 $ .61 $ .81
Pro forma .49 .55 .81
Diluted earnings per share:
As reported $ .43 $ .52 $ .69
Pro forma .41 .47 .68
</TABLE>
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 1999, 1998 and 1997, respectively: expected volatility of 45.3%,
45.8% and 48.3%, respectively; risk free interest rate of 6.0%, 6.1% and 6.5%
for 1999, 1998 and 1997, 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.
8. INCOME TAXES:
The provision for income taxes is comprised of the following:
<TABLE>
February February February
28, 1999 28, 1998 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current:
Federal $2,523,535 $3,103,097 $4,213,767
State and Local 680,931 655,559 900,193
Deferred:
Federal (64,760) (74,103) (221,867)
State (60,379) (35,007) (44,397)
----------------- ----------------- -----------------
$3,079,327 $3,649,546 $4,847,696
================= ================= =================
</TABLE>
Page F-12
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED)
-----------------------------------------------
8. INCOME TAXES (continued):
The components of the net deferred income tax liability, pursuant to SFAS
109, as of February 28, 1999 and February 28, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
Deferred Tax Assets:
<S> <C> <C>
Accounts Receivable $ 672,003 $ 708,610
Inventory 98,600 100,300
------------------- ------------------
Total Deferred Tax Assets 770,603 808,910
------------------- ------------------
Deferred Tax Liabilities
Fixed Assets (68,890) (184,500)
Income of Interest Charge DISC (1,120,565) (1,055,805)
Total Deferred Tax Liabilities (1,189,455) (1,240,305)
------------------- ------------------
Net Deferred Tax Liabilities $ (418,852) $ (431,395)
=================== ==================
</TABLE>
The following is a reconciliation of the maximum statutory federal tax rate to
the Company's effective tax rate:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State and local taxes 8.1 7.1 7.0
Other (2.7) (1.3) (1.3)
---- ---- ----
Effective tax rate 40.4% 40.8% 40.7%
==== ==== ====
</TABLE>
9. 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, 1999 aggregated $250,197 for fiscal 1999 and $139,950 for each of the
other years . At February 28, 1999 the ESOP owned 431,251 shares at an
average price of approximately $3.79 per share.
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, 1999, 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, 1999 were $114,216,
$120,403 and $111,585, respectively.
Page F-13
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED)
-----------------------------------------------
10. 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 two of the three
officers to an annual bonus equal to 3.33% and the third officer to
2.33% (9% 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 2000 $1,889,772
Fiscal 2001 1,693,636
Fiscal 2002 1,236,924
Fiscal 2003 806,409
Fiscal 2004 683,296
Thereafter 2,455,595
Rent expense was $1,837,330, $1,459,325, and $712,548 for each of the
prior three years in the period ending February 28, 1999.
11. MAJOR SUPPLIERS:
For the year ended February 28, 1999, the Company purchased inventory from
two suppliers that was in excess of 10% of the Company's total purchases.
Purchases from these suppliers aggregated approximately $45,040,000.
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
two suppliers that were in excess of 10% of the Company's total purchases.
Purchases from these suppliers aggregated approximately $21,385,000.
Page F-14
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED)
-----------------------------------------------
12. BUSINESS SEGMENT AND GEOGRAPHIC 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 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Net sales from external customers:
<S> <C> <C> <C>
Electronic Component Distribution $243,514,672 $221,217,251 $206,417,667
Industrial Contract Manufacturing 10,357,653 12,108,157 10,195,040
- ------------------------------------------------------------------------------------------------------------------------
$253,872,325 $233,325,408 $216,612,707
- ------------------------------------------------------------------------------------------------------------------------
Operating income (loss):
Electronic Component Distribution $ 9,210,235 $ 9,430,055 $ 13,019,791
Industrial Contract Manufacturing 655,481 1,230,848 594,423
- ------------------------------------------------------------------------------------------------------------------------
$ 9,865,716 $ 10,660,903 $ 13,614,214
- ------------------------------------------------------------------------------------------------------------------------
Total assets:
Electronic Component Distribution $ 94,340,725 $ 95,519,254 $ 70,577,102
Industrial Contract Manufacturing 5,418,170 4,122,174 4,206,212
- ------------------------------------------------------------------------------------------------------------------------
$ 99,758,895 $ 99,641,428 $ 74,783,314
- ------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization:
Electronic Component Distribution $ 1,116,850 $ 1,201,732 $ 978,684
Industrial Contract Manufacturing 300,659 286,325 260,283
- ------------------------------------------------------------------------------------------------------------------------
$ 1,417,509 $ 1,488,057 $ 1,238,967
- ------------------------------------------------------------------------------------------------------------------------
Capital expenditures (including capital leases):
Electronic Component Distribution $ 1,133,014 $ 983,419 $ 4,566,196
Industrial Contract Manufacturing 898,590 193,485 370,316
- ------------------------------------------------------------------------------------------------------------------------
$ 2,031,604 $ 1,176,904 $ 4,936,512
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Geographic:
The Company's operations are primarily conducted in the United States.
Information about the Company's operations in different geographic areas for the
three years in the period ended February 28, 1999, is not considered material to
the financial statements.
Page F-15
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED)
-----------------------------------------------
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
FEBRUARY NOVEMBER AUGUST MAY
28,1999 30, 1998 31, 1998 31, 1998
------------------ ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
NET SALES $66,579,269 $64,263,220 $62,797,917 $60,231,919
------------------ ------------------ ----------------- ------------------
COST OF SALES 52,712,341 50,681,732 48,848,889 46,593,041
------------------ ------------------ ----------------- ------------------
OPERATING AND INTEREST EXPENSES 12,343,878 11,460,371 11,869,342 11,738,573
------------------ ------------------ ----------------- ------------------
PROVISION FOR
INCOME TAXES 618,237 833,274 848,862 778,954
------------------ ------------------ ----------------- ------------------
NET INCOME $ 904, 813 $ 1,287,843 $ 1,230,824 $ 1,121,351
================== ================== ================= ==================
BASIC EARNINGS
PER SHARE $.10 $.15 $.14 $.13
================== ================== ================= ==================
WEIGHTED AVERAGE
NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
8,753,076 8,753,076 8,753,076 8,753,076
================== ================== ================= ==================
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
================== ================== ================= ==================
</TABLE>
Page F-16
<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-17
<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, 1999.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY:
NAME AGE POSITION
---- --- --------
Irving Lubman 60 Chief Operating Officer and Chairman of
the Board
Arthur Nadata 53 President, Chief Executive Officer and
Director
Richard S. Schuster 50 Vice-President, Secretary and Director
Paul Durando 55 Vice President - Finance, Treasurer and
Director
Harvey R. Blau 63 Director
Herbert M. Gardner 59 Director
Dominic A. Polimeni 52 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 2001) 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>
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., 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. for
four (4) years. Mr. Polimeni also practiced as a Certified Public
Accountant for more than 12 years and was a Partner in the NewYork
office of Arthur Young and Company.
<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, 1999, February 28, 1998 and
February 28, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation (1) Compensation
-------------------------- ---------------
Securities
Name of Principal and Fiscal Underlying All other (2)
Position Year Salary Bonus Options Compensation
---------------------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Irving Lubman 1999 $243,893 $196,102 75,000 $21,552
COO, Chairman 1998 236,789 344,370 - 16,781
of the Board 1997 229,893 446,843 100,000 14,945
Arthur Nadata 1999 $243,893 $280,146 100,000 $20,514
President and 1998 236,789 344,370 - 31,374
CEO 1997 229,893 446,843 100,000 18,457
Richard Schuster 1999 $243,893 $280,146 75,000 $18,330
Vice President 1998 236,789 344,370 - 18,922
Secretary and 1997 229,893 446,843 100,000 16,222
President, NIC
Components Corp.
Paul Durando 1999 $150,000 $ 31,011 10,000 $ 1,500
Vice President, 1998 138,942 25,827 15,000 1,389
Finance and 1997 130,000 33,514 20,000 1,500
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>
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 $226,545 for each officer in 1997, which shall be increased
each year by the change in the consumer price index, and also entitle
two of the three officers to an annual bonus equal to 3.33%, and the
third officer to 2.33% (9% in the aggregate) of the Company's
consolidated earnings before income taxes. Benefits are also payable
upon the occurrence of either a change in control of the Company, as
defined, or the termination of the officer's employment, as defined. In
the event the employee terminates his employment within six months
after a change in control of the Company, he will receive a lump sum
payment equal to three-quarters of the remaining compensation under his
employment agreement. Each Contract also provides for certain payments
of the executive salary, performance bonuses and other benefits in the
event of death or disability of the officer for the balance of the
period covered by the agreement.
The following table sets forth certain information with respect to
stock options granted to the officers named in the Summary
Compensation Table during the fiscal year ended February 28, 1999.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
% of Total Assumed Annual Rates of Stock
Options Options Granted Exercise Price Expiration Price Appreciation for Entire
Granted (1) to Employees ($ per share) Date Term (2) (3)
----------- ------------ ------------- ---- -----------------------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
P. Durando 10,000 2.9% $6.125 5/28/08 $ 38,550 $ 97,650
I. Lubman 75,000 21.6% 6.125 5/28/08 289,125 732,375
A. Nadata 100,000 28.7% 6.125 5/28/08 385,500 976,500
R. Schuster 75,000 21.6% 6.125 5/28/08 289,125 732,375
</TABLE>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR - Footnotes
(1) Options were granted for a term of ten years, subject to earlier
termination on termination of employment. Options become exercisable in
two 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 ten-year option term. Annual growth of 5% results in a stock
price of $9.98 per share and 10% results in a price of $15.89 per share
for Mr. Durando on the shares granted at $6.125. 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>
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, 1999 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> Value of
Number 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 - - 236,150 -
137,500 -
Arthur Nadata - - 236,150 -
162,500 -
Richard Schuster - - 236,150 -
137,500 -
Paul Durando - - 36,250 -
36,250 -
</TABLE>
(1) Market value less exercise price, before payment of applicable
federal or state taxes.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Directors who are not employees of the Company receive an annual fee
of $2,500 for Board Membership and $500 for each Board of Directors
or Committee meeting attended. There were two meetings of each of the
Board of Directors and the Compensation Committee during the fiscal
year ended February 28, 1999. Each director attended or participated
in all of the meetings of the Board of Directors and the committees
thereof on which he served.
For the fiscal year ended February 28, 1999, 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
1999, 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 1999 of
Messrs. Gardner (Chairman), Polimeni 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 1999 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>
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 1999, 10,000 options were granted to each outside
director under the Company's Outside Director Stock Option Plan.
Options to purchase 100,000 shares were granted to Mr. Nadata, 75,000
shares were granted to each of Messrs. Lubman and Schuster and 10,000
shares were granted to Mr. Durando under the Company's 1998 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>
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 1999.
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,
1994 to February 28, 1999) 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 Market Index Peer Group Index
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FYE 3/01/94 $100.00 $100.00 $100.00
FYE 2/28/95 84.51 95.47 95.07
FYE 2/29/96 176.06 131.83 126.17
FYE 2/28/97 104.23 158.24 142.88
FYE 2/28/98 71.13 215.21 148.40
FYE 2/28/99 49.30 278.09 78.88
</TABLE>
ASSUMES $100 INVESTED ON MARCH 1, 1994
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING FEBRUARY 28, 1999
Peer group includes All American Semiconductor, Arrow Electronics Inc., Avnet
Inc., Bell Microproducts Inc., Jaco Electronics Inc., Kent Electronics Corp.,
Marshall Industries, Pioneer Standard Electronics and Reptron Electronics Inc.
<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 192,450 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
1999, 10,500 options were granted under the 1994 Plan with an exercise
price of $6.125. Options are currently outstanding for 1,094,500 shares
and 5,500 options are currently available for grant. No options to
purchase shares granted under the 1994 Plan have been exercised.
<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 nor 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.
1998 Stock Option Plan
In May 1998, the Board of Directors adopted the Nu Horizons
Electronics Corp. 1998 Stock option Plan (the "1998 Option Plan"),
under which any director, officer, employee or consultant of the
Company, a subsidiary or an affiliate may be granted options to
purchase an aggregate 350,000 shares of the Company's Common Stock. The
1998 Option Plan is to be administered by the Board of Directors of the
Company; provided, however, that the Board may, in the exercise of its
discretion, designate from among its members a Compensation committee
or a Stock Option Committee (the "Committee") consisting of no fewer
than two non-employee Directors, as defined by Rule 16b-3 under the
Securities Exchange Act of 1934. The Compensation Committee administers
the 1998 Option Plan. Subject to the terms of the 1998 Option Plan, the
Board of Directors or the Committee may determine and designate those
directors, officers, employees and consultants who are to be granted
stock options under the 1998 Option Plan and the number of shares to be
subject to such options and the term of the options to be granted,
which term may not exceed ten years. The Board of Directors of the
Committee shall also, subject to the express provisions of the 1998
Option Plan, have the authority to interpret the 1998 Option Plan and
to prescribe, amend and rescind the rules and regulations relating to
the 1998 Option Plan. Only non-qualified stock options may be granted
under the terms of the 1998 Option Plan. The exercise price of the
options granted under the 1998 Option Plan will not be less than such
fair market value at the date of grant. The option price, as well as
the number of shares subject to such option, shall be appropriately
adjusted by the Committee in the event of stock splits, stock
dividends, recapitalizations, and certain other events involving a
change in the Company's capital. During fiscal 1999, 337,500 options
were granted under the 1998 Option Plan with exercise prices of $6.125,
$5.00 and $4.62. Options are currently outstanding for 337,500 shares
and 12,500 options are currently available for grant. No options
granted under the 1998 Option Plan have been exercised.
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.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Outside Director Stock Option (continued):
All directors of the Company who are not employees of the Company, of
which there are presently three, are eligible to participate in the
Director Plan.
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.
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, on June 1, 1994 each non-employee Director
then serving 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 then serving 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 1999 Stock Option Grants:
During fiscal 1999, the Company granted options to purchase 100,000
shares to Mr. Nadata, 75,000 shares to each of Messrs. Lubman and
Schuster and 10,000 shares to Mr. Durando at a price of $6.125 per
share and options to purchase 10,000 shares to each of Messrs. Blau,
Gardner and Polimeni at at a price of $6.125 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 Code and Regulations issued thereunder) 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>
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 rights which inure 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, with 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, 1999, the ESOP owned 431,251 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 ($10,000 in
calendar 1998). Company contributions are discretionary. Effective with
the plan year ended February 28, 1999, 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, 1999 approximately 250 employees
had elected to participate in the plan. For the fiscal year ended
February 28, 1999, the Company contributed approximately $114,216 to
the plan, of which $8,814 was a matching contribution of $2,438 for
each of Mr. Lubman, Mr. Nadata, Mr. Schuster and $1,500 for Mr.
Durando.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The following table sets forth, as of May 1, 1999, 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 46,502 (1) (2) *
Herbert M. Gardner 62,612 (3) *
Harvey R. Blau 47,075 (3) *
Dominic Polimeni 6,667 (3) *
Irving Lubman 320,321 (4) (5) 3.6%
Arthur Nadata 591,481 (4) (5) (6) 6.5%
Richard S. Schuster 584,884 (4) (5) 6.5%
Dimensional Fund Advisors 497,642 (7) 5.7%
Heartland Advisors 700,000 (8) 8.0%
All officers and directors as a group (7 persons) 1,659,542 7.1%
</TABLE>
NOTES:
------
(*) Less than 1% of the Company's outstanding stock.
(1) Includes options exercisable within 60 days for 41,250 shares of common
stock under the Company's Key Employees Stock Option Plan and the 1994
Stock Option Plan.
(2) Includes 5,252 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 46,667 shares of common
stock for Messrs. Gardner and Blau and 6,667 shares for Mr. Polimeni
under the Company's Outside Director Stock Option Plan.
(4) Includes options exercisable within 60 days for 273,650 shares of
common stock for Messrs. Lubman and Schuster and 286,150 shares for Mr.
Nadata under the Company's Key Employees Stock Option
Plan and the 1994 Stock Option Plan.
(5) Includes 15,133 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.
(7) 1299 Ocean Avenue, Santa Monica, CA 90401
(8) 790 Milwaukee Street, Milwaukee, WI 53202
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 counsel to the Company. For
the fiscal year ended February 28, 1999, the Company paid $75,481 in
legal fees to Blau, Kramer, Wactlar & Lieberman, P.C.
For the fiscal year ended February 28, 1999, the Company received
an aggregate $380,000 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, 1999, the Company received
an aggregate $412,000 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>
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, 1999 and February 28, 1998 F-2
Consolidated Statements of Income for the three years in the period ended February 28, 1999
F-3
Consolidated Statements of Changes in Shareholders' Equity for the three years in the
period ended February 28, 1999 F-4
Consolidated Statements of Cash Flows for the three years in the period ended February 28,
1999 F-5
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts and Reserves 34
</TABLE>
(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>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------------------------------------
<S> <C>
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).
</TABLE>
<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 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 Revolving Credit Agreement dated May 23, 1997, between the
Company and two banks, Mellon Bank, N.A. and KeyBank National
Association (incorporated by reference to Exhibit 10.18 to
Form 10-K for the year ended February 28, 1997).
10.11 Indemnity Agreements Dated May 23, 1997 between the Company
and Messrs. Blau, Durando, Gardner, Lubman, Nadata and
Schuster (incorporated by reference to Exhibit 10.19 to Form
10-Q for the quarter ended May 31, 1997)
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(d) Exhibits (continued):
EXHIBIT
NUMBER DESCRIPTION
----------------------------------------------------------------------------
10.12 First Amendment to Resolving Credit Agreement Dated May 23, 1997,
between the Company and two banks, Mellon Bank, N.A. and Key Bank
National Association. (Incorporated by reference to Exhibit 10.20
to From 10-Q for the quarter ended May 31, 1997)
10.13 Second Amendment to Revolving Credit Agreement Dated May 23, 1997,
between the Company and two banks, Mellon Bank, N.A. and Key Bank
National Association. (Incorporated by reference to Exhibit 10.20
to Form 10-Q for the quarter ended May 31, 1997)
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
Titan Logistics Corp. New York
23. Accountant's Consent
27. Financial Data Schedule
99. Additional Exhibit
<PAGE>
23. 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 17, 1999 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, 1999.
/s/ LAZAR LEVINE & FELIX LLP
----------------------------
LAZAR LEVINE & FELIX LLP
Certified Public Accountants
New York, New York
May 26, 1999
<PAGE>
99. Additional Exhibit:
-------------------
The following undertakings are incorporated by reference into the
Company's Registration Statements 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 the 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>
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>
SCHEDULE II
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
SCHEDULE II--VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
Three Years Ended February 28, 1999
<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
1999 $2,362,722 $762,500 $494,238 $2,630,984
=============== ================= ================= ================
1998 $2,192,079 $315,000 $144,357 $2,362,722
=============== ================= ================= ================
1997 $1,509,802 $701,500 $ 19,223 $2,192,079
=============== ================= ================= ================
(A) Accounts written off.
</TABLE>
<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:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C> <C>
By: /s/ IRVING LUBMAN Chairman of The Board, May 26, 1999
-------------------------- Chief Operating Officer
Irving Lubman
By: /s/ ARTHUR NADATA President, Chief Executive May 26, 1999
-------------------------- Officer and Director
Arthur Nadata
By: /s/ RICHARD SCHUSTER Vice President, Secretary May 26, 1999
-------------------------- and Director
Richard Schuster
By: /s/ PAUL DURANDO Vice President, Finance, May 26, 1999
-------------------------- Treasurer and Director
Paul Durando
By: /s/ HARVEY R. BLAU Director May 26, 1999
--------------------------
Harvey R. Blau
By: /s/ HERBERT M. GARDNER Director May 26, 1999
--------------------------
Herbert M. Gardner
By: /s/ DOMINIC A. POLIMENI Director May 26, 1999
--------------------------
Dominic A. Polimeni
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
EXHIBIT INDEX
to
FORM 10-K
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
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, 1999 28, 1998 28, 1997
-------------------- --------------------- -------------------
BASIC EARNINGS:
- ---------------
<S> <C> <C> <C>
NET INCOME $ 4,544,831 $ 5,297,991 $ 7,073,560
==================== ===================== ===================
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 8,753,076 8,753,076 8,732,299
-------------------- --------------------- -------------------
BASIC EARNINGS PER
COMMON SHARE $ .52 $ .61 $ .81
=========== =========== ===========
DILUTED EARNINGS:
- -----------------
Net Income $ 4,544,831 $ 5,297,991 $ 7,073,560
Net (after tax) interest expense related
to convertible debt 340,000 340,000 359,289
-------------------- --------------------- -------------------
NET INCOME AS ADJUSTED $ 4,884,831 $ 5,637,991 $ 7,432,849
==================== ===================== ===================
SHARES:
Weighted average number of common
shares outstanding 8,753,076 8,753,076 8,732,299
Stock options 1,734,450 1,361,450 1,302,227
Assuming Conversion of convertible
Debt 784,333 784,333 784,333
-------------------- --------------------- -------------------
Weighted average number of common
Shares outstanding as adjusted 11,271,859 10,898,859 10,818,859
==================== ===================== ===================
DILUTED EARNINGS PER COMMON SHARE $ .43 $ .52 $ .69
=========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED FEBRUARY 28, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<S> <C>
<CASH> 504,320
<SECURITIES> 0
<RECEIVABLES> 44,551,387
<ALLOWANCES> 2,630,984
<INVENTORY> 45,113,894
<CURRENT-ASSETS> 89,893,872
<PP&E> 13,512,990
<DEPRECIATION> 6,382,196
<TOTAL-ASSETS> 99,758,895
<CURRENT-LIABILITIES> 21,043,975
<BONDS> 22,377,852
<COMMON> 57,770
0
0
<OTHER-SE> 56,279,298
<TOTAL-LIABILITY-AND-EQUITY> 99,758,895
<SALES> 253,872,325
<TOTAL-REVENUES> 253,872,325
<CGS> 198,836,003
<TOTAL-COSTS> 198,836,003
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 762,500
<INTEREST-EXPENSE> 2,243,161
<INCOME-PRETAX> 7,624,158
<INCOME-TAX> 3,079,327
<INCOME-CONTINUING> 4,544,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,544,831
<EPS-BASIC> .52
<EPS-DILUTED> .43
</TABLE>
