-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UKcBhS8tNgy/ZmlmbWywEvTybfEDI+UIdejjMzd2doo+DVRoyZ3meqebO+wD75hc FzjaLbDb9DkIv1Wdp+CNhQ== 0000950130-99-003371.txt : 19990624 0000950130-99-003371.hdr.sgml : 19990624 ACCESSION NUMBER: 0000950130-99-003371 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990528 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NU HORIZONS ELECTRONICS CORP CENTRAL INDEX KEY: 0000718074 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 112621097 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08798 FILM NUMBER: 99636669 BUSINESS ADDRESS: STREET 1: 70 MAXESS ROAD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5163965000 MAIL ADDRESS: STREET 1: 70 MAXESS ROAD CITY: MELVILLE STATE: NY ZIP: 11747 10-K405 1 FORM 10-K FOR PERIOD ENDED FEBRUARY 28, 1999 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT ON FORM 10K Pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended Commission file number February 28, 1999 1-8798 - ------------------------------ ---------------------------- Nu Horizons Electronics Corp. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 11-2621097 - -------------------------------- ---------------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 70 Maxess Road, Melville, New York 11747 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (516) 396-5000 - ------------------------------------------------------------------------------- (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 8,753,076 - ------------------------------- ----------------------------- Class Outstanding Shares
Aggregate Market Value of Non-Affiliate Stock at May 1, 1999 - approximately $40,485,000 - --------------------------------------------------------------------------------------------------------
NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES TABLE OF CONTENTS
PART I: ITEM 1. Business Pages 3 - 7 ITEM 2. Properties Pages 7 - 8 ITEM 3. Legal Proceedings Page 8 ITEM 4. Submission of Matters to a Vote of Security Holders Page 8 PART II: ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters Page 8 ITEM 6. Selected Financial Data Page 9 ITEM 7. nagement's Discussion and Analysis of Financial Condition and Results of Operations Pages 10 - 14 ITEM 8. Financial Statements and Supplementary Data Pages F1 - F17 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Page 15 PART III: ITEM 10. Directors and Executive Officers of the Company Pages 15 - 16 ITEM 11. Executive Compensation Pages 17 - 26 ITEM 12. Security Ownership of Certain Beneficial Owners and Management Page 27 ITEM 13. Certain Relationships and Related Transactions Page 27 PART IV: ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Pages 28 - 34 Signatures Page 35 Exhibit Index
PART I. ITEM 1. BUSINESS GENERAL: Nu Horizons Electronics Corp. (the "Company") and its wholly-owned subsidiaries, NIC Components Corp. ("NIC") , Nu Horizons/Merit Electronics Corp. ("NUM"), Titan Logistics Corp. ("Titan"), Nu Horizons Eurotech Ltd. ("NUE") and NIC Eurotech Ltd. ("NIE") are engaged in the distribution of high technology active and passive electronic components. Nu Horizons International Corp. ("International"), another wholly-owned subsidiary, is an export distributor of electronic components. Nu Visions Manufacturing, Inc. ("NUV" or "Nu Visions") located in Springfield, Massachusetts, another wholly-owned subsidiary of the Company, is a contract assembler of circuit boards and related electromechanical devices for various OEMs. All references herein to the Company shall, unless the context otherwise requires, be deemed to refer to the Company and its subsidiaries. Active components distributed by the Company, principally to original equipment manufacturers (OEMs) in the United States, include mainly commercial semiconductor products such as memory chips, microprocessors, digital and linear circuits, microwave, RF and fiberoptic components, transistors and diodes. Passive components distributed by NIC, principally to OEMs and other distributors nationally, consist of a high technology line of chip and leaded components including capacitors, resistors and related networks. The active and passive components distributed by the Company are utilized by the electronics industry and other industries in the manufacture of sophisticated electronic products including: industrial instrumentation, computers and peripheral equipment, consumer electronics, telephone and telecommunications equipment, satellite communications equipment, cellular communications equipment, medical equipment, automotive electronics, and audio and video electronic equipment. Manufacturers of electronic components augment their marketing programs through the use of independent distributors and contract assemblers such as the Company, upon which the Company believes they rely to a considerable extent to market their products. Distributors and assemblers, such as the Company, offer their customers the convenience of diverse inventories and rapid delivery, design and technical assistance, and the availability of product in smaller quantities than generally available from manufacturers. Generally, companies engaged in the distribution of active and passive electronic components, such as the Company, are required to maintain a relatively significant investment in inventories and accounts receivable. To meet these requirements, the Company, and other companies in the industry, typically depend on internally generated funds as well as external borrowings. Management's policy is to manage, maintain and control all inventories from its principal headquarters and stocking facility on Long Island, New York and stocking facility in San Jose, California. As additional franchise line opportunities become available to the Company, the need for branch level inventories may be necessary and desirable, in order to better serve the specific needs of local markets. ITEM 1. BUSINESS (Continued): Semiconductor Products (Active Components): The Company is a distributor of a broad range of semiconductor products to commercial and military OEM's principally in the United States. The Company is a franchised distributor of active components for approximately thirty product lines. Significant franchised product lines include Allegro, Cirrus Logic, Elantec, Exar, Hyundai, Maxim Integrated Products, ST Microelectronics, Sun Microsystems, TDK Semiconductor and Xilinx. The Company's franchise agreements authorize it to sell all or part of the product line of a manufacturer on a non-exclusive basis. Under these agreements, each manufacturer will grant credits for any subsequent price reduction by such manufacturer and inventory return privileges whereby the Company can return to each such manufacturer for credit or exchange a percentage ranging from 5% to 20% of the inventory purchased from said manufacturer during a semi-annual period. The franchise agreements generally may be cancelled by either party upon written notice. The Company anticipates, in the future, entering into additional franchise agreements and increasing its inventory levels in accordance with business demands. Passive Components and Relationship with Nippon: NIC has been the exclusive outlet in North America for Nippon Industries Co. Ltd.'s (Japan) brand of passive components and does not anticipate any change in this relationship. While the Company does not have a written agreement with Nippon in this regard, it believes that a formal written agreement is not material to its ongoing business relationship with Nippon. Due to certain market situations, NIC, with Nippon's assent, has also established several manufacturing associations with U.S. and Taiwan based companies. NIC intends to continue to give Nippon priority, however, in acquiring its products whenever the technology and pricing are commensurate with the North American market's requirements. Contract Assembly: As discussed above, the Company's core business is the distribution of active components to OEM's and passive components to OEM's and distributors nationally in the United States. Those components are then placed on printed circuit boards by the OEM's themselves or are contracted for placement to outside contract assembly companies (domestically or offshore). The Company believes that outside contract assembly is becoming more prevalent nationally, especially among small to midsize OEM's. With a view towards maximizing the Company's current customer base as well as offering new customers additional services, the Company decided that contract circuit board assembly was a natural extension to its business since 80% of the components found on most printed circuit boards can be provided through the Company's active and NIC's passive products. ITEM 1. BUSINESS (Continued): Contract Assembly (continued): Nu Visions provides both surface mount and through-hole circuit board assembly services to the aforementioned OEMs. In order to expand and enhance this segment of the business, the Company has acquired approximately $2,500,000 of automated circuit board assembly equipment and in fiscal 1999 has expanded the size of Nu Vision's facility to 45,000 square feet in anticipation of continued growth. Sales and Marketing: Management's strategy for long-term success has been to focus the Company's sales and marketing efforts towards the following industry segments: industrial, telecom/datacom, medical instrumentation, microwave and RF, fiberoptic, consumer electronics, security and protection devices, office equipment, computers and computer peripherals, factory automation and robotics, in each case both domestically and abroad. In order to help achieve these goals, the Company may enter into new franchise agreements for a broad base of commodity semiconductor products including those used in the key niche industries referred to above. As of February 28, 1999, the Company had approximately 13,000 customers. All sales are made through customers' purchase orders. Semiconductors are sold primarily via telephone by the Company's in- house staff of approximately 100 salespersons, and by a field sales force of approximately 120 salespersons. The Company maintains branch sales facilities located as follows: EAST COAST ---------- Massachusetts - Boston New York - Melville (Long Island) and Rochester New Jersey - Mt. Laurel (Philadelphia) and Pine Brook Ohio - Cleveland Maryland - Columbia North Carolina - Raleigh Georgia - Atlanta Alabama - Huntsville Florida - Ft. Lauderdale, Orlando and Tampa MIDWEST ------- Arizona - Phoenix Illinois - Chicago Minnesota - Minneapolis Texas - Austin and Dallas WEST COAST ---------- California - Irvine, Los Angeles, Sacramento, San Diego and San Jose Oregon - Portland NIC's passive components are marketed through the services of a national network of approximately 20 independent sales representative organizations, employing over 200 salespersons, as well as through NIC's in-house sales and engineering personnel. The independent representative organizations do not represent competing product lines but sell other related products. Commissions to such organizations are generally equal to 5% of all sales in a representative's exclusive territory. ITEM 1. BUSINESS (Continued): Sales and Marketing (continued): NIC has developed a national network of approximately 75 regional distributor locations, which market passive components on a non- exclusive basis. Approximately 35 of the regional distributors have entered into agreements with NIC whereby they are required to purchase from NIC a prescribed initial inventory. These distributors are protected by NIC against price reductions and are granted certain inventory return and other privileges. Due to the efforts of NIC and its distributors, NIC's passive components have been tested and "designed in" as a prime source of qualified product by over 7,000 OEMs in the United States. Nu Visions' contract manufacturing facilities are marketed through the services of several East Coast independent sales representatives, as well as the Company's field sales force. No single customer accounted for more than 2% of the Company's consolidated sales for the year ended February 28, 1999. The Company's sales practice is to require payment within thirty days of delivery. Source of Supply: The Company inventories an extensive stock of active and passive components, however, if the Company's customers order products for which the Company does not maintain inventory, the Company's marketing strategy is to obtain such products from its franchise manufacturers, or, if a product is unobtainable, to identify and recommend satisfactory interchangeable alternative components. For this purpose, the Company devotes considerable efforts to familiarizing itself with component product movement throughout the industry, as well as to constant monitoring of its own inventories. As of February 28, 1999, there were three manufacturers that represented more than 10% of the Company's inventory on a consolidated basis. Those suppliers accounted for approximately 36% of total inventory. Electronic components distributed by the Company generally are presently readily available; however, from time to time the electronics industry has experienced shortages or surplus of certain electronic products. For the year ended February 28, 1999, the Company purchased inventory from two suppliers that was in excess of 10% of the Company's total purchases. Purchases from these suppliers aggregated approximately $45,040,000 for the fiscal year. Competition and Regulation: The Company competes with many companies that distribute semiconductor and passive electronic components and, to a lesser extent, companies which manufacture such products and sell them directly to OEMs and other distributors. Many of these companies have substantially greater assets and possess greater financial and personnel resources than those of the Company. In addition, certain of these companies possess independent franchise agreements to carry semiconductor product lines which the Company does not carry, but which it may desire to have. Competition is based primarily upon inventory availability, quality of service, knowledge of product and price. The Company believes that the distribution of passive electronic components under its own label is a competitive advantage. ITEM 1. BUSINESS (Continued): Competition and Regulation (continued): The Company's competitive ability to price its imported active and passive components could be adversely affected by increases in tariffs, duties, changes in the United States' trade treaties with Japan, Taiwan or other foreign countries, transportation strikes and the adoption of Federal laws containing import restrictions. In addition, the cost of the Company's imports could be subject to governmental controls and international currency fluctuations. Because imports are paid for with U.S. dollars, the decline in value of United States currency as against foreign currencies would cause increases in the dollar prices of the Company's imports from Japan and other foreign countries. Although the Company has not experienced any material adverse effect to date in its ability to compete or maintain its profit margins, as of result of any of the foregoing factors, no assurance can be given that such factors will not have a material adverse effect in the future. Backlog: The Company defines backlog as orders, believed to be firm, received from customers and scheduled for shipment, no later than 60 days for active components and no later than 90 days for passive components from the date of the order. As of May 1, 1999, the Company's backlog was approximately $24,000,000 as compared to a backlog of approximately $20,000,000 at May 1, 1998. Employees: As of February 28, 1999, the Company employed approximately 497 persons: 12 in management, 260 in sales and sales support, 32 in product and purchasing, 17 in accounting and finance, 10 in MIS, 31 in operations, 90 in manufacturing, and 45 in quality control, shipping, receiving and warehousing. The Company believes that its employee relations are satisfactory. ITEM 2. PROPERTIES In December 1996, the Company leased an approximately 80,000 square foot facility in Melville, Long Island, New York to serve as its executive offices and main distribution center. The lease term is from December 17, 1996, to December 16, 2008 at an annual base rental of $601,290 and provision for a 4% annual escalation in each of the last ten years of the term. The Company leases approximately 45,000 square feet of manufacturing and office space in Springfield, Massachusetts for its Nu Visions subsidiary. The lease term is from June 15, 1998 to June 15, 2008 at an annual base rental of $244,260 subject to annual consumer price index increases not to exceed 2% annually. ITEM 2. PROPERTIES (Continued): On May 1, 1996, the Company leased approximately 25,000 square feet of warehouse and office space in San Jose, California for its Nu Horizons/Merit subsidiary. This facility serves as the Company's West Coast regional sales and distribution headquarters. The lease term is from May 1, 1996 to April 30, 2001 at an annual base rental of $225,000. The Company also leases space for twenty two (22) branch sales offices which range in size from 1,000 square feet to 5,000 square feet, with lease terms that expire between August 1999 and January 2004. Annual base rentals range from $15,600 to $100,800 with aggregate base rentals approximating $825,000. ITEM 3. LEGAL PROCEEDINGS: No material legal proceeding is pending to which the Company is a party or to which any of its property is or may be subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: No matters were submitted during the fourth quarter of the fiscal year ended February 28, 1999 to a vote of security holders through the solicitation of proxies or otherwise. PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS: a) The Company's common stock is traded on the NASDAQ National Market System under the symbol "NUHC". The following table sets forth, for the periods indicated, the high and low closing prices for the Company's common stock, as reported by the NASDAQ National Market System. FISCAL YEAR 1998: HIGH LOW ------ ----- First Quarter $9.50 $6.75 Second Quarter 9.00 7.25 Third Quarter 9.25 6.75 Fourth Quarter 7.17 5.50 FISCAL YEAR 1999: First Quarter $7.09 $6.00 Second Quarter 6.62 4.00 Third Quarter 6.87 3.50 Fourth Quarter 6.50 4.25 FISCAL YEAR 2000: First Quarter (Through May 3, 1999) $5.87 $3.87 b) As of May 3, 1999, the Company's common stock was owned by approximately 4,500 holders of record. c) The Company has never paid a cash dividend on its common stock. The Company's current revolving credit line agreement permits dividends of up to 25% of the Company's consolidated net income. ITEM 6. SELECTED FINANCIAL DATA:
FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY 28, 1999 28, 1998 28, 1997 29, 1996 28, 1995 -------- -------- -------- -------- -------- INCOME STATEMENT DATA: Net Sales $253,872,325 $233,325,408 $216,612,707 $202,803,184 $130,251,554 Gross profit on sales 55,036,322 50,794,325 48,488,124 48,201,148 30,913,305 Gross profit percentage 21.7% 21.8% 22.4% 23.8% 23.7% Income before provision for income taxes 7,624,158 8,947,537 11,921,256 15,799,592 7,444,147 Net income 4,544,831 5,297,991 7,073,560 9,396,301 4,421,823 Earnings per common share: Basic $ .52 $.61 $.81 $ 1.19 $.57 Diluted $.43 $.52 $.69 $.97 $.52 FEBRUARY FEBRUARY FEBRUARY FEBRUARY FEBRUARY 28, 1999 28, 1998 28, 1997 29, 1996 28, 1995 -------- -------- -------- -------- -------- BALANCE SHEET DATA: Working capital $68,849,897 $75,217,607 $51,941,472 $57,954,434 $36,328,941 Total assets 99,758,895 99,641,428 74,783,314 75,459,586 51,972,606 Long-term debt 22,377,852 32,790,395 15,523,483 27,094,030 20,580,613 Shareholders' equity 56,337,068 51,542,045 46,950,735 37,617,703 22,541,916
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Introduction: Nu Horizons Electronics Corp. (the "Company") and its wholly-owned subsidiaries, Nu Horizons/Merit Electronics Corp. ("NUM"), NIC Components Corp. ("NIC"), Nu Horizons Eurotech Limited ("NUE"), NIC Eurotech Limited ("NIE"), Titan Logistics Corp. ("TITAN") and Nu Horizons International Electronics Corp. ("International"), are engaged in the distribution of high technology active and passive electronic components to a wide variety of original equipment manufacturers ("OEMs") of electronic products. Active components distributed by the Company include semiconductor products such as memory chips, microprocessors, digital and linear circuits, microwave/RF and fiberoptic components, transistors and diodes. Passive components distributed by NIC, principally to OEMs and other distributors nationally, consist of a high technology line of chip and leaded components, including capacitors, resistors and related networks. Nu Visions Manufacturing, Inc. ("NUV" or "Nu Visions") located in Springfield, Massachusetts, another wholly-owned subsidiary of the Company, is a contract assembler of circuit boards, harnesses and related electromechanical devices for various OEMs. In March 1998, the Company formed another wholly-owned subsidiary, NIC Eurotech, Ltd., which then began operations in the United Kingdom. The financial information presented herein includes: (i) Balance sheets as of February 28, 1999, and February 28, 1998; (ii) Statements of income for the twelve month periods ended February 28, 1999, February 28, 1998 and February 28, 1997; (iii) Statements of cash flows for the twelve month periods ended February 28, 1999, February 28, 1998 and February 28, 1997; and (iv) Consolidated changes in shareholders' equity for the twelve month periods ended February 28, 1999, February 28, 1998 and February 28, 1997. Results of Operations: Fiscal Year 1999 versus 1998 Net sales for the year ended February 28, 1999 aggregated $253,872,325 as compared to $233,325,408 for the year ended February 29, 1998, an increase of 8.8%. Management attributes this increase in sales for the period entirely to the core semiconductor distribution business which experienced demand but, due to reduced unit pricing as a result of excess inventory levels at the semiconductor manufacturing (supplier) level resulted in only moderate increases in net sales. Gross profit margin as a percentage of net sales was 21.7% for the year ended February 28, 1999 as compared to 21.8% for the year ended February 28, 1998. Management attributes this relative stability in profit margins to substantial inventory oversupplies at the supplier level, as mentioned above and resulting reduced unit pricing.. No assurance can be given that gross profit stabilization will continue in future periods. Operating expenses increased by $5,037,184 to $45,170,606 for the year ended February 28, 1999 from $40,133,422 for the year ended February 28, 1998, an increase of approximately 12.5%. The dollar increase in operating expenses was due to increases in the following expense categories: Approximately $3,290,000 or approximately 65% of the increases were for personnel related costs -commissions, salaries, travel and fringe benefits. The remaining increase of approximately $1,747,000 or approximately 35% of the total increment is a result of increases in various other operating expenses including, but not limited to, freight out, rent, telephone, computer expenses and various general and administrative expenses. Toward the latter part of fiscal 1998 and early in fiscal 1999, the Company decided to pursue and continue with a policy of upgrading and enlarging its sales and sales support staff as well as physical branch facilities to support anticipated future growth in the near as well as more distant future. Increased sales levels in the second, third and fourth quarters of fiscal 1998 and in fiscal 1999 did not meet expectations. The Company continues to believe in this strategy for long-term growth and expects market conditions to undergo a correction in the near future although no assurances can be given in this regard. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued): Fiscal Year 1999 versus 1998 (continued) Interest expense increased by $519,998 from $1,723,163 for the year ended February 28, 1998 to $2,243,161 for the year ended February 28, 1999. This increase was primarily due to the interest on higher average levels of bank debt during the year resulting from an increase in average receivables and inventories which were necessary to support increased sales. INTEREST COSTS FOR THE FISCAL YEAR ENDED February February 28, 1999 28, 1998 -------------------------- Revolving Bank Credit $1,660,794 $1,140,796 Sub. Convert. Notes 582,367 582,367 -------------------------- Total Interest Expense $2,243,161 $1,723,163 ========================== Net income for the year ended February 28, 1999 was $4,544,831 or $.43 per share diluted, as compared to $5,297,991 or $.52 per share diluted, for the year ended February 28, 1998. The decrease in earnings is primarily due to increased operating expenses and the lack of a commensurate increase in gross margin on sales. Fiscal Year 1998 versus 1997 Results of Operations: Net sales for the year ended February 28, 1998 aggregated $233,325,408 as compared to $216,612,707 for the year ended February 28, 1997, an increase of 7.7%. Management attributes this moderate increase in sales for the period entirely to the core semiconductor distribution business which experienced excess inventory levels at the semiconductor manufacturing (supplier) level evidenced by reduced unit pricing in spite of substantial increases in unit demand resulting in only moderate increases in sales dollar volume. Management believes that this situation is temporary and is now in the process of correction; however, no assurance can be given in this regard. Gross profit margin as a percentage of net sales was 21.8% for the year ended February 28, 1998 as compared to 22.4% for the year ended February 28, 1997. Management attributes this lower profit margin primarily to a general downward correction of selling prices in the marketplace, for both semiconductors and passive components, during the period and a greater volume of larger orders at lower gross profit margins. Although the Company expects that these conditions will not continue, as long as current market trends prevail, no assurances can be given in this regard. Operating expenses increased by $5,259,512 to $40,133,422 for the year ended February 28, 1998 from $34,873,910 for the year ended February 28, 1997, an increase of approximately 15.1%. The dollar increase in operating expenses was due to increases in the following expense categories: Approximately $3,328,000 or approximately 63.3% of the increases were for personnel related costs -commissions, salaries, travel and fringe benefits. During fiscal 1998 the Company decided to continue to pursue a policy of upgrading and enlarging its sales and sales support staff to support anticipated future growth in the near as well as more distant future. Increased sales levels in the second, third and fourth quarters of fiscal 1998 did not meet expectations. The remaining increase of approximately $1,931,000 or approximately 36.7% of the total increment is a result of increases in various other operating expenses primarily due to increased overhead from the Company's new corporate headquarters and distribution facility. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued): Fiscal Year 1998 versus 1997 (Continued) Results of Operations (continued): Interest expense increased by $22,071 from $1,701,092 for the year ended February 28, 1997 to $1,723,163 for the year ended February 28, 1998. This relative stability was primarily due to the interest on higher average levels of bank debt being offset by more favorable interest rates. INTEREST COSTS FOR THE FISCAL YEARS END ---------------------------------------- February February 28, 1998 28, 1997 -------------------- ----------------- Revolving Bank Credit $1,140,796 $1,116,340 Sub. Convert. Notes 582,367 584,752 -------------------- ----------------- Total Interest Expense $1,723,163 $1,701,092 ==================== ================= Net income for the year ended February 28, 1998, was $5,297,991 or $.52 per share, diluted, as compared to $7,073,560 or $.69 per share diluted, for the year ended February 28, 1997. The decrease in earnings is primarily due to increased operating expenses and the lack of commensurate increased sales volume. Liquidity and Capital Resources: Fiscal Year 1999 versus 1998 The Company ended its 1999 fiscal year with working capital and cash aggregating approximately $68,850,000 and $504,000, respectively at February 28, 1999 as compared to approximately $75,218,000 and $4,334,000 respectively, at February 28, 1998. The Company's current ratio at February 28, 1999, was 4.3:1. The Company believes that its financial position at February 28, 1999, will enable it to take advantage of any new opportunities that may arise. On May 23, 1997, the Company entered into a new unsecured revolving line of credit, which currently provides for maximum borrowings of $35,000,000 through May 23, 2001 with two banks. At February 28, 1999, $14,900,000 was outstanding under this line of credit as compared to $25,300,000 at February 28, 1998. In a private placement completed on August 31, 1994, the Company issued $15 million principal amount of Subordinated Convertible Notes, which are due in $5,000,000 increments on August 31, 2000, 2001 and 2002. The notes are subordinate in right of payment to all existing and future senior indebtedness of the Company. The notes bear interest at 8.25%, payable quarterly on November 15, February 15, May 15 and August 15. The notes are convertible into shares of common stock at a conversion price of $9.00 per share. The cost of issuing these notes was $521,565 and was amortized over three years. As of February 28, 1999, $7,941,000 of the notes have been converted into 882,333 shares of common stock and $7,059,000 principal amount of subordinated convertible notes remained outstanding and are due in increments of $2,353,000 on August 31, 2000, 2001 and 2002. No assurance can be given that the notes will be converted or that the shares of common stock underlying the notes will be sold by the holders thereof. The Company anticipates that its resources provided by its cash flow from operations and its bank lines of credit will be sufficient to meet its financing requirements for at least the next twelve-month period. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued): Fiscal Year 1999 versus 1998 (Continued) Impact of Year 2000 Issue: The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could potentially result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in other similar normal business activities. Assessment. The Year 2000 problem could affect computers, software and other equipment which the Company uses, operates or maintains. Accordingly, the Company reviewed its internal computer programs and systems to ensure that the programs and systems will be Year 2000 compliant. The Company has ensured that its software is already year 2000 compliant. Vendors. The Company has initiated communications, including surveys, with its vendors (and customers) to identify and, to the extent possible, to resolve issues involving the Year 2000 problem. However, the Company has limited or no control over responses to our inquiries and the actions of these third parties. Thus, while the company does not anticipate any significant Year 2000 problems with its vendors, there can be no assurance that these vendors will resolve any or all of their Year 2000 problems before the occurrence of a disruption to its business or that of its customers. Since there are many suppliers of alternative products, the Company does not anticipate that the failure of its vendors to resolve Year 2000 problems with their systems in a timely manner will have a material adverse effect on the Company's business, financial condition, and results of operation; however no assurances can be given in this regard. Most Likely Consequences of Year 2000 Problems. The Company believes it has identified and resolved all potential internal Year 2000 problems that could materially adversely affect its business operations. However, the Company does not believe that it is possible to determine with complete certainty that all Year 2000 problems which affect it have been identified or corrected. The number of devices that could be affected and the interactions among these devices are simply too numerous. In addition, one cannot accurately predict how many Year 2000 problem-related failures will occur or the severity, duration or financial consequences of these perhaps inevitable failures. In addition, the Company is unable to determine with any degree of certainty, the changes in buying habits of its current and potential customers due to their concerns over Year 2000 issues and whether its vendors will be Year 2000 compliant. As a result, the Company expects that it could likely experience a significant number of operational inconveniences and inefficiencies for its and its customers that may divert management's time and attention and financial and human resources from its ordinary business activities. Contingency Plans. Since the Company has ensured that its software is Year 2000 compliant, it does not believe that it needs to develop contingency plans to identify and correct Year 2000 problems affecting its internal systems. The Company expects to develop contingency plans by the end of June 1999 to deal with any Year 2000 problems identified by its vendors. If the Company is required to implement any of these contingency plans, it could have a material adverse effect on the Company's financial condition and results of operations. Disclaimer. The discussion of the Company's efforts, and management's expectations , relating to Year 2000 compliance are forward-looking statements. The Company's ability to achieve Year 2000 compliance and the level of incremental costs associated with such compliance, could be adversely impacted by, among other things, the availability and cost of programming and testing resources, vendors' ability to modify proprietary software, and unanticipated problems identified in our ongoing compliance review. Inflationary Impact: Since the inception of operations, inflation has not significantly affected the operating results of the Company. However, inflation and changing interest rates have had a significant effect on the economy in general and therefore could affect the operating results of the Company in the future. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued): Fiscal Year 1999 versus 1998 (Continued) Other: Except for historical information contained herein, the matters set forth above are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ from those in the forward-looking statements. Potential risks and uncertainties include such factors as the level of business and consumer spending for electronic products, the amount of sales of the Company's products, the competitive environment within the electronics industry, the ability of the Company to continue to expand its operations, the level of costs incurred in connection with the Company's expansion efforts, the economic conditions in the semiconductor industry and the financial strength of the Company's customers and suppliers. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Report To The Board of Directors Nu Horizons Electronics Corp. Melville, New York We have audited the accompanying consolidated financial statements of Nu Horizons Electronics Corp. and subsidiaries as of February 28, 1999 and 1998, and the consolidated statements of income, changes in shareholders' equity and cash flows for the three years in the period ended February 28, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements, referred to the above, present fairly in all material respects, the financial position of Nu Horizons Electronics Corp. and subsidiaries at February 28, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 1999 in conformity with generally accepted accounting principles. /s/ LAZAR LEVINE & FELIX LLP ---------------------------- LAZAR LEVINE & FELIX LLP New York, New York May 17, 1999 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- -ASSETS- February February CURRENT ASSETS: ------ 28, 1999 28, 1998 --------------------- --------------------- Cash $ 504,320 $ 4,333,669 Accounts receivable-net of allowance for doubtful accounts of $2,630,984 and $2,362,722 for 1999 and 1998, respectively 41,920,403 37,351,029 Inventories 45,113,894 44,004,890 Prepaid expenses and other current assets 2,355,255 4,837,007 --------------------- --------------------- TOTAL CURRENT ASSETS 89,893,872 90,526,595 PROPERTY, PLANT AND EQUIPMENT - NET (Note 3) 7,130,794 6,359,775 OTHER ASSETS Costs in excess of net assets acquired-net 1,595,408 1,752,332 Other assets (Note 4) 1,138,821 1,002,726 --------------------- --------------------- $99,758,895 $99,641,428 ===================== =====================
-LIABILITIES AND SHAREHOLDERS' EQUITY- ------------------------------------
CURRENT LIABILITIES: Accounts payable $14,369,712 $12,112,365 Accrued expenses 6,674,263 3,196,623 --------------------- --------------------- TOTAL CURRENT LIABILITIES 21,043,975 15,308,988 --------------------- --------------------- LONG-TERM LIABILITIES: Deferred income taxes (Note 8) 418,852 431,395 Revolving credit line (Notes 5) 14,900,000 25,300,000 Subordinated convertible notes (Note 6) 7,059,000 7,059,000 --------------------- --------------------- TOTAL LONG-TERM LIABILITIES 22,377,852 32,790,395 --------------------- --------------------- COMMITMENTS AND CONTINGENCIES (Notes 9, 10 and 11) SHAREHOLDERS' EQUITY (Note 7): Preferred stock, $1 par value, 1,000,000 shares authorized; none issued or outstanding Common stock, $.0066 par value, 20,000,000 shares authorized; 8,753,076 shares issued and outstanding for February 28, 1999 and 1998, respectively 57,770 57,770 Additional paid-in capital 19,042,230 19,042,230 Retained earnings 38,076,840 33,532,009 --------------------- --------------------- 57,176,840 52,632,009 Less: loan to ESOP (Note 9) 839,772 1,089,964 --------------------- --------------------- 56,337,068 51,542,045 --------------------- --------------------- $99,758,895 $99,641,428 ===================== =====================
See notes to consolidated financial statements. Page F-2 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME ---------------------------------
FOR THE YEAR ENDED --------------------------------------------------------------------- FEBRUARY FEBRUARY FEBRUARY 28, 1999 28, 1998 28, 1997 ------------------- ------------------ ------------------ NET SALES $253,872,325 $233,325,408 $216,612,707 ------------------- ------------------ ------------------ COSTS AND EXPENSES: Cost of sales (Note 11) 198,836,003 182,531,083 168,124,583 Operating expenses 45,170,606 40,133,422 34,873,910 Interest expense 2,243,161 1,723,163 1,701,092 Interest income (1,603) (9,797) (8,134) ------------------- ------------------ ------------------ 246,248,167 224,377,871 204,691,451 ------------------- ------------------ ------------------ INCOME BEFORE PROVISION FOR INCOME TAXES 7,624,158 8,947,537 11,921,256 Provision for income taxes (Note 8) 3,079,327 3,649,546 4,847,696 ------------------- ------------------ ------------------ NET INCOME $ 4,544,831 $ 5,297,991 $ 7,073,560 =================== ================== ================== EARNINGS PER SHARE (Note 2i): Basic $.52 $.61 $.81 =================== ================== ================== Diluted $.43 $.52 $.69 =================== ================== ==================
See notes to consolidated financial statements. Page F-3 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY -----------------------------------------------------------
ADDITIONAL TOTAL COMMON PAID-IN RETAINED LOAN TO SHAREHOLDERS' SHARES STOCK CAPITAL EARNINGS ESOP EQUITY ------------ --------- ------------- ------------- -------------- -------------- Balance at February 29, 1996 8,423,137 $55,593 $16,821,502 $21,160,458 $ (419,850) $37,617,703 Exercise of stock options 93,495 617 177,905 - - 178,522 Conversion of subordinated convertible notes 215,667 1,423 1,939,577 - - 1,941,000 Repayment from ESOP - - - - 139,950 139,950 Net income - - - 7,073,560 - 7,073,560 ------------ --------- ------------- ------------- -------------- -------------- Balance at February 28, 1997 8,732,299 57,633 18,938,984 28,234,018 (279,900) 46,950,735 Exercise of stock options 20,777 137 103,246 - - 103,383 Loan to ESOP - - - - (950,014) (950,014) Repayment from ESOP - - - - 139,950 139,950 Net income - - - 5,297,991 - 5,297,991 Balance at February 28, 1998 8,753,076 57,770 19,042,230 33,532,009 (1,089,964) 51,542,045 ------------ --------- ------------- ------------- -------------- -------------- Repayment from ESOP - - - - 250,192 250,192 Net income - - - 4,544,831 - 4,544,831 ------------ --------- ------------- ------------- -------------- -------------- Balance at February 28, 1999 8,753,076 $57,770 $19,042,230 $38,076,840 $ (839,772) $56,337,068 ============ ========= ============= ============= ============== ==============
See notes to consolidated financial statements Page F-4 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
FOR THE YEAR ENDED ----------------------------------------------------------------------- FEBRUARY FEBRUARY FEBRUARY 28, 1999 28, 1998 28, 1997 ------------------- ------------------- ------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: Cash flows from operating activities: Cash received from customers $ 248,540,451 $ 226,296,024 $ 215,279,744 Cash paid to suppliers and employees (236,336,921) (232,653,486) (197,159,875) Interest received 1,602 9,797 8,134 Interest paid (2,243,161) (1,723,163) (1,701,092) Income taxes paid (1,359,716) (4,511,763) (1,677,850) ------------------- ------------------- ------------------- Net cash provided (used) by operating activities 8,602,255 (12,582,591) 14,749,061 ------------------- ------------------- ------------------- Cash flows from investing activities: Capital expenditures (2,031,604) (1,176,904) (4,936,512) Purchase of stock for ESOP - (950,014) - Proceeds from sale of building - 1,126,840 - ------------------- ------------------- ------------------- Net cash (used) by investing activities (2,031,604) (1,000,078) (4,936,512) ------------------- ------------------- ------------------- Cash flows from financing activities: Borrowings under revolving credit line 43,950,000 51,650,000 21,150,000 Repayments under revolving credit line (54,350,000) (34,350,000) (30,450,000) Principal payments of long-term debt - (433,129) (619,254) Proceeds from exercise of employee stock options - 103,383 178,522 ------------------- ------------------- ------------------- Net cash provided by (used in) financing activities (10,400,000) 16,970,254 (9,740,732) ------------------- ------------------- ------------------- Net (decrease) increase in cash and cash equivalents (3,829,349) 3,387,585 71,817 Cash and cash equivalents, beginning of year 4,333,669 946,084 874,267 ------------------- ------------------- ------------------- Cash and cash equivalents, end of year $ 504,320 $ 4,333,669 $ 946,084 =================== =================== ===================
See notes to consolidated financial statements. Page F-5 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) -------------------------------------------------
FOR THE YEAR ENDED ---------------------------------------------------------------------- FEBRUARY FEBRUARY FEBRUARY 28, 1999 28, 1998 28, 1997 -------------------- ------------------- ------------------ RECONCILIATION OF NET INCOME TO NET CASH FROM OPERATING ACTIVITIES: Net income $ 4,544,831 $ 5,297,991 $ 7,073,560 -------------------- ------------------- ------------------ Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 1,417,509 1,488,057 1,238,967 Bad debts 762,500 315,000 701,500 Contribution to ESOP (compensation) 250,192 139,950 139,950 Loss on sale of building - 60,871 - Changes in assets and liabilities: (Increase) in accounts receivable (5,331,874) (7,029,384) (1,332,963) (Increase) decrease in inventories (1,109,004) (14,240,320) 7,044,345 (Increase) decrease in prepaid expenses and other current assets 2,481,752 (1,933,738) (1,889,346) (Increase) in other assets (136,095) (80,951) (77,902) Increase in accounts payable and accrued expenses 5,734,987 3,190,686 1,964,667 (Decrease) in income taxes - - (220,288) (Decrease) increase in deferred taxes (12,543) 209,247 106,571 -------------------- ------------------- ------------------ Total adjustments 4,057,424 (17,880,582) 7,675,501 -------------------- ------------------- ------------------ Net cash provided (used) by operating activities $ 8,602,255 $(12,582,591) $14,749,061 ==================== =================== ==================
NON-CASH FINANCING ACTIVITIES: During the year ended February 28, 1997, the subordinated debt-holder (see Note 7) converted $1,941,000 of debt into 215,667 shares of the Company's common stock. See notes to consolidated financial statements. Page F-6 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 ----------------------------------- 1. ORGANIZATION: Nu Horizons Electronics Corp. and its subsidiaries, are wholesale distributors throughout the United States or export distributors of electronic components, except for Nu Visions Manufacturing, which is a contract assembler of circuit boards and various electromechanical devices. During fiscal 1999 the Company incorporated two new subsidiaries in the United Kingdom, one of which is currently inactive. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Principles of Consolidation: The consolidated financial statements include the accounts of Nu Horizons Electronics Corp. (the "Company"), and its wholly-owned subsidiaries, NIC Components Corp. ("NIC"), Nu Horizons/Merit Electronics Corp. ("NUM"), Nu Visions Manufacturing, Inc. ("NUV"), Nu Horizons International Corp. ("International"), NIC Eurotech Limited ("NIE"), Nu Horizons Eurotech ("NUE") and Titan Logistics Corp. ("Titan"). All material intercompany balances and transactions have been eliminated. b. Use of Estimates: In preparing financial statements, in accordance with generally accepted accounting principles, management makes certain estimates and assumptions, where applicable, that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenues and expenses during the reporting period. While actual results could differ from those estimates, management does not expect such variances, if any, to have a material effect on the financial statements. c. Concentration of Credit Risk/Fair Value: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains, at times, deposits in federally insured financial institutions in excess of federally insured limits. Management attempts to monitor the soundness of the financial institution and believes the Company's risk is negligible. Concentrations with regard to accounts receivable are limited due to the Company's large customer base. The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these items. The carrying amount of long-term debt also approximates fair value since the interest rates on these instruments approximate market interest rates. d. Inventories: Inventories, which consist primarily of goods held for resale, are stated at the lower of cost (first-in, first-out method) or market. Page F-7 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED) ----------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): e. Depreciation: Depreciation is provided using the straight-line method as follows: Office equipment 5 years Furniture and fixtures 5 - 12 years Computer equipment 5 years Leasehold improvements are amortized over the term of the lease. Maintenance and repairs are charged to operations and major improvements are capitalized. Upon retirement, sale or other disposition, the associated cost and accumulated depreciation are eliminated from the accounts and any resulting gain or loss is included in operations. f. Income Taxes: The Company has elected to file a consolidated federal income tax return with its subsidiaries. The Company utilizes Financial Accounting Standards Board Statement No. 109 (SFAS 109) "Accounting for Income Taxes". SFAS 109 requires use of the asset and liability approach of providing for income taxes. Deferred income taxes are provided for on the timing differences for certain items which are treated differently for tax and financial reporting purposes. These items include depreciation of fixed assets, inventory capitalization valuations and the recognition of bad debt expense. International has elected under Section 995 of the Internal Revenue Code to be taxed as an "Interest Charge Disc". Based upon these rules, income taxes are paid when International distributes its income to the parent company. Until distributions are made, the parent company pays interest only on the deferred tax liabilities. International's untaxed income at February 28, 1999 approximates $3,200,000. g. Goodwill: Costs in excess of net assets acquired are being amortized on a straight- line basis over fifteen years. As of February 28, 1999 and 1998, accumulated amortization of goodwill aggregated $758,466 and $601,542, respectively. The Company periodically reviews the valuation and amortization of goodwill to determine possible impairment by comparing the carrying value to the undiscounted future cash flows of the related assets, in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of. h. Cash and Cash Equivalents: For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. Page F-8 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED) ----------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): i. Earnings Per Common Share: Basic and diluted earnings per share have been computed in accordance with the adoption of SFAS No. 128. In addition, prior period per share data has been restated in accordance with SFAS No. 128. The following average shares were used for the computation of basic and diluted earnings per share: 1999 1998 1997 ------------- ------------ ------------ Basic 8,753,076 8,753,076 8,732,299 Diluted 11,271,859 10,898,859 10,818,859 j. Reclassifications: Certain prior year information has been reclassified to conform to the current year's reporting presentation. k. Stock-Based Compensation: SFAS No. 123 "Accounting for Stock Based Compensation", effective January 1, 1996, requires the Company to either record compensation expense or to provide additional disclosures with respect to stock awards and stock option grants made after December 31, 1994. The accompanying Notes to Consolidated Financial Statements include the disclosures required by SFAS No. 123. No compensation expense is recognized pursuant to the Company's stock option plans under SFAS No. 123 which is consistent with prior treatment under APB No. 25. l. Advertising and Promotion Costs: Advertising and promotion costs, which are included in general and administrative expenses, are expensed as incurred. For the three years ended February 28, 1999, such costs aggregated $909,156, $774,000 and $616,000, respectively. m. New Accounting Pronouncements: SFAS 130 "Reporting Comprehensive Income" is effective for years beginning after December 15, 1997. This statement prescribes standards for reporting other comprehensive income and its components. Since the Company currently does not have any items of other comprehensive income, a statement of comprehensive income is not required. SFAS 131 "Disclosures About Segments of an Enterprise and Related Information", is effective for years beginning after December 15, 1997. The Company has adopted this standard for the current fiscal year. Page F-9 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED) ----------------------------------------------- 3. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment which is reflected at cost, consists of the following:
1999 1998 ---------------- ---------------- Furniture, fixtures and office equipment $ 7,839,268 $ 6,290,449 Computer equipment 3,499,524 3,016,739 Assets held under capitalized leases 919,834 919,834 Leasehold improvements 1,254,364 1,254,364 ---------------- ---------------- 13,512,990 11,481,386 Less: accumulated depreciation and amortization 6,382,196 5,121,611 ---------------- ---------------- $ 7,130,794 $ 6,359,775 ================ ================
Depreciation expense including depreciation of capitalized leases for the years ended February 28, 1999, February 28, 1998 and February 28, 1997 aggregated $1,260,585, $1,331,133 and $1,082,043, respectively. During the year ended February 28, 1998, the Company completed the sale of the land and building that served as its prior corporate headquarters. 4. OTHER ASSETS: Other assets as of February 28, 1999 and February 28, 1998 consists of the following:
1999 1998 --------------- --------------- Net cash surrender value - life insurance $1,023,832 $ 937,878 Other 114,989 64,848 --------------- --------------- $1,138,821 $1,002,726 =============== ===============
5. REVOLVING CREDIT LINE: On May 23, 1997, the Company entered into a new unsecured revolving line of credit with two banks, which currently provides for maximum borrowings of $35,000,000 at either (i) the lead bank's prime rate or (ii) LIBOR plus 57.5 to 112.5 basis points depending on the ratio of the Company's debt to its earnings before interest, taxes, depreciation and amortization, at the option of the Company through May 23, 2001. Direct borrowings under lines of credit were $14,900,000 and $25,300,000 at February 28, 1999 and 1998, respectively. The credit agreement contains various covenants including certain restrictions on the payment of cash dividends without the bank's consent. As of the end of the fiscal year, the Company met all of the required covenants. Page F-10 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ----------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED) ----------------------------------------------- 6. SUBORDINATED CONVERTIBLE NOTES: In a private placement completed on August 31, 1994, the Company issued $15 million principal amount of Subordinated Convertible Notes, which are due in $5,000,000 increments on August 31, 2000, 2001 and 2002. The notes are subordinate in right of payment to all existing and future senior indebtedness of the Company. The notes bear interest at 8.25%, payable quarterly on November 15, February 15, May 15, and August 15. The notes are convertible into shares of common stock at a conversion price of $9.00 per share. The cost of issuing these notes was $521,565 and was amortized over three years. As of February 28, 1999, $7,941,000 of the notes had been converted into 882,333 shares of common stock and $ 7,059,000 principal amount of subordinated convertible notes remained outstanding which are due in increments of $2,353,000 on August 31, 2000, 2001 and 2002. 7. STOCK OPTIONS: Stock options granted to date under the Company's Key Employees Stock Incentive Plan and the 1994 and 1998 Stock Option Plans generally expire five years after date of grant and become exercisable in four equal annual installments commencing one year from date of grant. Stock options granted under the Company's Outside Director Stock Option Plan expire ten years after the date of grant and become exercisable in three equal annual installments on the date of grant and the succeeding two anniversaries thereof. A summary of options granted and related information for the three years ended February 28, 1999 is as follows:
Weighted Average Options Exercise Price ------- -------------- Outstanding, February 29, 1996 992,972 $ 7.54 Granted 471,500 8.56 Exercised (93,495) 1.91 Cancelled (68,750) 10.36 -------------- Outstanding, February 28, 1997 1,302,227 8.16 Weighted average fair value of options granted during the year $ 4.39 ====== Granted 118,500 8.30 Exercised (20,777) 4.98 Canceled (38,500) 10.14 -------------- Outstanding, February 28, 1998 1,361,450 8.20 Weighted average fair value of options granted during the year $ 3.13 ====== Granted 378,000 5.87 Canceled (5,000) 5.41 -------------- Outstanding, February 28, 1999 1,734,450 6.81 ============== Weighted average fair value of options granted during the year $ 3.05 ====== Options exercisable: February 28, 1997 381,377 7.86 February 28, 1998 673,825 7.52 February 28, 1999 997,950 8.06
Page F-11 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED) ----------------------------------------------- 7. STOCK OPTIONS (continued): Exercise prices for options outstanding as of February 28, 1999 ranged from $4.62 to $14.50. The weighted-average remaining contractual life of these options is approximately 5 years. Outstanding options at February 28, 1999 are held by 44 individuals. The Company applies APB 25 and related Interpretations in accounting for the Option Plans. Accordingly, no compensation cost has been recognized for its Option Plans. Had compensation cost for the Option Plans been determined using the fair value based method, as defined in SFAS 123, the Company's net earnings and earnings per share would have been adjusted to the pro forma amounts indicated below:
1999 1998 1997 ---- ---- ---- Net earnings: As reported $4,544,831 $5,297,991 $7,073,560 Pro forma 4,311,690 4,827,590 7,051,451 Basic earnings per share: As reported $ .52 $ .61 $ .81 Pro forma .49 .55 .81 Diluted earnings per share: As reported $ .43 $ .52 $ .69 Pro forma .41 .47 .68
The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for 1999, 1998 and 1997, respectively: expected volatility of 45.3%, 45.8% and 48.3%, respectively; risk free interest rate of 6.0%, 6.1% and 6.5% for 1999, 1998 and 1997, respectively; and expected lives of 1 to 5 years. The effects of applying SFAS 123 in the above pro forma disclosures are not indicative of future amounts, as they do not include the effects of awards granted prior to 1995. Additionally, future amounts are likely to be affected by the number of grants awarded since additional awards are generally expected to be made at varying amounts. 8. INCOME TAXES: The provision for income taxes is comprised of the following: February February February 28, 1999 28, 1998 28, 1997 ----------------- ----------------- ----------------- Current: Federal $2,523,535 $3,103,097 $4,213,767 State and Local 680,931 655,559 900,193 Deferred: Federal (64,760) (74,103) (221,867) State (60,379) (35,007) (44,397) ----------------- ----------------- ----------------- $3,079,327 $3,649,546 $4,847,696 ================= ================= =================
Page F-12 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED) ----------------------------------------------- 8. INCOME TAXES (continued): The components of the net deferred income tax liability, pursuant to SFAS 109, as of February 28, 1999 and February 28, 1998 are as follows:
1999 1998 ---- ---- Deferred Tax Assets: Accounts Receivable $ 672,003 $ 708,610 Inventory 98,600 100,300 ------------------- ------------------ Total Deferred Tax Assets 770,603 808,910 ------------------- ------------------ Deferred Tax Liabilities Fixed Assets (68,890) (184,500) Income of Interest Charge DISC (1,120,565) (1,055,805) Total Deferred Tax Liabilities (1,189,455) (1,240,305) ------------------- ------------------ Net Deferred Tax Liabilities $ (418,852) $ (431,395) =================== ==================
The following is a reconciliation of the maximum statutory federal tax rate to the Company's effective tax rate:
1999 1998 1997 ---- ---- ---- Statutory rate 35.0% 35.0% 35.0% State and local taxes 8.1 7.1 7.0 Other (2.7) (1.3) (1.3) ---- ---- ---- Effective tax rate 40.4% 40.8% 40.7% ==== ==== ====
9. EMPLOYEE BENEFIT PLANS: On January 13, 1987, the Company's Board of Directors approved the termination of the Company's pension plan and approved the adoption of an employee stock ownership plan (ESOP) to replace the terminated pension plan. The ESOP covers all eligible employees and contributions are determined by the Board of Directors. The ESOP purchases shares of the Company's common stock using loan proceeds. As the loan is repaid, a pro rata amount of common stock is released for allocation to eligible employees. The Company makes cash contributions to the ESOP to meet its obligations. Contributions to the ESOP for the three years ended February 28, 1999 aggregated $250,197 for fiscal 1999 and $139,950 for each of the other years . At February 28, 1999 the ESOP owned 431,251 shares at an average price of approximately $3.79 per share. On October 31, 1997, the Company, on behalf of the ESOP, entered into an additional credit agreement with a bank which provides for a $3,000,000 revolving line of credit at the bank's prime rate until October 31, 2001. Direct borrowings under this line of credit are payable in forty-eight equal monthly installments commencing with the fiscal period subsequent to such borrowings. At February 28, 1999, there were no direct borrowings outstanding under the ESOP line of credit. In January 1991, the Company also established a 401-K profit sharing plan to cover all eligible employees. The Company's contributions to the plan are discretionary, but may not exceed 1% of compensation. Contributions to the plan for the three years ended February 28, 1999 were $114,216, $120,403 and $111,585, respectively. Page F-13 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED) ----------------------------------------------- 10. COMMITMENTS: (a) On September 13, 1996, the Company signed employment contracts (the "Contracts"), as amended, with three of its senior executives for a continually renewing five year term. The Contracts specify a base salary of $226,545 for each officer, which shall be increased each year by the change in the consumer price index, and also entitle two of the three officers to an annual bonus equal to 3.33% and the third officer to 2.33% (9% in the aggregate) of the Company's consolidated earnings before income taxes. Benefits are also payable upon the occurrence of either a change in control of the Company, as defined, or the termination of the officer's employment, as defined. The Contracts also provide for certain payments of the executives' salaries, performance bonuses and other benefits in event of death or disability of the officer for the balance of the period covered by the agreement. (b) In December 1996, the Company leased an approximately 80,000 square foot facility in Melville, Long Island, New York to serve as its executive offices and main distribution center. In mid- 1997, the Company moved its executive offices and distribution operation to the facility. The lease term is from December 17, 1996 to December 16, 2008 at an annual base rental of $601,290 and provision for a 4% annual escalation in each of the last ten years of the term. The Company also leases certain other office, warehouse and other properties which leases include various escalation clauses, renewal options, etc. Aggregate minimum rental commitments under noncancelable operating leases are as follows: Fiscal 2000 $1,889,772 Fiscal 2001 1,693,636 Fiscal 2002 1,236,924 Fiscal 2003 806,409 Fiscal 2004 683,296 Thereafter 2,455,595 Rent expense was $1,837,330, $1,459,325, and $712,548 for each of the prior three years in the period ending February 28, 1999. 11. MAJOR SUPPLIERS: For the year ended February 28, 1999, the Company purchased inventory from two suppliers that was in excess of 10% of the Company's total purchases. Purchases from these suppliers aggregated approximately $45,040,000. For the year ended February 28, 1998, the Company purchased inventory from one supplier that was in excess of 10% of the Company's total purchases. Purchases from this supplier aggregated approximately $18,872,000. For the year ended February 28, 1997, the Company purchased inventory from two suppliers that were in excess of 10% of the Company's total purchases. Purchases from these suppliers aggregated approximately $21,385,000. Page F-14 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED) ----------------------------------------------- 12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION: The Company's operations have been classified into two business segments: Electronic component distribution and industrial contract manufacturing. The component distribution segment includes the resale of active and passive components to various original equipment manufacturers and distributors. The industrial contract-manufacturing segment consists of a subsidiary, which provides electronic circuit board and harness assembly services to original equipment manufacturers. This segment began operations in September 1991. Summarized financial information by business segment for fiscal 1999 and 1998 is as follows:
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ Net sales from external customers: Electronic Component Distribution $243,514,672 $221,217,251 $206,417,667 Industrial Contract Manufacturing 10,357,653 12,108,157 10,195,040 - ------------------------------------------------------------------------------------------------------------------------ $253,872,325 $233,325,408 $216,612,707 - ------------------------------------------------------------------------------------------------------------------------ Operating income (loss): Electronic Component Distribution $ 9,210,235 $ 9,430,055 $ 13,019,791 Industrial Contract Manufacturing 655,481 1,230,848 594,423 - ------------------------------------------------------------------------------------------------------------------------ $ 9,865,716 $ 10,660,903 $ 13,614,214 - ------------------------------------------------------------------------------------------------------------------------ Total assets: Electronic Component Distribution $ 94,340,725 $ 95,519,254 $ 70,577,102 Industrial Contract Manufacturing 5,418,170 4,122,174 4,206,212 - ------------------------------------------------------------------------------------------------------------------------ $ 99,758,895 $ 99,641,428 $ 74,783,314 - ------------------------------------------------------------------------------------------------------------------------ Depreciation and amortization: Electronic Component Distribution $ 1,116,850 $ 1,201,732 $ 978,684 Industrial Contract Manufacturing 300,659 286,325 260,283 - ------------------------------------------------------------------------------------------------------------------------ $ 1,417,509 $ 1,488,057 $ 1,238,967 - ------------------------------------------------------------------------------------------------------------------------ Capital expenditures (including capital leases): Electronic Component Distribution $ 1,133,014 $ 983,419 $ 4,566,196 Industrial Contract Manufacturing 898,590 193,485 370,316 - ------------------------------------------------------------------------------------------------------------------------ $ 2,031,604 $ 1,176,904 $ 4,936,512 - ------------------------------------------------------------------------------------------------------------------------
Geographic: The Company's operations are primarily conducted in the United States. Information about the Company's operations in different geographic areas for the three years in the period ended February 28, 1999, is not considered material to the financial statements. Page F-15 NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 1999 (CONTINUED) ----------------------------------------------- 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
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 ================== ================== ================= ================== THREE MONTH PERIOD ENDED -------------------------------------------------------------------------------------- FEBRUARY NOVEMBER AUGUST MAY 28,1998 30, 1997 31, 1997 31, 1997 ------------------ ------------------ ----------------- ------------------ NET SALES $62,347,646 $60,013,458 $56,798,598 $54,165,706 ------------------ ------------------ ----------------- ------------------ COST OF SALES 48,671,746 47,065,156 44,570,929 42,223,252 ------------------ ------------------ ----------------- ------------------ OPERATING AND INTEREST EXPENSES 11,284,786 10,754,379 10,382,809 9,424,814 ------------------ ------------------ ----------------- ------------------ PROVISION FOR INCOME TAXES 972,310 888,540 773,444 1,015,252 ------------------ ------------------ ----------------- ------------------ NET INCOME $ 1,418,804 $ 1,305,383 $ 1,071,416 $ 1,502,388 ================== ================== ================= ================== BASIC EARNINGS PER SHARE $.16 $.15 $.12 $.17 ================== ================== ================= ================== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 8,753,076 8,753,076 8,746,826 8,739,326 ================== ================== ================= ==================
Page F-16 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 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES: The Company had no disagreements on accounting or financial disclosure matters with its accountants, nor did it change accountants, during the three year period ending February 28, 1999. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY: NAME AGE POSITION ---- --- -------- Irving Lubman 60 Chief Operating Officer and Chairman of the Board Arthur Nadata 53 President, Chief Executive Officer and Director Richard S. Schuster 50 Vice-President, Secretary and Director Paul Durando 55 Vice President - Finance, Treasurer and Director Harvey R. Blau 63 Director Herbert M. Gardner 59 Director Dominic A. Polimeni 52 Director The Company's Certificate of Incorporation provides for a Board of Directors consisting of not less than three nor more than eleven directors, classified into three classes as nearly equal in number as possible, whose terms of office expire in successive years. The following table sets forth the directors of the Company.
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 1999) --------------------- ----------------------- ---------------------- 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. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (Continued): Richard S. Schuster has been Vice President, Secretary and a Director since October 1982. For the seven years prior to joining the Company in November 1982, Mr. Schuster served as manager of Capar Components Corp., an importer and distributor of passive components, and a wholly-owned subsidiary of Diplomat Electronics Corp. For the six years prior to 1975, Mr. Schuster was employed by International Components Corp., responsible for production, engineering and sales of imported semiconductor and passive components. Paul Durando has been Vice President, Finance since joining the Company in March 1991, Treasurer since September 1996 and has been a Director since September 1994. Prior to joining the Company in March 1991, Mr. Durando served for six years as Executive Vice President of Sigma Quality Foods, Inc. From 1977 to 1984, he was Vice President, Operations of the Wechsler Coffee Corp. Mr. Durando was also associated with Deloitte Haskins & Sells for seven years. Harvey R. Blau has been a director of the Company since May 1984. Mr. Blau has been a practicing attorney in the State of New York since 1961, and is a member of the law firm of Blau, Kramer, Wactlar & Lieberman, P.C., Jericho, New York, counsel to the Company. Mr. Blau is Chairman of the Board of Griffon Corporation and Aeroflex Incorporated and is a Director of Reckson Associates Realty Corp. Herbert M. Gardner has been a Director of the Company since May 1984. For more than the past five years, Mr. Gardner has been Senior Vice President of Janney Montgomery Scott Inc., investment bankers and Underwriter of the Company's May 1984 public offering. Mr. Gardner is Chairman of the Board of Supreme Industries Inc. and a director of Transmedia Network, Inc., TGC Industries Inc., Hirsch International Corp., and Inmark Enterprises, Inc. Dominic A. Polimeni has been a Director of the Company since September 1997. Mr. Polimeni has been President, Chief Operating Officer and a Director of Questron Technology, Inc. since March 1995, and Chairman and Chief Executive Officer of Questron Technology, Inc. since February 1996. Mr. Polimeni has been a Managing Director of Gulfstream Financial Group, Inc., a privately held financial consulting and investment banking firm since August 1990. Prior to that he held the position of Chief Financial Officer of Arrow Electronics, Inc. for four (4) years. Mr. Polimeni also practiced as a Certified Public Accountant for more than 12 years and was a Partner in the NewYork office of Arthur Young and Company. ITEM 11. EXECUTIVE COMPENSATION: The following table sets forth the compensation paid by the Company to its Chief Executive Officer and each of the three other executive officers for the years ended February 28, 1999, February 28, 1998 and February 28, 1997. SUMMARY COMPENSATION TABLE
Long Term Annual Compensation (1) Compensation -------------------------- --------------- Securities Name of Principal and Fiscal Underlying All other (2) Position Year Salary Bonus Options Compensation ---------------------- ---- ------ ----- ------- ------------ Irving Lubman 1999 $243,893 $196,102 75,000 $21,552 COO, Chairman 1998 236,789 344,370 - 16,781 of the Board 1997 229,893 446,843 100,000 14,945 Arthur Nadata 1999 $243,893 $280,146 100,000 $20,514 President and 1998 236,789 344,370 - 31,374 CEO 1997 229,893 446,843 100,000 18,457 Richard Schuster 1999 $243,893 $280,146 75,000 $18,330 Vice President 1998 236,789 344,370 - 18,922 Secretary and 1997 229,893 446,843 100,000 16,222 President, NIC Components Corp. Paul Durando 1999 $150,000 $ 31,011 10,000 $ 1,500 Vice President, 1998 138,942 25,827 15,000 1,389 Finance and 1997 130,000 33,514 20,000 1,500 Treasurer
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. ITEM 11. EXECUTIVE COMPENSATION (Continued): Employment Contracts On September 13, 1996, the Company signed employment contracts (the "Contracts"), as amended, with three of its senior executives for a continually renewing five year term. The Contracts specify a base salary of $226,545 for each officer in 1997, which shall be increased each year by the change in the consumer price index, and also entitle two of the three officers to an annual bonus equal to 3.33%, and the third officer to 2.33% (9% in the aggregate) of the Company's consolidated earnings before income taxes. Benefits are also payable upon the occurrence of either a change in control of the Company, as defined, or the termination of the officer's employment, as defined. In the event the employee terminates his employment within six months after a change in control of the Company, he will receive a lump sum payment equal to three-quarters of the remaining compensation under his employment agreement. Each Contract also provides for certain payments of the executive salary, performance bonuses and other benefits in the event of death or disability of the officer for the balance of the period covered by the agreement. The following table sets forth certain information with respect to stock options granted to the officers named in the Summary Compensation Table during the fiscal year ended February 28, 1999. OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at % of Total Assumed Annual Rates of Stock Options Options Granted Exercise Price Expiration Price Appreciation for Entire Granted (1) to Employees ($ per share) Date Term (2) (3) ----------- ------------ ------------- ---- ----------------------------- 5% 10% -- --- P. Durando 10,000 2.9% $6.125 5/28/08 $ 38,550 $ 97,650 I. Lubman 75,000 21.6% 6.125 5/28/08 289,125 732,375 A. Nadata 100,000 28.7% 6.125 5/28/08 385,500 976,500 R. Schuster 75,000 21.6% 6.125 5/28/08 289,125 732,375
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR - Footnotes (1) Options were granted for a term of ten years, subject to earlier termination on termination of employment. Options become exercisable in two equal annual installments commencing one year from the date of grant. (2) These amounts represent assumed rates of appreciation, which may not necessarily be achieved. The actual gains, if any, are dependent on the market value of the Company's stock at a future date as well as the option holder's continued employment throughout the vesting period. Appreciation reported is net of exercise price. (3) Potential Realizable Value is based on the assumed annual growth rates for the ten-year option term. Annual growth of 5% results in a stock price of $9.98 per share and 10% results in a price of $15.89 per share for Mr. Durando on the shares granted at $6.125. Actual gains, if any, on stock option exercises are dependent on the future performance of the stock as well as the option holder's continued employment throughout the vesting period. There can be no assurance that the amounts reflected in this table will be achieved. Appreciation reported is net of exercise price. ITEM 11. EXECUTIVE COMPENSATION (Continued): The following table sets forth certain information as to each exercise of stock options during the fiscal year ended February 28, 1999 by the persons named in the Summary Compensation Table and the fiscal year end value of unexercised options: AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR-END OPTIONS/SAR VALUES
Value of Number of Unexercised Unexercised In-the-Money Options/SARs Options/SARs at FY End at FY End -------------- -------------- Shares Acquired Exercisable/ Exercisable/ on Exercise Value Realized(1) Unexercisable Unexercisable --------------- ----------------- ------------- ------------- Irving Lubman - - 236,150 - 137,500 - Arthur Nadata - - 236,150 - 162,500 - Richard Schuster - - 236,150 - 137,500 - Paul Durando - - 36,250 - 36,250 -
(1) Market value less exercise price, before payment of applicable federal or state taxes. ITEM 11. EXECUTIVE COMPENSATION (Continued): Directors who are not employees of the Company receive an annual fee of $2,500 for Board Membership and $500 for each Board of Directors or Committee meeting attended. There were two meetings of each of the Board of Directors and the Compensation Committee during the fiscal year ended February 28, 1999. Each director attended or participated in all of the meetings of the Board of Directors and the committees thereof on which he served. For the fiscal year ended February 28, 1999, there was one meeting of the Audit Committee. The Company's Audit Committee is involved in discussions with the Company's independent public accountants with respect to the scope and results of the Company's year-end audit, the Company's internal accounting controls and the professional services furnished by the independent auditors to the Company. During fiscal 1999, the Company had no standing Nominating Committee or any committee performing similar functions. Compensation Committee Interlocks and Insider Participation The Company's Compensation Committee consisted during fiscal 1999 of Messrs. Gardner (Chairman), Polimeni and Blau. Mr. Gardner is Senior Vice President of Janney Montgomery Scott, Inc., investment bankers, which acted as placement agent in connection with the Company's $15 million private placement of convertible subordinated notes in August 1994. Mr. Blau is a partner in the law firm of Blau, Kramer, Wactlar & Lieberman, P.C. The Company has utilized, and anticipates that it will continue to utilize, the services of Blau, Kramer, Wactlar & Lieberman, P.C. as its general counsel. In accordance with rules promulgated by the Securities and Exchange Commission, the information included under the captions "Compensation Committee Report on Executive Compensation" and "Company Stock Performance" will not be deemed to be filed or to be proxy soliciting material or incorporated by reference in any prior or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934. Compensation Committee Report on Executive Compensation The compensation of the Company's executive officers generally is determined by the Compensation Committee of the Board of Directors. Each member of the Compensation Committee is a Director who is not an employee of the Company or any of its affiliates. The following report with respect to certain compensation paid or awarded to the Company's executive officers during fiscal 1999 is furnished by the Compensation Committee. General Policies The Company's compensation programs are intended to enable the Company to attract, motivate, reward and retain management talent required to achieve aggressive corporate objectives in a rapidly changing industry, and thereby increase stockholder value. It is the Company's policy to provide incentives to its senior management to achieve both short-term and long-term objectives and to reward exceptional performance and contributions to the development of the Company's business. To attain these objectives, the Company's executive compensation program includes a competitive base salary, coupled with, with respect to certain executives, a substantial cash bonus which is "at risk" based on the Company's earnings. Many of the Company's employees, including its executive officers, also are eligible to be granted stock options periodically in order to more directly align their interests with the long-term financial interest of the Company's stockholders. ITEM 11. EXECUTIVE COMPENSATION (Continued): Relationship of Compensation to Performance The Compensation Committee annually establishes, subject to any applicable employment agreements, the salaries, which will be paid to the Company's executive officers during the coming year. In setting salaries, the Board of Directors takes into account several factors, including competitive compensation data, the extent to which an individual may participate in the stock option plan maintained by the Company and its affiliates, and qualitative factors bearing on an individual's experience, responsibilities, management and leadership abilities, and job performance. Stock options are granted to key employees, including the Company's executive officers, by the Compensation Committee of the Board of Directors under the Plans. Among the Company's executive officers, the number of shares subject to options granted to each individual generally depends upon his or her base salary and the level of that officer's management responsibility. During fiscal 1999, 10,000 options were granted to each outside director under the Company's Outside Director Stock Option Plan. Options to purchase 100,000 shares were granted to Mr. Nadata, 75,000 shares were granted to each of Messrs. Lubman and Schuster and 10,000 shares were granted to Mr. Durando under the Company's 1998 Stock Option Plan. Bonuses were paid to three executive officers, as set forth in the Summary Compensation Table, pursuant to the terms of their employment agreements with the Company and on a discretionary basis to Paul Durando, the Company's Vice President, Finance and Director. This latter bonus was determined to be appropriate by the Compensation Committee in light of Mr. Durando's contributions to the Company's performance, his base salary level and the level of his management responsibilities. Compensation of Chief Executive Officer The Company has entered into an employment agreement with Arthur Nadata, the Company's President and Chief Executive Officer, pursuant to which Mr. Nadata receives a base salary of $226,545, adjusted for CPI index increases, and an incentive bonus equal to three and thirty- three one-hundredths percent (3.33%) of the Company's consolidated pre- tax earnings. In this way, Mr. Nadata's cash compensation is tied directly to the Company's profitability. The Compensation Committee Herbert Gardner Harvey Blau Dominic Polimeni Compliance with Section 16(a) of the Securities Exchange Act Section 16(a) of the Exchange Act requires the Company's executive officers, directors and persons who own more than ten percent of a registered class of the Company's equity securities ("Reporting Persons") to file report of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers (the "NASD"). These Reporting Persons are required by SEC regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file with the SEC and NASD. ITEM 11. EXECUTIVE COMPENSATION (Continued): Compliance with Section 16(a) of the Securities Exchange Act (continued) Based solely on the Company's review of the copies of the forms it has received, the Company believes that all Reporting Persons complied on a timely basis with all filing requirements applicable to them with respect to transactions during fiscal year 1999. COMPANY STOCK PERFORMANCE GRAPH The following Performance Graph compares the Company's cumulative total stockholder return on its Common Stock for a five year period (February 28, 1994 to February 28, 1999) with the cumulative total return of the NASDAQ Market Index (which includes the Company) and a peer group of companies selected by the Company for purposes of the comparison. Dividend reinvestment has been assumed and, with respect to companies in the Peer Group, the returns of each such company have been weighted to reflect relative stock market capitalization. COMPARE 5 -YEAR CUMLATIVE TOTAL RETURN AMONG NU-HORIZONS ELECTRONICS CORP., NASDAQ MARKET INDEX AND PEER GROUP INDEX
Measurement Period Nu Horizons NASDAQ (Fiscal Year Covered) Electronics Market Index Peer Group Index - ------------------------------------------------------------------------------------------------------------- FYE 3/01/94 $100.00 $100.00 $100.00 FYE 2/28/95 84.51 95.47 95.07 FYE 2/29/96 176.06 131.83 126.17 FYE 2/28/97 104.23 158.24 142.88 FYE 2/28/98 71.13 215.21 148.40 FYE 2/28/99 49.30 278.09 78.88
ASSUMES $100 INVESTED ON MARCH 1, 1994 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING FEBRUARY 28, 1999 Peer group includes All American Semiconductor, Arrow Electronics Inc., Avnet Inc., Bell Microproducts Inc., Jaco Electronics Inc., Kent Electronics Corp., Marshall Industries, Pioneer Standard Electronics and Reptron Electronics Inc. EXECUTIVE COMPENSATION (Continued): Key Employees Stock Incentive Plan: The Company has a Key Employees Stock Incentive Plan ("Plan"), approved by the stockholders in 1984, as amended in September 1987, which presently covers 712,765 shares of Common Stock. Options are currently outstanding for 192,450 shares and no shares are currently available for grant. The Plan is intended to provide an additional means of inducing executives and other "key salaried employees" of the Company (which is defined under Section 422A of the Internal Revenue Code) to join and remain with the Company by offering them a greater share of the Company's stock and a greater identification with the Company. The Board of Directors or a Committee, which may be appointed and maintained by the Board, shall have the power to administer the Plan. The Board or Committee has full power and authority: (i) to designate participants; (ii) to designate options or any portion thereof as Incentive Stock Options ("ISO"); (iii) to determine the terms and provisions of respective option agreements (which need not be identical) including, but not limited to, provisions concerning the time or times when and the extent to which the stock options ("Options") and Stock Appreciation Rights ("SARs") may be exercised and the nature and duration of restrictions as to transferability or constituting substantial risk forfeiture; (iv) to accelerate the right to an optionee to exercise in whole or in part any previously granted ISO including any options modified to qualify as ISOs; and (v) to interpret the provisions and supervise the administration of the Plan. The Board has appointed the Compensation Committee to administer the Plan. The purchase price of each share subject to an Option or any portion thereof, which has been designated by the Board or the Committee as an ISO, shall not be less than 100% (or 110%, if at the time of grant the optionee owns more than 10% of the voting stock of the Company) in the case of options designated as ISOs or 85% in case of options not designated as incentive stock options, of the fair market value of such shares on the date the option is granted. In no event shall the option price be less than the par value of the stock. 1994 Stock Option Plan: In September 1994, the Company's stockholders approved the 1994 Stock Option Plan (the "1994 Plan"), as amended in September 1996, under which key employees and officers of the Company, its subsidiaries and affiliates may be granted options to purchase an aggregate of 1,100,000 shares of the Company's Common Stock. The 1994 Plan is administered by the Compensation Committee, consisting of at least two members of the Board of Directors. The Compensation Committee, subject to provisions in the 1994 Plan, has the authority to designate, in its discretion, which persons are to be granted options, the number of shares subject to each option, and the period of each option. Each recipient must be an employee of the Company at the time of grant and throughout the period ending on the day three months before the date of exercise. Under the terms of the 1994 Plan, the exercise price of the shares subject to each option granted will be not less than 85% nor more than 100% of the fair market value at the date of grant or 110% of such fair market value for options granted to any employee to or director who owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company. Adjustments will be made to the purchase price in the event of stock dividends, corporate reorganizations, or similar events. During fiscal 1999, 10,500 options were granted under the 1994 Plan with an exercise price of $6.125. Options are currently outstanding for 1,094,500 shares and 5,500 options are currently available for grant. No options to purchase shares granted under the 1994 Plan have been exercised. ITEM 11. EXECUTIVE COMPENSATION (Continued): 1994 Stock Option Plan (continued): The Compensation Committee of the Board of Directors has the responsibility and authority to administer and interpret the provisions of the 1994 Plan. The Compensation Committee shall appropriately adjust the number of shares for which awards may be granted pursuant to the 1994 Plan in the event of reorganization, recapitalization, stock split, reverse stock split, stock dividend, exchange or combination of shares, merger, consolidation, rights offering or any change in capitalization. The Board may, from time to time, amend, suspend or terminate any or all of the provisions of the 1994 Plan, provided that, without the participant's approval, no change may be made which would prevent an ISO granted under the 1994 Plan from qualifying as an ISO under Section 422A of the Internal Revenue Code of 1986, as amended (the "Code") or results in a modification of the ISO under Section 425(h) of the Code or otherwise alter or impair any right theretofore granted to any participant; and further provided that, without the consent and approval of the holders of a majority of the outstanding shares of Common Stock of the Company present at that meeting at which a quorum exists, neither the Board nor the Committee may make any amendment which (i) changes the class of persons eligible for options; (ii) increases (except as provided under Section 1.6 of the 1994 Plan) the total number of shares or other securities reserved for issuance under the 1994 Plan; (iii) decreases the minimum option prices stated in Section 2.2 of the 1994 (other than to change the manner of determining Fair Market Value to conform to any then applicable provision of the Code or any regulation thereunder); (iv) extends the expiration date of the 1994 Plan, or the limit on the maximum term of options; or (v) withdraws the administration of the 1994 Plan from a committee consisting of two or more members, each of whom is a Disinterested Person. With the consent of the Participant affected thereby, the Committee may amend or modify any outstanding option in any manner not inconsistent with the terms of the 1994 Plan. 1998 Stock Option Plan In May 1998, the Board of Directors adopted the Nu Horizons Electronics Corp. 1998 Stock option Plan (the "1998 Option Plan"), under which any director, officer, employee or consultant of the Company, a subsidiary or an affiliate may be granted options to purchase an aggregate 350,000 shares of the Company's Common Stock. The 1998 Option Plan is to be administered by the Board of Directors of the Company; provided, however, that the Board may, in the exercise of its discretion, designate from among its members a Compensation committee or a Stock Option Committee (the "Committee") consisting of no fewer than two non-employee Directors, as defined by Rule 16b-3 under the Securities Exchange Act of 1934. The Compensation Committee administers the 1998 Option Plan. Subject to the terms of the 1998 Option Plan, the Board of Directors or the Committee may determine and designate those directors, officers, employees and consultants who are to be granted stock options under the 1998 Option Plan and the number of shares to be subject to such options and the term of the options to be granted, which term may not exceed ten years. The Board of Directors of the Committee shall also, subject to the express provisions of the 1998 Option Plan, have the authority to interpret the 1998 Option Plan and to prescribe, amend and rescind the rules and regulations relating to the 1998 Option Plan. Only non-qualified stock options may be granted under the terms of the 1998 Option Plan. The exercise price of the options granted under the 1998 Option Plan will not be less than such fair market value at the date of grant. The option price, as well as the number of shares subject to such option, shall be appropriately adjusted by the Committee in the event of stock splits, stock dividends, recapitalizations, and certain other events involving a change in the Company's capital. During fiscal 1999, 337,500 options were granted under the 1998 Option Plan with exercise prices of $6.125, $5.00 and $4.62. Options are currently outstanding for 337,500 shares and 12,500 options are currently available for grant. No options granted under the 1998 Option Plan have been exercised. Outside Director Stock Option Plan: In September 1994, the Company's stockholders approved the Outside Directors Stock Option Plan (the "Director Plan") which covers 150,000 shares of the Company's Common Stock. The primary purposes of the Director Plan are to attract and retain well-qualified persons for service as directors of the Company and to provide such outside directors with the opportunity to increase their proprietary interest in the Company's continued success and further align their interests with the interests of the stockholders of the Company through the grant of options to purchase shares of the Company's Common Stock. ITEM 11. EXECUTIVE COMPENSATION (Continued): Outside Director Stock Option (continued): All directors of the Company who are not employees of the Company, of which there are presently three, are eligible to participate in the Director Plan. The Board of Directors of the Company may amend the Director Plan from time to time in such manner as it may deem advisable. The provisions of the Director Plan relating to (i) which directors shall be granted options; (ii) the amount of shares subject to options granted; (iii) the price at which shares subject to options may be purchased; and (iv) the timing of grants of options shall not be amended more than once every six (6) months, other than to comport with changes in the Code or the Employee Retirement Income Security Act of 1974, as amended. No amendment to the Director Plan shall adversely affect any outstanding option, however, without the consent of the optionee that holds such option. The Compensation Committee of the Board of Directors has the responsibility and authority to administer and interpret the provisions of the Director Plan. The Compensation Committee shall appropriately adjust the number of shares for which awards may be granted pursuant to the Director Plan in the event of reorganization, recapitalization, stock split, reverse stock split, stock dividend, exchange or combination of shares, merger, consolidation, rights offering, or any change in capitalization. Under the Director Plan, on June 1, 1994 each non-employee Director then serving received options to purchase 10,000 shares of Common Stock at a price of $8.25 per share (the price of shares of Common Stock on June 1, 1994) and on the June 1 of each subsequent year each non- employee director then serving has or will be granted options to purchase 10,000 shares of Common Stock at a price equal to the closing price of the Common Stock on a national securities exchange upon which the Company's stock is listed or the average of the mean between the last reported "bid" and "asked prices if the Common Stock is not so listed for the five business days immediately preceding the date of grant. Options awarded to each outside director vest in three equal installments over a period of two years, subject to forfeiture under certain conditions and shall be exercisable by the outside director upon vesting. Summary of Fiscal 1999 Stock Option Grants: During fiscal 1999, the Company granted options to purchase 100,000 shares to Mr. Nadata, 75,000 shares to each of Messrs. Lubman and Schuster and 10,000 shares to Mr. Durando at a price of $6.125 per share and options to purchase 10,000 shares to each of Messrs. Blau, Gardner and Polimeni at at a price of $6.125 per share. Employee Stock Ownership Plan: In January 1987, the Company adopted an Employee Stock Ownership Plan ("ESOP" or "Plan") which covers substantially all of the Company's employees. The ESOP is managed by three Trustees, Messrs. Lubman, Nadata and Schuster (the "Trustees"), who vote the securities held by the Plan (other than securities of the Company which have been allocated to employees' accounts). The annual contributions to the Plan are to be in such amounts, as the Board of Directors in its sole discretion shall determine. Each employee who participates in the Plan has a separate account and the annual contribution by the Company to an employee's account is not permitted to exceed the lesser of $30,000 (or such other limit as may be the maximum permissible pursuant to the provisions of Section 415 of the Code and Regulations issued thereunder) or 25% of such employee's annual compensation, as defined under the Plan. No contributions are required/of, nor shall any be accepted from, any employee. ITEM 11. EXECUTIVE COMPENSATION (Continued): Employee Stock Ownership Plan (continued): All contributions to the Plan are invested in the Company's securities (except for temporary investments), the Trustees having the right to purchase the Company's securities on behalf of employees. The Trustees are considered the stockholder for the purpose of exercising all owners' and stockholders' rights, with respect to the Company's securities held in the Plan, except for voting rights which inure to the benefit of each employee who can vote all shares held in his account, even if said shares are not vested. Vesting is based upon an employee's years of service, with employees generally becoming fully vested after six years. Benefits are payable to employees at retirement or upon death, disability or termination of employment, with payments commencing no later than sixty days following the last day of the Plan year in which such event occurred. Subject to the right of the employee to demand payment in the form of the Company's Common Stock, all benefits are payable in cash or in Common Stock, at the discretion of the Trustees. The Trustees are empowered to borrow funds for the purpose of purchasing the Company's securities. The securities so purchased are required to be held in an acquisition indebtedness account, to be released and made available for reallocation as principal is repaid. In May, 1997 the Company, on behalf of the ESOP, entered into a revolving credit agreement with its bank which provides for a $3,000,000 revolving line of credit at the bank's prime rate until May 22, 2001. Direct borrowings under this line of credit are payable in forty-eight equal monthly installments commencing with the fiscal period subsequent to such borrowings. At February 28, 1999, the ESOP owned 431,251 shares at an average price of approximately $3.79 per share. 401(k) Savings Plan The Company sponsors a retirement plan intended to be qualified under Section 401(k) of the Code. All non-union employees over age 21 who have been employed by the Company for at least six months are eligible to participate in the plan. Employees may contribute to the plan on a tax-deferred basis up to 15% of their total annual salary, but in no event more than the maximum permitted by the Code ($10,000 in calendar 1998). Company contributions are discretionary. Effective with the plan year ended February 28, 1999, the Company has elected to make matching contributions at the rate of $ .25 per dollar contributed by each employee up to a maximum of 1% of an employee's salary vesting at the cumulative rate of 20% per year of service starting one year after commencement of service and, accordingly, after five years of any employee's service with Company, matching contributions by the Company are fully vested. As of February 28, 1999 approximately 250 employees had elected to participate in the plan. For the fiscal year ended February 28, 1999, the Company contributed approximately $114,216 to the plan, of which $8,814 was a matching contribution of $2,438 for each of Mr. Lubman, Mr. Nadata, Mr. Schuster and $1,500 for Mr. Durando. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: The following table sets forth, as of May 1, 1999, certain information with regard to the record and beneficial ownership of the Company's Common Stock by (i) all persons known to the Company to be beneficial owners of more than 5% of the company's outstanding Common Stock, based on filings with the Commission; (ii) each Director, (iii) the Company's Chief Executive Officer and the three other most highly compensated executive officers of the Company; and (iv) all executive officers and Directors as a group.
NAME SHARES PERCENT ------------------------------------------------------ ----------------- --------------- Paul Durando 46,502 (1) (2) * Herbert M. Gardner 62,612 (3) * Harvey R. Blau 47,075 (3) * Dominic Polimeni 6,667 (3) * Irving Lubman 320,321 (4) (5) 3.6% Arthur Nadata 591,481 (4) (5) (6) 6.5% Richard S. Schuster 584,884 (4) (5) 6.5% Dimensional Fund Advisors 497,642 (7) 5.7% Heartland Advisors 700,000 (8) 8.0% All officers and directors as a group (7 persons) 1,659,542 7.1%
NOTES: ------ (*) Less than 1% of the Company's outstanding stock. (1) Includes options exercisable within 60 days for 41,250 shares of common stock under the Company's Key Employees Stock Option Plan and the 1994 Stock Option Plan. (2) Includes 5,252 shares of fully vested common stock owned through the Employee's Stock Ownership Plan, which include voting power. (3) Includes options exercisable within 60 days for 46,667 shares of common stock for Messrs. Gardner and Blau and 6,667 shares for Mr. Polimeni under the Company's Outside Director Stock Option Plan. (4) Includes options exercisable within 60 days for 273,650 shares of common stock for Messrs. Lubman and Schuster and 286,150 shares for Mr. Nadata under the Company's Key Employees Stock Option Plan and the 1994 Stock Option Plan. (5) Includes 15,133 shares of fully vested common stock owned through the Employees Stock Ownership Plan, which include voting power. These Officers are also Trustees of the Plan. (6) Includes 45,398 shares held by his children as to which Mr. Nadata disclaims beneficial ownership. (7) 1299 Ocean Avenue, Santa Monica, CA 90401 (8) 790 Milwaukee Street, Milwaukee, WI 53202 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: Harvey R. Blau, a Director of the Company, is a member of Blau, Kramer, Wactlar & Lieberman, P.C., general counsel to the Company. For the fiscal year ended February 28, 1999, the Company paid $75,481 in legal fees to Blau, Kramer, Wactlar & Lieberman, P.C. For the fiscal year ended February 28, 1999, the Company received an aggregate $380,000 in respect of various electronic components sold to Procomponents, Inc. and PCI Manufacturing, two corporations in which Mitchell Lubman, Mr. Lubman's brother, is an officer and owns greater than ten percent equity interest. For the fiscal year ended February 28, 1999, the Company received an aggregate $412,000 in respect of various electronic components sold to Brevan Electronics, a corporation in which Stuart Schuster, Mr. Schuster's brother, is an officer and owns a greater than ten percent equity interest. 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:
Page ---- Independent Auditors' Report F-1 Consolidated Balance Sheets as of February 28, 1999 and February 28, 1998 F-2 Consolidated Statements of Income for the three years in the period ended February 28, 1999 F-3 Consolidated Statements of Changes in Shareholders' Equity for the three years in the period ended February 28, 1999 F-4 Consolidated Statements of Cash Flows for the three years in the period ended February 28, 1999 F-5 Notes to Consolidated Financial Statements F-7 Schedule II - Valuation and Qualifying Accounts and Reserves 34
(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).
PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K: (c) Exhibits (continued): EXHIBIT NUMBER DESCRIPTION - -------------------------------------------------------------------------------- 10.1 The Registrant's Key Employee Incentive Stock Option Plan, as amended (Incorporated by Reference to the Company's Registration statement on form S-8 Registration No. 33-20661). 10.2 Agreement between the Company and Trustees relating to the Company's Employee Stock Ownership Plan (Incorporated by Reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended February 28, 1987). 10.3 Note Agreement dated August 15, 1994 between the Company and Massachusetts Mutual Life Insurance Company (Incorporated by Reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1994). 10.4 1994 Stock Option Plan (Incorporated by Reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1994). 10.5 Outside Director Stock Option Plan (Incorporated by Reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1994). 10.6 Agreement dated September 22, 1995 between the Company and Paul Durando (Incorporated by Reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995). 10.7 Employment and Change of Control Agreements dated September 13, 1996, between and Company and Irving Lubman. (Incorporated by Reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10Q for the quarter ended August 31, 1996). 10.8 Employment and Change of Control Agreements dated September 13, 1996, between and Company and Arthur Nadata. (Incorporated by Reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10Q for the quarter ended August 31, 1996). 10.9 Employment and Change of Control Agreements dated September 13, 1996, between and Company and Richard Schuster. (Incorporated by Reference to Exhibit 10.17 to the Company's Quarterly Report on Form 10Q for the quarter ended August 31, 1996). 10.10 Revolving Credit Agreement dated May 23, 1997, between the Company and two banks, Mellon Bank, N.A. and KeyBank National Association (incorporated by reference to Exhibit 10.18 to Form 10-K for the year ended February 28, 1997). 10.11 Indemnity Agreements Dated May 23, 1997 between the Company and Messrs. Blau, Durando, Gardner, Lubman, Nadata and Schuster (incorporated by reference to Exhibit 10.19 to Form 10-Q for the quarter ended May 31, 1997) PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K: (d) Exhibits (continued): EXHIBIT NUMBER DESCRIPTION ---------------------------------------------------------------------------- 10.12 First Amendment to Resolving Credit Agreement Dated May 23, 1997, between the Company and two banks, Mellon Bank, N.A. and Key Bank National Association. (Incorporated by reference to Exhibit 10.20 to From 10-Q for the quarter ended May 31, 1997) 10.13 Second Amendment to Revolving Credit Agreement Dated May 23, 1997, between the Company and two banks, Mellon Bank, N.A. and Key Bank National Association. (Incorporated by reference to Exhibit 10.20 to Form 10-Q for the quarter ended May 31, 1997) 11. Computation of Per Share Earnings 22. The following is a list of the Company's subsidiaries: State of Name Incorporation ------------------------------------- ----------------- NIC Components Corp. New York NIC Eurotech Limited United Kingdom Nu Horizons International Corp. New York Nu Visions Manufacturing, Inc. Massachusetts Nu Horizons/Merit Electronics Corp. Delaware Nu Horizons Eurotech Limited United Kingdom Titan Logistics Corp. New York 23. Accountant's Consent 27. Financial Data Schedule 99. Additional Exhibit 23. Accountant's Consent -------------------- We consent to the incorporation by reference in Registration Statement numbers 33-11032, 33-20661, 33-88952 and 33-88958 on Form S-8 of our opinion dated May 17, 1999 on the consolidated financial statements of Nu Horizons Electronics Corp. and subsidiaries included in the Corporation's annual report on Form 10-K for the fiscal year ended February 28, 1999. /s/ LAZAR LEVINE & FELIX LLP ---------------------------- LAZAR LEVINE & FELIX LLP Certified Public Accountants New York, New York May 26, 1999 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. 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. SCHEDULE II NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Three Years Ended February 28, 1999
Balance at Additions Beginning charged to costs Balance at end Description of period and expenses Deductions (A) of period ----------- --------- ------------ ------------- --------- Valuation account deducted in the balance sheet from the asset to which it applies: Allowance for doubtful accounts- accounts receivable 1999 $2,362,722 $762,500 $494,238 $2,630,984 =============== ================= ================= ================ 1998 $2,192,079 $315,000 $144,357 $2,362,722 =============== ================= ================= ================ 1997 $1,509,802 $701,500 $ 19,223 $2,192,079 =============== ================= ================= ================ (A) Accounts written off.
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, 1999 -------------------------- Chief Operating Officer Irving Lubman By: /s/ ARTHUR NADATA President, Chief Executive May 26, 1999 -------------------------- Officer and Director Arthur Nadata By: /s/ RICHARD SCHUSTER Vice President, Secretary May 26, 1999 -------------------------- and Director Richard Schuster By: /s/ PAUL DURANDO Vice President, Finance, May 26, 1999 -------------------------- Treasurer and Director Paul Durando By: /s/ HARVEY R. BLAU Director May 26, 1999 -------------------------- Harvey R. Blau By: /s/ HERBERT M. GARDNER Director May 26, 1999 -------------------------- Herbert M. Gardner By: /s/ DOMINIC A. POLIMENI Director May 26, 1999 -------------------------- Dominic A. Polimeni
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- EXHIBIT INDEX to FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------- NU HORIZONS ELECTONICS CORP. (Exact Name of Registrant as Specified in Its Charter) EXHIBIT NUMBER DESCRIPTION - ----------------------------------------------------------------------------- 11 Computation of Per Share Earnings 27A Financial Data Schedule EX-11 2 COMPUTATION OF PER SHARE EARNINGS NU HORIZONS ELECTRONICS CORP. EXHIBIT 11 COMPUTATION OF EARNINGS PER COMMON SHARE ---------------------------------------- (Unaudited)
FOR THE YEAR ENDED ------------------ FEBRUARY FEBRUARY FEBRUARY 28, 1999 28, 1998 28, 1997 -------------------- --------------------- ------------------- BASIC EARNINGS: - --------------- NET INCOME $ 4,544,831 $ 5,297,991 $ 7,073,560 ==================== ===================== =================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 8,753,076 8,753,076 8,732,299 -------------------- --------------------- ------------------- BASIC EARNINGS PER COMMON SHARE $ .52 $ .61 $ .81 =========== =========== =========== DILUTED EARNINGS: - ----------------- Net Income $ 4,544,831 $ 5,297,991 $ 7,073,560 Net (after tax) interest expense related to convertible debt 340,000 340,000 359,289 -------------------- --------------------- ------------------- NET INCOME AS ADJUSTED $ 4,884,831 $ 5,637,991 $ 7,432,849 ==================== ===================== =================== SHARES: Weighted average number of common shares outstanding 8,753,076 8,753,076 8,732,299 Stock options 1,734,450 1,361,450 1,302,227 Assuming Conversion of convertible Debt 784,333 784,333 784,333 -------------------- --------------------- ------------------- Weighted average number of common Shares outstanding as adjusted 11,271,859 10,898,859 10,818,859 ==================== ===================== =================== DILUTED EARNINGS PER COMMON SHARE $ .43 $ .52 $ .69 =========== =========== ===========
EX-27 3 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED FEBRUARY 28, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. YEAR FEB-28-1999 MAR-01-1998 FEB-28-1999 504,320 0 44,551,387 2,630,984 45,113,894 89,893,872 13,512,990 6,382,196 99,758,895 21,043,975 22,377,852 57,770 0 0 56,279,298 99,758,895 253,872,325 253,872,325 198,836,003 198,836,003 0 762,500 2,243,161 7,624,158 3,079,327 4,544,831 0 0 0 4,544,831 .52 .43
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