<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 29, 2000 1-8798
- -------------------------------------- ------------------------------------
Nu Horizons Electronics Corp.
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(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)
(631) 396-5000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
- --------------------------------------------------------------------------------
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock Par Value $.0066 Per Share NASDAQ National Market System
- --------------------------------------- ------------------------------------
_______________________________________ ____________________________________
(Title of class)
Indicate by check mark whether the registrant; (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 1-K or any amendment to this
Form 10K [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 1, 1999.
Common Stock - Par Value $.0066 10,018,652
- --------------------------------------- ------------------------------------
Class Outstanding Shares
Aggregate Market Value of Non-Affiliate Stock at
May 1, 2000 - approximately $195,364,000
- --------------------------------------------------------------------------------
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I:
<S> <C>
ITEM 1. Business Pages 3 - 7
ITEM 2. Properties Pages 7 - 8
ITEM 3. Legal Proceedings Page 8
ITEM 4. Submission of Matters to a Vote of Security Holders Page 8
PART II:
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters Page 8
ITEM 6. Selected Financial Data Page 9
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations Pages 10 - 13
ITEM 8. Financial Statements and Supplementary Data Pages F1 - F17
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures Page 14
PART III:
ITEM 10. Directors and Executive Officers of the Company Pages 14 - 15
ITEM 11. Executive Compensation Pages 16 - 25
ITEM 12. Security Ownership of Certain Beneficial Owners and Management Page 26
ITEM 13. Certain Relationships and Related Transactions Page 26
PART IV:
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Pages 27 - 33
Signatures Page 34
Exhibit Index
</TABLE>
Page 2
<PAGE>
PART I.
ITEM 1. BUSINESS
GENERAL:
Except for historical information contained herein, the matters set
forth herein 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.
Nu Horizons Electronics Corp. (the "Company") and its wholly-owned
subsidiaries, NIC Components Corp. ("NIC") , Titan Logistics Corp.
("Titan"), Nu Horizons Eurotech Ltd. ("NUE"), Nu Horizons Asia PTE.
LTD.("NUA"), NIC Eurotech Ltd. ("NIE") and its majority owned
subsidiary NIC Components Asia PTE. LTD.("NIA") 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 Original Equipment Manufacturers
or 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 3
<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, Basis Communications, Cirrus Logic, Elantec, Exar,
Hyundai, Maxim Integrated Products, Pericom, ST Microelectronics, Sun
Microsystems, TDK Semiconductor and Xilinx among others.
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 4
<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 $3,000,000 of automated circuit board assembly equipment
and in fiscal 1999 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, both domestically and abroad: 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
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 29, 2000, the Company had approximately 15,000
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
-------
Arizona - Phoenix
Illinois - Chicago
Minnesota - Minneapolis
Texas - Austin and Dallas
WEST COAST
----------
California - Irvine, Los Angeles, Sacramento, San Diego and San Jose
Oregon - Portland
Washington - Redmond
NIC's passive components are marketed through the services of a
national network of approximately 20 independent sales representative
organizations, employing over 200 salespersons, as well as through NIC's
in-house sales and engineering personnel. The independent representative
organizations do not represent competing product lines but sell other
related products. Commissions to such organizations are generally equal
to 5% of all sales in a representative's exclusive territory.
Page 5
<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 29, 2000. 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 29, 2000, there were three manufacturers that
represented more than 10% of the Company's inventory on a consolidated
basis. Those suppliers accounted for approximately 46% 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 29, 2000, the Company purchased inventory
from two suppliers that was in excess of 10% of the Company's total
purchases. Purchases from these suppliers were approximately $49,816,000
and $57,230,000 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 6
<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, 2000, the Company's backlog was
approximately $89,655,000 as compared to a backlog of approximately
$24,000,000 at May 1, 1999.
Employees:
As of February 29, 2000, the Company employed approximately 546
persons: 12 in management, 260 in sales and sales support, 34 in product
and purchasing, 19 in accounting and finance, 13 in MIS, 31 in
operations, 117 in manufacturing, and 60 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 provides 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 7
<PAGE>
ITEM 2. PROPERTIES (Continued):
On May 1, 1996, the Company leased approximately 25,000 square feet of
warehouse and office space for its San Jose, California operation. 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 three (23) branch sales
offices which range in size from 1,000 square feet to 5,000 square feet,
with lease terms that expire between July 2000 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 29, 2000 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.
<TABLE>
<CAPTION>
FISCAL YEAR 1999: HIGH LOW
---- ----
<S> <C> <C>
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 $ 5.95 $ 3.75
Second Quarter 8.33 5.30
Third Quarter 9.50 6.55
Fourth Quarter 17.50 8.75
FISCAL YEAR 2001:
First Quarter (Through May 1, 2000) $24.75 $14.00
</TABLE>
b) As of May 1, 2000, the Company's common stock was owned by
approximately 400 holders of record and 5600 beneficial holders.
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 8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
29, 2000 28, 1999 28, 1998 28, 1997 29, 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Net Sales $379,238,562 $253,872,325 $233,325,408 $216,612,707 $202,803,184
Gross profit on sales 79,240,311 55,036,322 50,794,325 48,488,124 48,201,148
Gross profit percentage 20.9% 21.7% 21.8% 22.4% 23.8%
Income before provision for
income taxes and minority
interests 20,370,140 7,624,158 8,947,537 11,921,256 15,799,592
Net income 11,698,786 4,544,831 5,297,991 7,073,560 9,396,301
Earnings per
common share:
Basic $ 1.30 $ .52 $ .61 $ .81 $ 1.19
Diluted $ 1.03 $ .43 $ .52 $ .69 $ .97
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY
28, 2000 28, 1999 28, 1998 29, 1997 28, 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
DATA:
Working capital $104,048,711 $68,849,897 $75,217,607 $51,941,472 $57,954,434
Total assets 147,537,145 99,758,895 99,641,428 74,783,314 75,459,586
Long-term debt 38,307,319 22,377,852 32,790,395 15,523,483 27,094,030
Shareholders'
equity 75,461,183 56,337,068 51,542,045 46,950,735 37,617,703
</TABLE>
Page 9
<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, NIC Components Corp. ("NIC"), Nu Horizons Eurotech
Limited ("NUE"), Nu Horizons Asia PTE.LTD. ("NUA"), NIC Eurotech
Limited ("NIE"), Titan Logistics Corp. ("TITAN") and Nu Horizons
International Electronics Corp. ("International") and its majority
owned subsidiary NIC Components Asia PTE.LTD. ("NIA") 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.
The financial information presented herein includes: (i) Balance sheets
as of February 29, 2000, and February 28, 1999; (ii) Statements of
income for the twelve month periods ended February 29, 2000, February
28, 1999 and February 28, 1998; (iii) Statements of cash flows for the
twelve month periods ended February 29, 2000, February 28, 1999 and
February 28, 1998; and (iv) Consolidated changes in shareholders'
equity for the twelve month periods ended February 29, 2000, February
28, 1999 and February 28, 1998.
Results of Operations:
Fiscal Year 2000 versus 1999
Net sales for the year ended February 29, 2000 aggregated $379,238,562
as compared to $253,872,325 for the year ended February 28, 1999, an
increase of approximately 50%. Management attributes this increase in
sales for the period entirely to the core semiconductor distribution
business which experienced substantially increase demand. Management
believes that the ability to generate greater market penetration to a
larger account base coupled with an increased focus on fewer product
lines, has contributed to the substantial increase in sales
performance. While the Company believes it can continue to successfully
implement this approach, no assurances can be given in this regard.
Gross profit margin as a percentage of net sales was 20.9% for the year
ended February 29, 2000 as compared to 21.7% for the year ended
February 28, 1999. This decrease in gross margin percentage compared to
the prior period is due to a greater percentage of larger orders from
larger customers, which require a lower gross margin marketing approach
on that business, thereby decreasing margins overall. Notwithstanding
the forgoing, the Company expects margin pressure to stabilize and
possibly experience a modest increase, due to its belief that the long
awaited semiconductor industry recovery is well underway, however, no
assurances can be given in this regard.
Operating expenses increased by $10,861,919 to $56,032,525 for the year
ended February 29, 2000 from $45,170,606 for the year ended February
28, 1999, an increase of approximately 24%. The dollar increase in
operating expenses was due to increases in the following expense
categories: Approximately $8,725,000 or approximately 80% of the
increases were for personnel related costs -commissions, salaries,
travel and fringe benefits. The remaining increase of approximately
$2,137,000 or approximately 20% 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. While operating expenses,
expressed in dollars, for Fiscal 2000 increased approximately 24% over
the Fiscal 1999 period those same expenses, as a percentage of sales
dollars, decreased from 17.8% for the prior year to 14.8% for the
current fiscal year. Management is encouraged by the fact that sales
volume is increasing at a greater rate than operating expenses, which
it believes is providing the economies of scale required to produce an
enhanced bottom line performance. Management believes that this trend
should continue through the next fiscal year, although no assurances
can be given in this regard.
Page 10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 2000 versus 1999 (continued)
Interest expense increased by $594,481 from $2,243,161 for the year
ended February 28, 1999 to $2,837,642 for the year ended February 29,
2000. This increase was primarily due to the higher average levels of
bank debt during the year resulting from an increase in the Company's
cash, inventories and accounts receivable levels needed to support
increased sales activity.
<TABLE>
<CAPTION>
INTEREST COSTS
FOR THE FISCAL
YEAR ENDED
February February
29, 2000 28, 1999
-----------------------------
<S> <C> <C>
Revolving Bank Credit $2,277,278 $1,660,794
Sub. Convert. Notes 560,364 582,367
-----------------------------
Total Interest Expense $2,837,642 $2,243,161
=============================
</TABLE>
Net income for the year ended February 29, 2000 was $11,698,786 or
$1.03 per share diluted, as compared to $4,544,831 or $.43 per share
diluted, for the year ended February 28, 1999. Management attributes
the increase in earnings to increased sales volume net of higher
operating expenses for the year ended in 2000 as compared to 1999.
Fiscal Year 1999 versus 1998
Results of Operations:
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 a moderate increase.
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 11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Fiscal Year 1999 versus 1998 (Continued)
Results of Operations (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.
<TABLE>
<CAPTION>
INTEREST COSTS
FOR THE FISCAL
YEAR ENDED
February February
28, 1999 28, 1998
------------------------------
<S> <C> <C>
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
==============================
</TABLE>
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.
Liquidity and Capital Resources:
Fiscal Year 2000 versus 1999
The Company ended its 2000 fiscal year with working capital and cash
aggregating approximately $104,049,000 and $1,497,000, respectively at
February 29, 2000 as compared to approximately $68,850,000 and $504,000
respectively, at February 28, 1999. The Company's current ratio at
February 29, 2000, was 4.1:1. The Company believes that its financial
position at February 29, 2000, will enable it to take advantage of any
new opportunities that may arise.
On October 28, 1999, the Company entered into a new unsecured revolving
line of credit, which currently provides for maximum borrowings of
$57,000,000 through October 28, 2003 with three banks 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 October 28, 2003. At February 29, 2000, $37,800,000 was
outstanding under this line of credit as compared to $14,900,000 at
February 28, 1999. The Company does not expect the fluctuation in
interest rates to have a material effort on its financial results.
In a private placement completed on August 31, 1994, the Company issued
$15 million principal amount of Subordinated Convertible Notes, which
were due in $5,000,000 increments on August 31, 2000, 2001 and 2002.
The notes were subordinate in right of payment to all existing and
future senior indebtedness of the Company. The notes bore interest at
8.25%, payable quarterly on November 15, February 15, May 15 and August
15. The notes were 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 29,
2000, all of the notes had been converted into 1,705,883 shares of
common stock.
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 12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued):
Inflationary Impact:
Since the inception of operations, inflation has not significantly
affected the operating results of the Company. However, inflation and
changing interest rates have had a significant effect on the economy in
general and therefore could affect the operating results of the Company
in the future.
Other:
Except for historical information contained herein, the matters set
forth above are forward-looking statements that involve certain risks
and uncertainties that could 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 13
<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 29, 2000 and February
28, 1999, and the consolidated statements of income, changes in shareholders'
equity and cash flows for the three years in the period ended February 29, 2000.
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 above,
present fairly in all material respects, the financial position of Nu Horizons
Electronics Corp. and subsidiaries at February 29, 2000 and February 28, 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended February 29, 2000 in conformity with generally
accepted accounting principles.
/s/ LAZAR LEVINE & FELIX LLP
----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
May 22, 2000
Page F-1
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
February February
29, 2000 28, 1999
-------------- --------------
<S> <C> <C>
-ASSETS-
------
CURRENT ASSETS:
Cash $ 1,496,805 $ 504,320
Accounts receivable-net of allowance for
doubtful accounts of $3,447,072 and
$2,630,984 for 2000 and 1999, respectively 64,709,037 41,920,403
Inventories 69,544,396 45,113,894
Prepaid expenses and other current assets 1,817,718 2,355,255
------------ ----------
TOTAL CURRENT ASSETS 137,567,956 89,893,872
PROPERTY, PLANT AND EQUIPMENT - NET
(Note 3) 7,319,138 7,130,794
OTHER ASSETS
Costs in excess of net assets acquired-net 1,438,484 1,595,408
Other assets (Note 4) 1,211,567 1,138,821
------------ --------------
$147,537,145 $ 99,758,895
============ ==============
-LIABILITIES AND SHAREHOLDERS' EQUITY-
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 20,558,054 $ 14,369,712
Income taxes payable 3,623,248 -
Accrued expenses 9,337,943 6,674,263
------------ -------------
TOTAL CURRENT LIABILITIES 33,519,245 21,043,975
------------ -------------
LONG-TERM LIABILITIES:
Deferred income taxes (Note 9) 507,319 418,852
Revolving credit line (Notes 5) 37,800,000 14,900,000
Subordinated convertible notes (Note 7) - 7,059,000
------------ -------------
TOTAL LONG-TERM LIABILITIES 38,307,319 22,377,852
------------ -------------
MINORITY INTEREST (Note 6) 249,398 -
------------ -------------
COMMITMENTS AND CONTINGENCIES
(Notes 10, 11 and 12)
SHAREHOLDERS' EQUITY (Note 8):
Preferred stock, $1 par value, 1,000,000
shares authorized; none issued or outstanding - -
Common stock, $.0066 par value, 20,000,000
shares authorized; 10,018,652 and 8,753,076
shares issued and outstanding for February 29,
2000 and February 28, 1999, respectively 66,122 57,770
Additional paid-in capital 29,455,741 19,042,230
Retained earnings 46,438,636 38,076,840
------------ -------------
75,960,499 57,176,840
Less: loan to ESOP (Note 10) 499,316 839,772
------------ -------------
75,461,183 56,337,068
------------ -------------
$147,537,145 $ 99,758,895
============ =============
</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
29, 2000 28, 1999 28, 1998
------------------- ------------------ ------------------
<S> <C> <C> <C>
NET SALES $379,238,562 $253,872,325 $233,325,408
------------------- ------------------ ------------------
COSTS AND EXPENSES:
Cost of sales (Note 12) 299,998,251 198,836,003 182,531,083
Operating expenses 56,032,525 45,170,606 40,133,422
Interest expense 2,837,646 2,243,161 1,723,163
Interest income - (1,603) (9,797)
------------------- ------------------ ------------------
358,868,422 246,248,167 224,377,871
------------------- ------------------ ------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES AND MINORITY
INTERESTS 20,370,140 7,624,158 8,947,537
Provision for income taxes (Note 9) 8,528,909 3,079,327 3,649,546
------------------- ------------------ ------------------
INCOME BEFORE MINORITY INTERESTS 11,841,231 4,544,831 5,297,991
MINORITY INTEREST IN EARNINGS OF
SUBSIDIARY (Note 6) 142,445 - -
------------------- ------------------ ------------------
NET INCOME $ 11,698,786 $ 4,544,831 $ 5,297,991
=================== ================== ==================
EARNINGS PER SHARE
Basic $ 1.30 $ .52 $ .61
=================== ================== ==================
Diluted $ 1.03 $ .43 $ .52
=================== ================== ==================
</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 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
Stock dividend distributed 437,638 2,888 3,334,102 (3,336,990) - -
Exercise of stock options 4,388 29 25,844 - - 25,873
Conversion of subordinated
convertible notes 823,550 5,435 7,053,565 - - 7,059,000
Repayment from ESOP - - - - 340,456 340,456
Net income - - - 11,698,786 - 11,698,786
----------- -------- ----------- ----------- ---------- -----------
Balance at February 29, 2000 10,018,652 $ 66,122 $ 29,455,741 $ 46,438,636 $ (499,316) $ 75,461,183
=========== ======== ========== =========== ========== ===========
</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
29, 2000 28, 1999 28, 1998
------------------- ------------------- -------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS:
Cash flows from operating activities:
Cash received from customers $ 355,352,590 $ 248,540,451 $ 226,296,024
Cash paid to suppliers and employees (368,622,165) (236,336,921) (232,653,486)
Interest received - 1,602 9,797
Interest paid (2,837,646) (2,243,161) (1,723,163)
Income taxes paid (4,134,402) (1,359,716) (4,511,763)
------------- ------------- -------------
Net cash provided (used) by
operating activities (20,241,623) 8,602,255 (12,582,591)
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures (1,691,765) (2,031,604) (1,176,904)
Purchase of stock for ESOP - - (950,014)
Proceeds from sale of building - - 1,126,840
------------- ------------- -------------
Net cash (used) by investing
activities (1,691,765) (2,031,604) (1,000,078)
------------- ------------- -------------
Cash flows from financing activities:
Borrowings under revolving credit line 95,785,000 43,950,000 51,650,000
Repayments under revolving credit line (72,885,000) (54,350,000) (34,350,000)
Principal payments of long-term debt - - (433,129)
Proceeds from exercise of employee
stock options 25,873 - 103,383
------------- ------------- -------------
Net cash provided by (used in)
financing activities 22,925,873 ( 10,400,000) 16,970,254
------------- ------------- -------------
Net (decrease) increase in cash and cash
equivalents 992,485 (3,829,349) 3,387,585
Cash and cash equivalents, beginning of year 504,320 4,333,669 946,084
------------- ------------- -------------
Cash and cash equivalents, end of year $ 1,496,805 $ 504,320 $ 4,333,669
============= ============= =============
</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
29, 2000 28, 1999 28, 1998
------------------- -------------------- ------------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO
NET CASH FROM OPERATING
ACTIVITIES:
Net income $ 11,698,786 $ 4,544,831 $ 5,297,991
------------------- -------------------- ------------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,660,345 1,417,509 1,488,057
Bad debts 1,097,338 762,500 315,000
Contribution to ESOP (compensation) 340,456 250,192 139,950
Loss on sale of building - - 60,871
Changes in assets and liabilities:
(Increase) in accounts receivable (23,885,972) (5,331,874) (7,029,384)
(Increase) in inventories (24,430,502) (1,109,004) (14,240,320)
(Increase) decrease in prepaid
expenses and other current assets 537,537 2,481,752 (1,933,738)
(Increase) in other assets (72,746) (136,095) (80,951)
Increase in accounts payable
and accrued expenses 8,852,022 5,734,987 3,190,686
(Decrease) in income taxes 3,391,863 - -
Increase Minority Funding 249,398 - -
(Decrease) increase in deferred taxes 319,852 (12,543) 209,247
------------------- -------------------- ------------------
Total adjustments (31,940,409) 4,057,424 (17,880,582)
------------------- -------------------- ------------------
Net cash provided (used) by operating activities $(20,241,623) $ 8,602,255 $(12,582,591)
=================== ==================== ==================
</TABLE>
NON-CASH FINANCING ACTIVITIES:
During the year ended February 29, 2000, the subordinated debt-holder
(see Note 7) converted $7,059,000 of debt into 823,550 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 29, 2000
-----------------------------------
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 2000 the Company incorporated two new subsidiaries in
Singapore, 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 Visions Manufacturing,
Inc. ("NUV"), Nu Horizons International Corp. ("International"), NIC
Eurotech Limited ("NIE"), Nu Horizons Eurotech ("NUE"), Nu Horizons Asia
PTE.LTD. ("NUA"), NIC Components Asia PTE.LTD ("NIA") 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 29, 2000 (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 29, 2000 and
February 28, 1999, accumulated amortization of goodwill aggregated
$915,390 and $758,466, 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 29, 2000 (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.
The following average shares were used for the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
2000 1999 1998
--------------- --------------- --------------
<S> <C> <C> <C>
Basic 9,007,563 8,753,076 8,753,076
Diluted 11,698,526 11,271,859 10,898,859
</TABLE>
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. 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 29, 2000, such costs aggregated $662,646, $909,156 and
$774,000, respectively.
m. Comprehensive Income:
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.
n. Currencies:
The Company's functional currency for all operations is the U.S. dollar.
Accordingly, gains and losses arising from translation of foreign
currency financial statement balances into U.S. dollars are included in
income. Gains and losses resulting from foreign currency transactions
are also included in income.
Page F-9
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 29, 2000 (CONTINUED)
-----------------------------------------------
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment which is reflected at cost, consists of the
following:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Furniture, fixtures and office equipment $ 8,802,458 $ 7,839,268
Computer equipment 4,088,302 3,499,524
Assets held under capitalized leases 919,834 919,834
Leasehold improvements 1,394,161 1,254,364
----------- -----------
15,204,755 13,512,990
Less: accumulated depreciation and amortization 7,885,617 6,382,196
----------- -----------
$ 7,319,138 $ 7,130,794
=========== ===========
</TABLE>
Depreciation expense including depreciation of capitalized leases for the
years ended February 29, 2000, February 28, 1999 and February 28, 1998
aggregated $1,503,421, $1,260,585 and $1,331,133, respectively.
4. OTHER ASSETS:
Other assets as of February 29, 2000 and February 28, 1999 consists of the
following:
<TABLE>
<CAPTION>
2000 1999
--------------- ---------------
<S> <C> <C>
Net cash surrender value - life insurance $1,090,004 $1,023,832
Other 121,563 114,989
-------------- --------------
$1,211,567 $1,138,821
============== ==============
</TABLE>
5. REVOLVING CREDIT LINE:
On October 28, 1999, the Company entered into a new unsecured revolving line
of credit with three banks, which currently provides for maximum borrowings
of $57,000,000 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 October 28, 2003. Direct borrowings under
lines of credit were $37,800,000 and $14,900,000 at February 29, 2000 and
February 28, 1998, respectively. As of the end of the fiscal year, the
Company met all of the required covenants.
6. MINORITY INTEREST IN SUBSIDIARY:
Represents the liability related to the 30% minority interest in NIC
Components Asia PTE.LTD which is included in the Company's consolidated
financial statements.
Page F-10
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 29, 2000 (CONTINUED)
-----------------------------------------------
7. SUBORDINATED CONVERTIBLE NOTES:
In a private placement completed on August 31, 1994, the Company issued $15
million principal amount of Subordinated Convertible Notes, which are were
in $5,000,000 increments on August 31, 2000, 2001 and 2002. The notes were
subordinate in right of payment to all existing and future senior
indebtedness of the Company. The notes bore interest at 8.25%, payable
quarterly on November 15, February 15, May 15, and August 15. The notes
were 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 29, 2000, all of the notes had been converted into 1,705,883
shares of common stock.
8. CAPITAL STOCK AND STOCK OPTIONS:
On September 23, 1999, the Board of Directors approved a 5% stock dividend
payable on November 4, 1999 to shareholders of record on November 19, 1999.
As a result of the stock dividend, 437,638 shares were distributed, common
stock was increased by $2,888, additional paid in capital was increased by
$3,334,102 and retained earnings was decreased by $3,336,990.
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 and ten years after date of grant respectively, and become exercisable
in four and two equal annual installments, respectively, 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 29, 2000 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- --------------
<S> <C> <C>
Outstanding, February 28, 1997 1,302,227 $ 8.16
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
======
Stock Dividend (5%) 98,698 -
Granted 833,950 6.27
Exercised (4,388) 5.90
Canceled (595,500) 7.69
-----------
Outstanding, February 29, 2000 2,067,210 3.02
===========
Weighted average fair value of options granted during the year $ 3.20
======
</TABLE>
Page F-11
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 29, 2000 (CONTINUED)
-----------------------------------------------
8. CAPITAL STOCK AND STOCK OPTIONS (continued):
Options exercisable at the end of each fiscal year:
February 28, 1998 673,825 $7.52
February 28, 1999 997,950 8.06
February 29, 2000 885,847 7.60
Exercise prices for options outstanding as of February 29, 2000 ranged from
$4.62 to $14.50. The weighted-average remaining contractual life of these
options is approximately 5 years. Outstanding options at February 29, 2000
are held by 53 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:
2000 1999 1998
----------- ---------- ----------
Net earnings:
As reported $11,698,786 $4,544,831 $5,297,991
Pro forma 11,004,402 4,311,690 4,827,590
Basic earnings per share:
As reported $ 1.30 $ .52 $ .61
Pro forma 1.22 .49 .55
Diluted earnings per share:
As reported $ 1.03 $ .43 $ .52
Pro forma .97 .41 .47
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 2000, 1999 and 1998, respectively: expected
volatility of 51.7 %, 45.3%, and 45.8%, respectively; risk free interest
rate of 5.9%, 6.0%, and 6.1% for 2000, 1999 and 1998, 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 are likely to be affected by the
number of grants awarded since additional awards are generally expected to
be made at varying amounts.
9. INCOME TAXES:
The provision for income taxes is comprised of the following:
2000 1999 1998
---------- ---------- ----------
Current:
Federal $6,639,410 $2,523,535 $3,103,097
State and Local 1,801,032 680,931 655,559
Deferred:
Federal 69,889 (64,760) (74,103)
State 18,578 (60,379) (35,007)
---------- ---------- ----------
$8,528,909 $3,079,327 $3,649,546
========== ========== ==========
Page F-12
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 29, 2000 (CONTINUED)
-----------------------------------------------
9. INCOME TAXES (continued):
The components of the net deferred income tax liability, pursuant to SFAS
109, as of February 29, 2000 and February 28, 1999 are as follows:
2000 1999
---- ----
Deferred Tax Assets:
Accounts Receivable $ 684,060 $ 672,003
Inventory 205,920 98,600
-----------
Total Deferred Tax Assets 889,980 770,603
----------- -----------
Deferred Tax Liabilities
Fixed Assets (34,580) (68,890)
Income of Interest Charge DISC (1,362,719) (1,120,565)
----------- -----------
Total Deferred Tax Liabilities (1,397,299) (1,189,455)
----------- -----------
Net Deferred Tax Liabilities $ (507,319) $ (418,852)
=========== ===========
The following is a reconciliation of the maximum statutory federal tax rate
to the Company's effective tax rate:
2000 1999 1998
---- ---- ----
Statutory rate 35.0% 35.0% 35.0%
State and local taxes 8.9 8.1 7.1
Other (1.7) (2.7) (1.3)
---- ---- ----
Effective tax rate 42.2% 40.4% 40.8%
==== ==== ====
10. EMPLOYEE BENEFIT PLANS:
On January 13, 1987, the Company's Board of Directors approved the
termination of the Company's pension plan and approved the adoption of an
employee stock ownership plan (ESOP) to replace the terminated pension
plan. The ESOP covers all eligible employees and contributions are
determined by the Board of Directors. The ESOP purchases shares of the
Company's common stock using loan proceeds. As the loan is repaid, a pro
rata amount of common stock is released for allocation to eligible
employees. The Company makes cash contributions to the ESOP to meet its
obligations. Contributions to the ESOP for the three years ended February
29, 2000 aggregated $340,456 for fiscal 2000, $250,197 for 1999 and
$139,950 for 1998. At February 29, 2000 the ESOP owned 434,155 shares at an
average price of approximately $3.60 per share.
On October 28, 1999, 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 28, 2003.
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 29, 2000, 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 29, 2000 were $115,401,
$114,216 and $120,403, respectively.
Page F-13
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 29, 2000 (CONTINUED)
-----------------------------------------------
11. COMMITMENTS:
(a) On September 13, 1996, the Company signed employment contracts (the
"Contracts"), as amended, with three of its senior executives for a
continually renewing five year term. The Contracts specify a base
salary of $226,545 for each officer, which shall be increased each
year by the change in the consumer price index, and also entitle 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 provides 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, and other
provisions. Aggregate minimum rental commitments under noncancelable
operating leases are as follows:
Fiscal 2001 $2,071,000
Fiscal 2002 1,635,000
Fiscal 2003 1,190,000
Fiscal 2004 1,031,000
Fiscal 2005 911,000
Thereafter 2,002,000
Rent expense was $2,175,834, $1,837,330, and $1,459,325 for each of
the prior three years in the period ending February 29, 2000.
12. MAJOR SUPPLIERS:
For the year ended February 29, 2000, the Company purchased inventory from
two suppliers that were in excess of 10% of the Company's total purchases.
Purchases from these suppliers were approximately $49,816,000 and
$57,230,000 respectively for the fiscal year.
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.
Page F-14
<PAGE>
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
THREE YEARS ENDED FEBRUARY 29, 2000 (CONTINUED)
-----------------------------------------------
13. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:
The Company's operations have been classified into two business segments in
accordance with SFAS 131 "Disclosure About Segments of on Enterprise and
Related Information": 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 2000, 1999
and 1998 is as follows:
<TABLE>
<S> <C> <C> <C>
2000 1999 1998
-------------------------------------------------------------------------------------------------
Net sales from external customers:
Electronic Component Distribution $364,069,937 $243,514,672 $221,217,251
Industrial Contract Manufacturing 15,168,625 10,357,653 12,108,157
-------------------------------------------------------------------------------------------------
$379,238,562 $253,872,325 $233,325,408
-------------------------------------------------------------------------------------------------
Operating income (loss):
Electronic Component Distribution $ 22,241,395 $ 9,210,235 $ 9,430,055
Industrial Contract Manufacturing 823,946 655,481 1,230,848
-------------------------------------------------------------------------------------------------
$ 23,065,341 $ 9,865,716 $ 10,660,903
-------------------------------------------------------------------------------------------------
Total assets:
Electronic Component Distribution $136,625,267 $ 94,340,725 $ 95,519,254
Industrial Contract Manufacturing 10,911,878 5,418,170 4,122,174
-------------------------------------------------------------------------------------------------
$147,537,145 $ 99,758,895 $ 99,641,428
-------------------------------------------------------------------------------------------------
Depreciation and amortization:
Electronic Component Distribution $ 1,183,185 $ 1,116,850 $ 1,201,732
Industrial Contract Manufacturing 477,160 300,659 286,325
-------------------------------------------------------------------------------------------------
$ 1,660,345 $ 1,417,509 $ 1,488,057
-------------------------------------------------------------------------------------------------
Capital expenditures (including capital leases):
Electronic Component Distribution $ 1,059,381 $ 1,133,014 $ 983,419
Industrial Contract Manufacturing 632,384 898,590 193,485
-------------------------------------------------------------------------------------------------
$ 1,691,765 $ 2,031,604 $ 1,176,904
-------------------------------------------------------------------------------------------------
</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 29, 2000, 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 29, 2000 (CONTINUED)
-----------------------------------------------
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
<S> <C> <C> <C> <C>
FEBRUARY NOVEMBER AUGUST MAY
29, 2000 30, 1999 31, 1999 31, 1999
------------------ ------------------ ----------------- ------------------
NET SALES $115,402,898 $100,822,657 $88,871,395 $74,141,612
------------------ ------------------ ----------------- ------------------
COST OF SALES 90,004,959 79,918,457 70,907,363 59,167,472
------------------ ------------------ ----------------- ------------------
OPERATING AND
INTEREST EXPENSES 17,126,372 15,260,691 14,218,696 12,406,857
------------------ ------------------ ----------------- ------------------
PROVISION FOR
INCOME TAXES 3,685,827 2,267,059 1,535,587 1,040,436
------------------ ------------------ ----------------- ------------------
NET INCOME $ 4,585,740 $ 3,376,450 $ 2,209,749 $ 1,526,847
================== ================== ================= ==================
BASIC EARNINGS
PER SHARE $ .50 $ .38 $ .25 $ .17
================== ================== ================= ==================
WEIGHTED AVERAGE
NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
9,007,563 8,899,480 8,753,076 8,753,076
================== ================== ================= ==================
THREE MONTH PERIOD ENDED
--------------------------------------------------------------------------------------
FEBRUARY NOVEMBER AUGUST MAY
28, 1999 30, 1998 31, 1998 31, 1998
------------------ ------------------ ----------------- ------------------
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
================== ================== ================= ==================
</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 29, 2000.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Irving Lubman 61 Chief Operating Officer and Chairman of the Board
Arthur Nadata 54 President, Chief Executive Officer and Director
Richard S. Schuster 51 Vice-President, Secretary and Director
Paul Durando 56 Vice President - Finance, Treasurer and Director
Harvey R. Blau 64 Director
Herbert M. Gardner 60 Director
Dominic A. Polimeni 53 Director
</TABLE>
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.
Class I Class II Class III
(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 2002)
-------------------- -------------------- ---------------------
Paul Durando Harvey Blau (1) Irving Lubman
Herbert Gardner (1) Dominic A. Polimeni (1) Arthur Nadata
Richard S. Schuster
(1) Member of Compensation and Audit Committees
All officers serve at the discretion of the Board. There are no family
relationships among the directors and officers.
Irving Lubman has been Chairman of the Board since October 1982 and Chief
Operating Officer since September 1996. Mr. Lubman was Chief Executive Officer
from October 1982 to September 1996. Mr. Lubman has been actively involved in
electronic components' distribution since 1957, when he joined Milgray
Electronics Corp., holding the position of sales manager until 1968. From 1968
through October 1982, when he joined the Company, Mr. Lubman was corporate vice
president of Diplomat Electronics Corp., also a distributor of electronic
components.
Arthur Nadata has been President and a Director since October 1982 and
Chief Executive Officer since September 1996. Mr. Nadata was also the Treasurer
of the Company from October 1982 to September 1996. Prior to joining the Company
in October 1982, Mr. Nadata worked for eighteen years for Diplomat Electronics
Corp. in various operational and sales positions of increasing responsibility,
eventually becoming corporate vice president of sales and marketing.
Page 14
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (Continued):
Richard S. Schuster has been Vice President, Secretary and a
Director since October 1982. For the seven years prior to joining the
Company in November 1982, Mr. Schuster served as manager of Capar
Components Corp., an importer and distributor of passive components,
and a wholly-owned subsidiary of Diplomat Electronics Corp. For the
six years prior to 1975, Mr. Schuster was employed by International
Components Corp., responsible for production, engineering and sales of
imported semiconductor and passive components.
Paul Durando has been Vice President, Finance since joining the
Company in March 1991, Treasurer since September 1996 and has been a
Director since September 1994. Prior to joining the Company in March
1991, Mr. Durando served for six years as Executive Vice President of
Sigma Quality Foods, Inc. From 1977 to 1984, he was Vice President,
Operations of the Wechsler Coffee Corp. Mr. Durando was also
associated with Deloitte Haskins & Sells for seven years.
Harvey R. Blau has been a director of the Company since May 1984.
Mr. Blau has been a practicing attorney in the State of New York since
1961, and is a member of the law firm of Blau, Kramer, Wactlar &
Lieberman, P.C., Jericho, New York, counsel to the Company. Mr. Blau
is Chairman of the Board of Griffon Corporation and Aeroflex
Incorporated and is a Director of Reckson Associates Realty Corp.
Herbert M. Gardner has been a Director of the Company since May
1984. For more than the past five years, Mr. Gardner has been Senior
Vice President of Janney Montgomery Scott LLC., 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., Co-Active Marketing Group, Inc. and Rumson-Fair Haven Bank and
Trust Company.
Dominic A. Polimeni has been a Director of the Company since
September 1997. Mr. Polimeni has been 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 New York office of Arthur Young & Company.
Page 15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION:
The following table sets forth the compensation paid by the Company to
its Chief Executive Officer and each of the three other executive
officers for the years ended February 29, 2000, February 28, 1999 and
February 28, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation (1) Compensation
----------------------- --------------
Securities
Name of Principal Fiscal Underlying All other (2)
and Position Year Salary Bonus Options Compensation
- ----------------- ---- ------ ----- ----------- -------------
<S> <C> <C> <C> <C> <C>
Irving Lubman 2000 $251,210 $520,087 224,332 $39,500
COO, Chairman 1999 243,893 196,102 75,000 21,552
of the Board 1998 236,789 344,370 - 16,781
Arthur Nadata 2000 $251,210 $742,983 250,583 $39,047
President and 1999 243,893 280,146 100,000 20,514
CEO 1998 236,789 344,370 - 31,374
Richard Schuster 2000 $251,210 $742,983 224,332 $34,432
Vice President 1999 243,893 280,146 75,000 18,330
and Secretary and 1998 236,789 344,370 - 18,922
President, NIC
Components Corp.
Paul Durando 2000 $155,000 $ 80,724 23,625 $ 1550
Vice President, 1999 150,000 31,011 10,000 1,500
Finance and 1998 138,942 25,827 15,000 1,389
Treasurer
</TABLE>
SUMMARY COMPENSATION TABLE - Footnotes
(1) No Other Annual Compensation is shown because the amounts of perquisites
and other non-cash benefits provided by the Company do not exceed the
lesser of $50,000 or 10% of the total annual base salary and bonus
disclosed in this table for the respective officer.
(2) The amounts disclosed in this column include the Company's contributions on
behalf of the named executive officer to the Company's 401(k)-retirement
plan in amounts equal to a maximum of 1% of the executive officer's annual
salary and, for Messrs. Lubman, Nadata and Schuster contributions to life
insurance policies where the Company is not the beneficiary, and the cost
to the Company of the non-business use of Company automobiles used by
executive officers.
Page 16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Employment Contracts
On September 13, 1996, the Company signed employment contracts (the
"Contracts"), as amended, with three of its senior executives for a
continually renewing five year term. The Contracts specify a base
salary of $226,545 for each officer in 1997, which shall be increased
each year by the change in the consumer price index, and also entitle
two of the three officers to an annual bonus equal to 3.33%, and the
third officer to 2.33% (9% in the aggregate) of the Company's
consolidated earnings before income taxes. Benefits are also payable
upon the occurrence of either a change in control of the Company, as
defined, or the termination of the officer's employment, as defined.
In the event the employee terminates his employment within six months
after a change in control of the Company, he will receive a lump sum
payment equal to three-quarters of the remaining compensation under
his employment agreement. Each Contract also provides for certain
payments of the executive salary, performance bonuses and other
benefits in the event of death or disability of the officer for the
balance of the period covered by the agreement.
The following table sets forth certain information with respect to
stock options granted to the officers named in the Summary
Compensation Table during the fiscal year ended February 29, 2000.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value
% of Total at Assumed Annual Rates of
Options Options Granted Exercise Price Stock Price Appreciation for
Granted (1) to Employees ($ per share) Expiration Date Entire Term (2) (3)
---------------- --------------- ---------------- --------------- ------------------------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
P. Durando 23,625 2.8% $5.71 5/25/09 $ 84,814 $ 214,988
I. Lubman 119,332 14.3% 5.71 5/25/09 428,402 1,085,921
105,000 12.6% 6.19 6/28/09 408,450 1,036,350
A. Nadata 145,583 17.5% 5.71 5/25/09 522,643 1,324,805
105,000 12.6% 6.19 6/28/09 408,450 1,036,350
R. Schuster 119,332 14.3% 5.71 5/25/09 428,402 1,085,921
105,000 12.6% 6.19 6/28/09 408,450 1,036,350
</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
$9.30 per share and 10% results in a price of $14.81 per share for on the
shares granted at $5.71. The same growth rates result in a stock price of
$10.08 per share and $16.06 per share on the shares granted at $6.19.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the stock as well as the option holder's continued
employment throughout the vesting period. There can be no assurance that
the amounts reflected in this table will be achieved. Appreciation
reported is net of exercise price.
Page 17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
The following table sets forth certain information as to each exercise
of stock options during the fiscal year ended February 29, 2000 by the
persons named in the Summary Compensation Table and the fiscal year
end value of unexercised options:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR-END
OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY End at FY End
--------- ---------
Shares Acquired Exercisable/ Exercisable/
on Exercise Value Realized (1) Unexercisable Unexercisable
----------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Irving Lubman - - 170,625 $1,702,706
289,957 3,182,599
Arthur Nadata - - 183,750 1,850,100
329,333 3,627,942
Richard Schuster - - 170,625 1,702,706
289,957 3,182,599
Paul Durando - - 49,875 415,354
42,000 446,198
</TABLE>
(1) Market value less exercise price, before payment of applicable federal or
state taxes.
Page 18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Directors who are not employees of the Company receive an annual fee
of $2,500 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 29, 2000. 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 29, 2000, 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
2000, 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 2000 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 2000 is furnished by the Compensation
Committee.
General Policies
The Company's compensation programs are intended to enable the Company
to attract, motivate, reward and retain management talent required to
achieve aggressive corporate objectives in a rapidly changing
industry, and thereby increase stockholder value. It is the Company's
policy to provide incentives to its senior management to achieve both
short-term and long-term objectives and to reward exceptional
performance and contributions to the development of the Company's
business. To attain these objectives, the Company's executive
compensation program includes a competitive base salary, coupled with,
with respect to certain executives, a substantial cash bonus which is
"at risk" based on the Company's earnings.
Many of the Company's employees, including its executive officers,
also are eligible to be granted stock options periodically in order to
more directly align their interests with the long-term financial
interest of the Company's stockholders.
Page 19
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Relationship of Compensation to Performance
The Compensation Committee annually establishes, subject to any
applicable employment agreements, the salaries which will be paid to
the Company's executive officers during the coming year. In setting
salaries the Board of Directors takes into account several factors,
including competitive compensation data, the extent to which an
individual may participate in the stock option plan maintained by the
Company and its affiliates, and qualitative factors bearing on an
individual's experience, responsibilities, management and leadership
abilities, and job performance.
Stock options are granted to key employees, including the Company's
executive officers, by the Compensation Committee of the Board of
Directors under the Plans. Among the Company's executive officers, the
number of shares subject to options granted to each individual
generally depends upon his or her base salary and the level of that
officer's management responsibility.
During fiscal 2000, 10,000 options were granted to each outside
director under the Company's Outside Director Stock Option Plan.
Options to purchase 238,650 shares were granted to Mr. Nadata, 213,650
shares were granted to each of Messrs. Lubman and Schuster and 22,500
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 20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Compliance with Section 16(a) of the Securities Exchange Act (continued)
Based solely on the Company's review of the copies of the forms it has
received, the Company believes that all Reporting Persons complied on
a timely basis with all filing requirements applicable to them with
respect to transactions during fiscal year 2000.
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, 1995 to February 29, 2000) 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
Measurement Period Nu Horizons NASDAQ
(Fiscal Year Covered) Electronics Corp. Market Index Peer Group
- -------------------------------------------------------------------------------
FYE 3/01/95 $100.00 $100.00 $100.00
FYE 2/29/96 208.33 138.08 131.18
FYE 2/28/97 123.33 165.74 149.84
FYE 2/28/98 84.17 225.41 160.94
FYE 2/28/99 58.33 291.27 83.96
FYE 2/29/00 224.09 565.81 165.83
ASSUMES $100 INVESTED ON MARCH 1, 1995
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING FEBRUARY 29, 2000
Peer group includes All American Semiconductor, Arrow Electronics
Inc., Avnet Inc., Bell Microproducts Inc., Jaco Electronics Inc., Kent
Electronics Corp., Pioneer Standard Electronics and Reptron
Electronics Inc.
Page 21
<PAGE>
EXECUTIVE COMPENSATION (Continued):
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 1,155,000 shares of the Company's
Common Stock, as adjusted for a 5% stock dividend. 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 2000, 114,500 options were granted under the 1994 Plan with an exercise
price of $6.00. Options are currently outstanding for 843,938 shares and 311,849
options are currently available for grant.
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.
Page 22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
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"), as
amended, under which any director, officer, employee or consultant of
the Company, a subsidiary or an affiliate may be granted options to
purchase an aggregate 1,102,500 shares of the Company's Common Stock,
as adjusted for a 5% dividend. 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 2000, 698,450 options
were granted under the 1998 Option Plan with exercise prices of $6.00,
$6.50 and $8.375. Options are currently outstanding for 1,076,272
shares and 26,228 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
157,500 shares of the Company's Common Stock as adjusted for a 5%
stock dividend. 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. At February 29, 2000, there are
147, 000 director options outstanding.
Page 23
<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 2000 Stock Option Grants:
During fiscal 2000, the Company granted options to purchase 138,650
shares to Mr. Nadata, 113,650 shares to each of Messrs. Lubman and
Schuster and 22,500 shares to Mr. Durando at a price of $6.00 per
share, options to purchase 100,000 shares each to Messrs. Nadata,
Lubman and Schuster at a price of $6.50 and options to purchase 10,000
shares to each of Messrs. Blau, Gardner and Polimeni at a price of
$6.00 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 24
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Employee Stock Ownership Plan (continued):
All contributions to the Plan are invested in the Company's
securities (except for temporary investments), the Trustees having the
right to purchase the Company's securities on behalf of employees. The
Trustees are considered the stockholder for the purpose of exercising
all owners' and stockholders' rights, with respect to the Company's
securities held in the Plan, except for voting 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 October, 1999, 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
October, 2003. 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 29, 2000, the ESOP
owned 434,155 shares at an average price of approximately $3.60 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 29, 2000, 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 29, 2000
approximately 250 employees had elected to participate in the plan.
For the fiscal year ended February 29, 2000, the Company contributed
approximately $115,400 to the plan, of which $9,086 was a matching
contribution of $2,512 for each of Mr. Lubman, Mr. Nadata, Mr.
Schuster and $1,550 for Mr. Durando.
Page 25
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The following table sets forth, as of May 1, 2000, 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 62,300 (1) (2) *
Herbert M. Gardner 80,791 (3) *
Harvey R. Blau 24,628 (3) *
Dominic Polimeni 18,500 (3) *
Irving Lubman 270,744 (4) (5) 2.4%
Arthur Nadata 614,213 (4) (5) (6) 5.4%
Richard S. Schuster 595,036 (4) (5) 5.3%
Dimensional Fund Advisors 602,357 (7) 5.3%
All officers and directors as a group (7 persons) 1,668,534 14.8%
</TABLE>
NOTES:
- ------
(*) Less than 1% of the Company's outstanding stock.
(1) Includes options exercisable within 60 days for 56,438 shares of common
stock under the Company's 1998 Stock Option Plan and the 1994 Stock Option
Plan.
(2) Includes 5,862 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 63,000 shares of common
stock for Mr. Gardner, 24,200 for Mr. Blau and 3,500 shares for Mr.
Polimeni under the Company's Outside Director Stock Option Plan.
(4) Includes options exercisable within 60 days for 222,166 shares of common
stock for Mr. Lubman, 269,666 for Mr. Schuster and 309,042 shares for Mr.
Nadata under the Company's 1998 Stock Option Plan and the 1994 Stock Option
Plan.
(5) Includes 16,238 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 35,398 shares held by his children as to which Mr. Nadata
disclaims beneficial ownership.
(7) 1299 Ocean Avenue, Santa Monica, CA 90401
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 29, 2000, the Company paid $113,239 in
legal fees to Blau, Kramer, Wactlar & Lieberman, P.C.
For the fiscal year ended February 29, 2000, the Company received
an aggregate $615,000 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 29, 2000, the Company received
an aggregate $495,000 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 26
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(a) (1) The following consolidated financial statements of the registrant and
its subsidiaries are filed as a part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of February 29, 2000 and February 28, 1999 F-2
Consolidated Statements of Income for the three years in the period ended February 29, 2000 F-3
Consolidated Statements of Changes in Shareholders' Equity for the three years in the
period ended February 29, 2000 F-4
Consolidated Statements of Cash Flows for the three years in the period ended February 29, 2000 F-5
Notes to Consolidated Financial Statements F-7
Schedule II - Valuation and Qualifying Accounts and Reserves 33
</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
EXHIBIT
NUMBER DESCRIPTION
------------------------------------------------------------------------
3.1 Certificate of Incorporation, as amended (Incorporated by
Reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the year ended February 29, 1988)
3.2 By-laws, as amended (Incorporated by Reference to Exhibit
3.2 to the Company's Annual Report on Form 10-K for the year
ended February 29, 1988)
3.3 Certificate of Amendment to Certificate of Incorporation
(Incorporated by Reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended August
31, 1994)
4.1 Specimen Common Stock Certificate (Incorporated by Reference
as Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 2-89176).
Page 27
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(c) Exhibits (continued):
EXHIBIT
NUMBER DESCRIPTION
------------------------------------------------------------------------
10.1 The Registrant's Key Employee Incentive Stock Option Plan,
as amended (Incorporated by Reference to the Company's
Registration statement on form S-8 Registration No. 33-
20661).
10.2 Agreement between the Company and Trustees relating to the
Company's Employee Stock Ownership Plan (Incorporated by
Reference to Exhibit 10.5 to the Company's Annual Report on
Form 10-K for the year ended February 28, 1987).
10.3 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 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)
10.11 Revolving Credit Agreement dated October 28,1999 between the
Company and three banks: Mellon Bank, N.A., European
American Bank, and HSBC Bank USA. (Incorporated by reference
to Exhibit 10.14 to form 10Q for the quarter ended November
30,1999).
Page 28
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(d) Exhibits (continued):
EXHIBIT
NUMBER DESCRIPTION
------------------------------------------------------------------------
11. Computation of Per Share Earnings
22. The following is a list of the Company's subsidiaries:
State or
Name Country of
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
NIC Components Asia PTE.LTD. Singapore
Nu Horizons Asia PTE.LTD. Singapore
23. Accountant's Consent
27. Financial Data Schedule
99. Additional Exhibit
Page 29
<PAGE>
Accountant's Consent
--------------------
We consent to the incorporation by reference in Registration Statement
numbers 333-79561, 333-82805, 33-88952 and 33-88958 on Form S-8 of our
opinion dated May 22, 2000 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 29, 2000.
/s/ LAZAR LEVINE & FELIX LLP
--------------------------------
LAZAR LEVINE & FELIX LLP
Certified Public Accountants
New York, New York
May 26, 2000
Page 30
<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 31
<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 32
<PAGE>
SCHEDULE II
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES
----------------------------------------------
SCHEDULE II--VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
Three Years Ended February 29, 2000
<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
2000 $2,630,984 $1,097,338 $281,250 $3,447,072
============= ================== =============== ================
1999 $2,362,722 $ 762,500 $494,238 $2,630,984
============= ================== =============== ================
1998 $2,192,079 $ 315,000 $144,357 $2,362,722
============= ================== =============== ================
</TABLE>
(A) Accounts written off.
Page 33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
NU HORIZONS ELECTRONICS CORP.
(Registrant)
By: /s/ ARTHUR NADATA
---------------------------------------
Arthur Nadata,
President (Principal Operating Officer)
By: /s/ PAUL DURANDO
---------------------------------------
Vice President, Finance
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated:
SIGNATURE CAPACITY DATE
--------- -------- ----
By: /s/ IRVING LUBMAN Chairman of The Board, May 26, 2000
--------------------------
Irving Lubman Chief Operating Officer
By: /s/ ARTHUR NADATA President, Chief Executive May 26, 2000
--------------------------
Arthur Nadata Officer and Director
By: /s/ RICHARD SCHUSTER Vice President, Secretary May 26, 2000
--------------------------
Richard Schuster and Director
By: /s/ PAUL DURANDO Vice President, Finance, May 26, 2000
--------------------------
Paul Durando Treasurer and Director
By: /s/ HARVEY R. BLAU Director May 26, 2000
--------------------------
Harvey R. Blau
By: /s/ HERBERT M. GARDNER Director May 26, 2000
--------------------------
Herbert M. Gardner
By: /s/ DOMINIC A. POLIMENI Director May 26, 2000
--------------------------
Dominic A. Polimeni
Page 34
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
EXHIBIT INDEX
to
FORM 10-K
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2000
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>
EXHIBIT 11
NU HORIZONS ELECTRONICS CORP.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------
FEBRUARY FEBRUARY FEBRUARY
29, 2000 28, 1999 28, 1998
---------------- ----------------- -----------------
<S> <C> <C> <C>
BASIC EARNINGS:
- ---------------
NET INCOME $11,698,786 $4,544,831 $5,297,991
================ ================= =================
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 9,007,563 8,753,076 8,753,076
---------------- ----------------- -----------------
BASIC EARNINGS PER
COMMON SHARE $1.30 $.52 $ .61
===== ==== =====
DILUTED EARNINGS:
- -----------------
Net Income $11,698,786 $4,544,831 $5,297,991
Net (after tax) interest expense related
to convertible debt 332,296 340,000 340,000
---------------- ----------------- -----------------
NET INCOME AS ADJUSTED $12,031,082 $4,884,831 $5,637,991
================ ================= =================
SHARES:
Weighted average number of common
shares outstanding 9,007,563 8,753,076 8,753,076
Stock options 1,992,604 1,734,450 1,361,450
Assuming Conversion of convertible
Debt 698,359 784,333 784,333
---------------- ----------------- -----------------
Weighted average number of common
Shares outstanding as adjusted 11,698,526 11,271,859 10,898,859
================ ================= =================
DILUTED EARNINGS PER COMMON SHARE $1.03 $.43 $ .52
===== ==== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED FEBRUARY 29, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 1,496,805
<SECURITIES> 0
<RECEIVABLES> 68,156,109
<ALLOWANCES> 3,447,072
<INVENTORY> 69,544,396
<CURRENT-ASSETS> 137,567,956
<PP&E> 15,204,755
<DEPRECIATION> 7,885,617
<TOTAL-ASSETS> 147,537,145
<CURRENT-LIABILITIES> 33,519,245
<BONDS> 38,556,717
0
0
<COMMON> 66,122
<OTHER-SE> 75,395,061
<TOTAL-LIABILITY-AND-EQUITY> 147,537,145
<SALES> 379,238,562
<TOTAL-REVENUES> 379,238,562
<CGS> 299,998,251
<TOTAL-COSTS> 299,998,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,097,338
<INTEREST-EXPENSE> 2,837,646
<INCOME-PRETAX> 20,370,140
<INCOME-TAX> 8,528,909
<INCOME-CONTINUING> 11,841,231
<DISCONTINUED> 0
<EXTRAORDINARY> 142,445
<CHANGES> 0
<NET-INCOME> 11,698,786
<EPS-BASIC> 1.30
<EPS-DILUTED> 1.03
</TABLE>
