ITEM 1. BUSINESS
GENERAL:
Except for historical information contained herein, the matters set forth herein are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ from those in the forward-looking statements. Potential risks and uncertainties include such factors as the level of business and consumer spending for electronic products, the amount of sales of the Company's products, the competitive environment within the electronics industry, the ability of the Company to continue to expand its operations, the level of costs incurred in connection with the Company's expansion efforts, the economic conditions in the semiconductor industry and the financial strength of the Company's customers and suppliers. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission.
Nu Horizons Electronics Corp. (the "Company") and its wholly- owned subsidiaries, NIC Components Corp. ("NIC") , Titan Logistics Corp. ("Titan"), Nu Horizons Eurotech Ltd. ("NUE"), Nu Horizons Asia PTE. LTD.("NUA"), and its majority owned subsidiaries NIC Components Asia PTE. LTD.("NIA") 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, a majority owned subsidiary of the Company, is a contract assembler of circuit boards and related electromechanical devices for various original equipment manufacturers or OEMs. All references herein to the Company shall, unless the context otherwise requires, be deemed to refer to the Company and its subsidiaries.
Active components distributed by the Company, principally to 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 the bulk of its 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, Pericom, ST Microelectronics, Sun Microsystems, TDK Semiconductor and Xilinx among others.
The Company's franchise agreements authorize it to sell all or part of the product line of a manufacturer on a non-exclusive basis. Under these agreements, each manufacturer will generally 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 $3,000,000 of automated circuit board assembly equipment and in fiscal 1999 expanded the size of Nu Vision's facility to 45,000 square feet in anticipation of continued growth.
Sales and Marketing:
Management's strategy for long-term success has been to focus the Company's sales and marketing efforts towards the following industry segments, both domestically and abroad: industrial, telecom/datacom, medical instrumentation, microwave and RF, fiberoptic, consumer electronics, security and protection devices, office equipment, computers and computer peripherals, factory automation and robotics. In order to help achieve these goals, the Company may enter into new franchise agreements for a broad base of commodity semiconductor products including those used in the key niche industries referred to above.
As of February 28, 2001, the Company had approximately 15,000 customers. All sales are made through customers' purchase orders. Semiconductors are sold primarily via telephone by the Company's in- house staff of approximately 100 salespersons, and by a field sales force of approximately 120 salespersons. The Company maintains branch sales facilities located as follows:
EAST COAST ----------
Massachusetts - Boston New York - Melville (Long Island) and Rochester New Jersey - Mt. Laurel (Philadelphia) and Pine Brook Ohio - Cleveland Maryland - Columbia North Carolina - Raleigh Georgia - Atlanta Alabama - Huntsville Florida - Ft. Lauderdale, Orlando and Tampa
MIDWEST WEST COAST ------- ----------
Arizona - Phoenix California - Irvine, Los Angeles, Sacramento, Colorado - Denver San Diego and San Jose Illinois - Chicago Oregon - Portland Minnesota - Minneapolis Washington - Redmond Texas - Austin and Dallas
CANADA ------
Montreal Ottowa Toronto
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 3% of the Company's consolidated sales for the year ended February 28, 2001. 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, 2001, there were three manufacturers that represented more than 10% of the Company's inventory on a consolidated basis. Those suppliers accounted for approximately $57,621,648 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, 2001, the Company purchased inventory from two suppliers that was in excess of 10% of the Company's total purchases. Purchases from these suppliers were approximately $86,317,000 and $86,997,000 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 a 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, 2001, the Company's backlog was approximately $46,973,000 as compared to a backlog of approximately $89,655,000 at May 1, 2000.
Employees:
As of February 28, 2001, the Company employed approximately 736 persons: 12 in management, 350 in sales and sales support, 34 in product and purchasing, 19 in accounting and finance, 21 in MIS, 31 in operations, 209 in manufacturing, and 60 in quality control, shipping, receiving and warehousing. The Company believes that its employee relations are satisfactory.
ITEM 2.
ITEM 2. PROPERTIES
In December 1996, the Company leased an approximately 80,000 square foot facility in Melville, Long Island, New York to serve as its executive offices and main distribution center. The lease term is from December 17, 1996, to December 16, 2008 at an annual base rental of $601,290 and provides for a 4% annual escalation in each of the last ten years of the term.
The Company leases approximately 45,000 square feet of manufacturing and office space in Springfield, Massachusetts for its Nu Visions subsidiary. The lease term is from June 15, 1998 to June 15, 2008 at an annual base rental of $244,260, subject to annual consumer price index increases not to exceed 2% annually.
ITEM 2. PROPERTIES (Continued):
On May 1, 1996, the Company leased approximately 25,000 square feet of warehouse and office space for its San Jose, California operation. This facility serves as the Company's West Coast regional sales and distribution headquarters. The lease term is from May 1, 2001 to April 30, 2006 at an annual base rental of $540,000.
On August 1, 2000, the Company leased approximately 10,000 square feet of office space in Melville, Long Island, New York to serve as the executive offices of it's NIC Components subsidiary. The lease term is from April 1, 2001 to December 31, 2008 at an annual base rental of $285,700 and provides for a 4% annual escalation in each subsequent year of the lease.
The Company also leases space for thirty two (32) branch sales offices which range in size from 1,000 square feet to 7,500 square feet, with lease terms that expire between June 2001 and June 2008. Annual base rentals range from $20,400 to $199,400 with aggregate base rentals approximating $1,680,000. The Company believes it can obtain extensions of the leases scheduled to expire in June 2001 on substantially similar terms to those currently in effect.
ITEM 3.
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.
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, 2001 to a vote of security holders through the solicitation of proxies or otherwise.
PART II.
ITEM 5.
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 adjusted for a 5% stock dividend declared on September 23, 1999 and a 3-for-2 stock split declared on September 11, 2000, as reported by the NASDAQ National Market System.
b) As of May 1, 2001, the Company's common stock was owned by approximately 400 holders of record and 9,500 beneficial holders.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS: (Continued)
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.
ITEM 6. SELECTED FINANCIAL DATA:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Introduction:
Nu Horizons Electronics Corp. (the "Company") and its wholly-owned subsidiaries, NIC Components Corp. ("NIC"), Nu Horizons Eurotech Limited ("NUE"), Nu Horizons Asia PTE.LTD. ("NUA"), Titan Logistics Corp. ("TITAN") and Nu Horizons International Electronics Corp. ("International") and its majority owned subsidiaries NIC Components Asia PTE.LTD. ("NIA") and NIC Eurotech Limited ("NIE") 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, a majority owned subsidiary of the Company, is a contract assembler of circuit boards, harnesses and related electromechanical devices for various OEMs.
The financial information presented herein includes: (i) Balance sheets as of February 28, 2001, and February 29, 2000; (ii) Statements of income for the twelve month periods ended February 28, 2001, February 29, 2000 and February 28, 1999; (iii) Statements of cash flows for the twelve month periods ended February 28, 2001, February 29, 2000 and February 28, 1999; and (iv) Consolidated changes in shareholders' equity for the twelve month periods ended February 28, 2001, February 29, 2000 and February 28, 1999.
Results of Operations:
Fiscal Year 2001 versus 2000
Net sales for the year ended February 28, 2001 aggregated $670,628,953 as compared to $379,238,562 for the year ended February 29, 2000, an increase of approximately 77%. Management attributes this increase in sales for the period to the core semiconductor and passive component distribution business, which experienced substantially increased demand. Management believes that the ability to generate greater market penetration to a larger account base coupled with an increased focus on fewer product lines, has contributed to the substantial increase in sales performance. Toward the latter part of the fourth quarter we and the market-place overall began to experience a significant decline in demand for electronic components. This reduced demand has continued to evidence itself in the first quarter of Fiscal 2002. Management believes and expects that the current slowdown will extend at least through the first half of Fiscal 2002. As a result, we expect revenues to continue to soften significantly through the first half of Fiscal 2002.
Gross profit margin as a percentage of net sales was 22.1% for the year ended February 28, 2001 as compared to 20.9% for the year ended February 29, 2000. This increase in gross margin percentage compared to the prior period resulted from a tightened inventory availability at the supplier level coupled with continued strong customer demand through the third quarter. The Company expects relative margin stability at current levels for the foreseeable future, however, no assurances can be given in this regard.
Operating expenses increased by $24,866,957 to $80,899,482 for the year ended February 28, 2001 from $56,032,525 for the year ended February 29, 2000, an increase of approximately 44%. The dollar increase in operating expenses was due to increases in the following expense categories: Approximately $16,889,000 or approximately 67% of the increases were for personnel related costs -commissions, salaries, travel and fringe benefits. The remaining increase of approximately $7,978,000 or approximately 32% of the total increment is a result of increases in various other operating expenses including, but not limited to, freight out, rent, telephone, computer expenses and various general and administrative expenses. While operating expenses, expressed in dollars, for Fiscal 2001 increased approximately 44% over Fiscal 2000, those same expenses, as a percentage of sales dollars, decreased from 14.8% for the prior year to 12.1% for the current fiscal year. Management is encouraged by the fact that sales volume increased at a greater rate than operating expenses, which it believes provided the economies of scale that were required to produce an enhanced bottom line performance. Management believes that this trend may not continue through the next fiscal year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued):
Fiscal Year 2001 versus 2000 (continued)
Interest expense increased by $2,722,201 from $2,837,646 for the year ended February 29, 2000 to $5,559,847 for the year ended February 28, 2001. This increase was primarily due to the higher average levels of bank debt during the year resulting from an increase in the Company's inventories and accounts receivable levels needed to support increased sales activity coupled with higher interest rates overall.
INTEREST COSTS FOR THE FISCAL YEAR ENDED
February February 28, 2001 29, 2000 ----------------------------
Revolving Bank Credit $5,559,847 $2,277,282 Sub. Convert. Notes 0 560,364 ---------------------------- Total Interest Expense $5,559,847 $2,837,646 ============================
Net income for the year ended February 28, 2001 was $35,352,085 or $1.99 per share diluted, as compared to $11,698,786 or $.67 per share diluted, for the year ended February 29, 2000. Management attributes the increase in earnings to increased sales volume net of higher operating expenses for the year ended in 2001 as compared to 2000.
Results of Operations:
Fiscal Year 2000 versus 1999
Net sales for the year ended February 29, 2000 aggregated $379,238,562 as compared to $253,872,325 for the year ended February 28, 1999, an increase of approximately 50%. Management attributes this increase in sales for the period entirely to the core semiconductor distribution business which experienced substantially increase demand. Management believes that the ability to generate greater market penetration to a larger account base coupled with an increased focus on fewer product lines, contributed to the substantial increase in sales performance.
Gross profit margin as a percentage of net sales was 20.9% for the year ended February 29, 2000 as compared to 21.7% for the year ended February 28, 1999. This decrease in gross margin percentage compared to the prior period is due to a greater percentage of larger orders from larger customers, which require a lower gross margin marketing approach on that business, thereby decreasing margins overall.
Operating expenses increased by $10,861,919 to $56,032,525 for the year ended February 29, 2000 from $45,170,606 for the year ended February 28, 1999, an increase of approximately 24%. The dollar increase in operating expenses was due to increases in the following expense categories: Approximately $8,725,000 or approximately 80% of the increases were for personnel related costs-commissions, salaries, travel and fringe benefits. The remaining increase of approximately $2,137,000 or approximately 20% of the total increment is a result of increases in various other operating expenses including, but not limited to, freight out, rent, telephone, computer expenses and various general and administrative expenses. While operating expenses, expressed in dollars, for Fiscal 2000 increased approximately 24% over the Fiscal 1999 period those same expenses, as a percentage of sales dollars, decreased from 17.8% for the prior year to 14.8% for the current fiscal year.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued):
Fiscal Year 2000 versus 1999 (continued)
Interest expense increased by $594,485 from $2,243,161 for the year ended February 28, 1999 to $2,837,646 for the year ended February 29, 2000. This increase was primarily due to the higher average levels of bank debt during the year resulting from an increase in the Company's inventories and accounts receivable levels needed to support increased sales activity.
INTEREST COSTS FOR THE FISCAL YEAR ENDED
February February 29, 2000 28, 1999 ----------------------------
Revolving Bank Credit $2,277,282 $1,660,794 Sub. Convert. Notes 560,364 582,367 ---------------------------- Total Interest Expense $2,837,646 $2,243,161 ============================
Net income for the year ended February 29, 2000 was $11,698,786 or $.67 per share diluted, as compared to $4,544,831 or $.29 per share diluted, for the year ended February 28, 1999. Management attributes the increase in earnings to increased sales volume net of higher operating expenses for the year ended in 2000 as compared to 1999.
Liquidity and Capital Resources:
Fiscal Year 2001 versus 2000
The Company ended its 2001 fiscal year with working capital and cash aggregating approximately $197,900,000 and $558,000, respectively at February 28, 2001 as compared to approximately $104,049,000 and $1,497,000 respectively, at February 29, 2000. The Company's current ratio at February 28, 2001, was 5.9:1. The Company believes that its financial position at February 28, 2001, will enable it to take advantage of any new opportunities that may arise.
On October 18, 2000, the Company entered into a new unsecured revolving line of credit, which currently provides for maximum borrowings of $120,000,000 through October 18, 2004 with six banks at either (i) the lead bank's prime rate or (ii) LIBOR plus 87.5 to 147.5 basis points depending on the ratio of the Company's debt to its earnings before interest, taxes, depreciation and amortization, at the option of the Company through October 18, 2004. At February 28, 2001, $85,000,000 was outstanding under this line of credit as compared to $37,800,000 at February 29, 2000. The Company does not expect a fluctuation in interest rates to have a material effect on its financial results.
In a private placement completed on August 31, 1994, the Company issued $15 million principal amount of Subordinated Convertible Notes, which were due in $5,000,000 increments on August 31, 2000, 2001 and 2002. The notes were subordinate in right of payment to all existing and future senior indebtedness of the Company. The notes bore interest at 8.25%, payable quarterly on November 15, February 15, May 15 and August 15. The notes were convertible into shares of common stock at a conversion price of $9.00 per share. The cost of issuing these notes was $521,565 and was amortized over three years. As of February 29, 2000, all of the notes had been converted into 1,705,883 shares of common stock.
The Company anticipates that its resources provided by its cash flow from operations and its bank lines of credit will be sufficient to meet its financing requirements for at least the next twelve-month period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued):
Inflationary Impact:
Since the inception of operations, inflation has not significantly affected the operating results of the Company. However, inflation and changing interest rates have had a significant effect on the economy in general and therefore could affect the operating results of the Company in the future.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
To The Board of Directors and Shareholders Nu Horizons Electronics Corp. Melville, New York
We have audited the accompanying consolidated balance sheets of Nu Horizons Electronics Corp. and subsidiaries as of February 28, 2001 and February 29, 2000, and the consolidated statements of income, changes in shareholders' equity and cash flows for the three years in the period ended February 28, 2001. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, referred to above, present fairly in all material respects, the financial position of Nu Horizons Electronics Corp. and subsidiaries at February 28, 2001 and February 29, 2000, and the results of their operations and their cash flows for each of the three years in the period ended February 28, 2001 in conformity with accounting principles generally accepted in the United States of America.
/s/ LAZAR LEVINE & FELIX LLP ---------------------------- LAZAR LEVINE & FELIX LLP
New York, New York May 7, 2001
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED BALANCE SHEETS ---------------------------
See notes to consolidated financial statements
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME ---------------------------------
See notes to consolidated financial statements
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ----------------------------------------------------------
See notes to consolidated financial statements
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
See notes to consolidated financial statements
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) -------------------------------------------------
See notes to consolidated financial statements
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 2001 -----------------------------------
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.
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 International Corp. ("International"), Nu Horizons Eurotech ("NUE"), Nu Horizons Asia PTE.LTD. ("NUA"), and Titan Logistics Corp. ("Titan") and its majority owned subsidiaries, NIC Eurotech Limited ("NIE"), NIC Components Asia PTE. LTD. ("NIA") and NuVisions Manufacturing Inc. ("NUV"). All material intercompany balances and transactions have been eliminated.
b. Use of Estimates:
In preparing financial statements, in accordance with accounting principles generally accepted in the United States of America, 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. 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.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 2001 -----------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
e. Inventories:
Inventories, which consist primarily of goods held for resale, are stated at the lower of cost (first-in, first-out method) or market.
f. 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.
g. Goodwill:
Costs in excess of net assets acquired are being amortized on a straight- line basis over fifteen years. As of February 28, 2001 and February 29, 2000, accumulated amortization of goodwill aggregated $1,072,314 and $915,390 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. 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, 2001 approximates $3,200,000.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 2001 -----------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
i. Revenue Recognition/Shipping and Handling Costs:
Revenue is recognized when products are shipped to customers. Amounts related to shipping and handling that are billed to customers as part of sales transactions are reflected as a reduction of operating expenses and aggregated $279,181, $203,819 and $123,497 for each of the three years in the period ended February 28, 2001. Shipping and handling costs incurred by the Company, are included in costs of sales and aggregated $2,454,242, $1,313,014 and $1,158,329 for the three years ended February 28, 2001.
j. 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, 2001, such costs aggregated $1,295,465, $662,646 and $909,156, respectively.
k. Earnings Per Common Share:
Basic and diluted earnings per share have been computed in accordance with the adoption of SFAS No. 128.
The following average shares were used for the computation of basic and diluted earnings per share:
2001 2000 1999 -------------- ------------- -------------
Basic 16,213,084 13,511,345 13,786,095 Diluted 17,746,075 17,547,789 17,753,178
The number of average shares for each period has been adjusted to reflect the 3-for-2 stock split in October, 2000.
l. Stock-Based Compensation:
The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, in accounting for employee stock options. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Compensation expense related to stock options granted to non-employees is accounted for under Statement of Financial Accounting Standards (SFAS) No. 123 "Accounting for Stock Based Compensation", whereby compensation expense is recognized over the vesting period based on the fair value of the options on the date of grant.
In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" (FIN 44). FIN 44 provides guidance for issues arising in applying APB Opinion No. 25. FIN 44 applies specifically to new awards, exchanges of awards in a business combination, modification to outstanding awards, and changes in grantee status that occur on or after July 1, 2000, except for the provisions related to repricings and the definition of an employee which apply to awards issued after December 15, 1998. Application of FIN 44 did not have a material effect on the Company's financial reporting.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 2001 -----------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
m. Foreign Currency Translation:
Assets and liabilities of the Company's foreign subsidiaries are translated at current exchange rates, while income and expense are translated at average rates for the period. Translation gains and losses are reported as a component of accumulated other comprehensive income on the statement of shareholders' equity in accordance with SFAS No. 130.
n. Reclassifications:
Certain prior years information has been reclassified to conform to the current year's reporting presentation.
o. New Accounting Pronouncements:
SFAS No. 131 established new standards for determining operating segments and disclosure requirements for those segments, products, geographic areas, and major customers. The Company has adopted these new standards.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." (SAB No. 101). SAB No. 101 expresses the views of the SEC staff in applying generally accepted accounting principles to certain revenue recognition issues. Subsequently, SAB Nos. 101A and 101B were issued delaying the implementation of SAB No. 101 to the fourth quarter of 2001. The SAB requires companies to report any changes in revenue recognition as a cumulative change in accounting principle at the time of implementation in accordance with Accounting Principles Board ("APB") Opinion 20, `Accounting Changes". The Company does not believe that the adoption of SAB No. 101 will have a material impact on the Company's financial position or results of operations.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment which is reflected at cost, consists of the following:
Depreciation expense for the years ended February 28, 2001, February 29, 2000 and February 28, 1999 aggregated $1,911,654, $1,503,421 and $1,260,585, respectively.
4. OTHER ASSETS:
Other assets consists of the following:
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 2001 -----------------------------------
5. REVOLVING CREDIT LINE:
On October 18, 2000, the Company entered into a new unsecured revolving line of credit with six banks, which currently provides for maximum borrowings of $120,000,000 at either (i) the lead bank's prime rate or (ii) LIBOR plus 87.5 to 147.5 basis points depending on the ratio of the Company's debt to its earnings before interest, taxes, depreciation and amortization, at the option of the Company, through October 18, 2004. Direct borrowings under lines of credit were $85,000,000 and $37,800,000 at February 28, 2001 and February 29, 2000, respectively. As of the end of the fiscal years, the Company had met all of the required covenants.
6. CAPITAL STOCK AND STOCK OPTIONS:
On September 13, 2000, the Company's Board of Directors declared a three- for -two stock split of the Company's common stock, to be distributed on October 23, 2000 to all holders of record at the close of business on October 2, 2000. As a result of the stock split, 5,437,364 shares were distributed. All shares and per share data for all periods presented have been restated to reflect this stock split.
On September 23, 1999, the Board of Directors approved a 5% stock dividend payable on November 4, 1999 to shareholders of record on November 19, 1999. As a result of the stock dividend, 437,638 shares were distributed, common stock was increased by $2,888, additional paid in capital was increased by $ 3,334,102 and retained earnings was decreased by $3,336,990.
Stock options granted to date under the Company's 1994 Stock Option Plan generally expire five years after date of grant and become exercisable in four equal annual installments, respectively, commencing one year from date of grant. Stock options granted to date under each of the Company's 1998 and 2000 Stock Option Plans generally expire ten years after the date of grant and become exercisable in two equal annual installments commencing one year from date of grant. To date, no options have been granted under the Company's 2000 Key Employee Stock Option Plan. Stock options granted under the Company's Outside Director Stock Option Plan and 2000 Outside Directors' 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.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 2001 -----------------------------------
6. CAPITAL STOCK AND STOCK OPTIONS (Continued):
A summary of options granted and related information for the three years ended February 28, 2001 is as follows:
Exercise prices for options outstanding as of February 28, 2001 ranged from $2.93 to $18.33. The weighted-average remaining contractual life of these options is approximately 5 years. Outstanding options at February 28, 2001 are held by 70 individuals.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 29, 2000 (CONTINUED) -----------------------------------------------
6. CAPITAL STOCK AND STOCK OPTIONS (Continued):
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:
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 2001, 2000 and 1999, respectively: expected volatility of 49.8%, 51.7%, and 45.3%, respectively; risk free interest rate of 5.5%, 5.9%, and 6.0% for 2001, 2000 and 1999, respectively; and expected lives of 1 to 10 years.
The effects of applying SFAS 123 in the above pro forma disclosures are not indicative of future amounts, as they are likely to be affected by the number of grants awarded since additional awards are generally expected to be made at varying amounts.
7. MINORITY INTEREST IN SUBSIDIARY:
Represents the liability related to the 30% minority interest in NIC Components Asia PTE.LTD., the 20% minority interest in NIC Eurotech Limited and the 5% minority interest in NuVisions Manufacturing Inc.
8. INCOME TAXES:
The provision for income taxes is comprised of the following:
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 2001 -----------------------------------
8. INCOME TAXES (Continued):
The tax benefits associated with the disqualifying disposition of stock acquired with incentive stock options reduced taxes currently payable as shown above by $5,068,745 for 2001. Such benefits are credited to additional paid-in capital.
The components of the net deferred income tax liability, pursuant to SFAS 109, are as follows:
The following is a reconciliation of the maximum statutory federal tax rate to the Company's effective tax rate:
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, 2001 aggregated $340,464 for 2001, $340,456 for 2000 and $250,197 for 1999. At February 28, 2001 the ESOP owned 602,130 shares of the Company's common stock at an average price of approximately $2.40 per share.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 2001 -----------------------------------
9. EMPLOYEE BENEFIT PLANS (Continued):
On October 28, 1999, the Company, on behalf of the ESOP, entered into an additional credit agreement with a bank, which provides for a $3,000,000 revolving line of credit at the bank's prime rate until October 28, 2003. Direct borrowings under this line of credit are payable in forty-eight equal monthly installments commencing with the fiscal period subsequent to such borrowings. At February 28, 2001, 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, 2001 were $117,968, $115,401 and $114,216, respectively.
10. COMMITMENTS:
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 specified 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.
In December 1996, the Company leased an approximately 80,000 square foot facility in Melville, Long Island, New York to serve as its executive offices and main distribution center. In mid- 1997, the Company moved its executive offices and distribution operation to the facility. The lease term is from December 17, 1996 to December 16, 2008 at an annual base rental of $601,290 and provides for a 4% annual escalation in each of the last ten years of the term. The Company also leases certain other office, warehouse and other properties which leases include various escalation clauses, renewal options, and other provisions. Aggregate minimum rental commitments under noncancelable operating leases are as follows:
Fiscal 2002 $3,206,281 Fiscal 2003 3,030,174 Fiscal 2004 2,844,794 Fiscal 2005 2,624,201 Fiscal 2006 1,633,366 Thereafter 3,399,091
Rent expense was $2,464,878, $2,175,834, and $1,837,330 for each of the prior three years in the period ending February 28, 2001.
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 28, 2001 -----------------------------------
11. MAJOR SUPPLIERS:
For the year ended February 28, 2001, the Company purchased inventory from two suppliers that was in excess of 10% of the Company's total purchases. Purchases from these suppliers were approximately $86,997,000 and $86,317,000 for the fiscal year.
For the year ended February 29, 2000 the Company purchased inventory from two suppliers that was in excess of 10% of the Company's total purchases. Purchases from these suppliers were approximately $49,816,000 and $57,230,000 for the fiscal year.
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.
12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION:
The Company's operations have been classified into two business segments in accordance with SFAS 131 "Disclosure About Segments of on Enterprise and Related Information": Electronic component distribution and industrial contract manufacturing. The component distribution segment includes the resale of active and passive components to various original equipment manufacturers and distributors. The industrial contract-manufacturing segment consists of a subsidiary, which provides electronic circuit board and harness assembly services to original equipment manufacturers. This segment began operations in September 1991.
Summarized financial information by business segment for fiscal 2001, 2000 and 1999 is as follows:
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NU HORIZONS ELECTRONICS CORP. AND SUBSIDIARIES ---------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ THREE YEARS ENDED FEBRUARY 29, 2000 (CONTINUED) -----------------------------------------------
12. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (Continued):
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, 2001, is not considered material to the financial statements.
14. SELECTED QUARTERLY FINANCIAL DATA (Unaudited):
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REPORT OF MANAGEMENT
The management of Nu Horizons Electronics Corp. is responsible for the preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America 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
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ITEM 9.
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, 2001.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY:
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 2003) Stockholders in 2001) Stockholders in 2002) --------------------- --------------------- --------------------- Paul Durando Harvey Blau (1) Irving Lubman Herbert Gardner (1) Dominic A. Polimeni (1) Arthur Nadata David Siegel 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 LLC., investment bankers and Underwriter of the Company's May 1984 public offering. Mr. Gardner is Chairman of the Board of Supreme Industries Inc. and a director of Transmedia Network, Inc., TGC Industries Inc., Hirsch International Corp., Co-Active Marketing Group, Inc. and Rumson-Fair Haven Bank and Trust Company.
Dominic A. Polimeni has been a Director of the Company since September 1997. Mr. Polimeni is Chairman and Chief Executive Officer of Questron Technology, Inc. and has over 25 years experience in the distribution and Inventory Logistics Management ("ILM") businesses. 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. (over $12.9 billion in sales in 2000) from 1986 to 1991 and has been responsible for evaluating and negotiating over 50 acquisitions of distribution and ILM businesses. He also held several other positions, including general management positions, with Arrow over an eight year period. Mr. Polimeni began his career as a certified public accountant, becoming a partner in the New York office of Arthur Young & Company.
David Siegel has been a director since June 2000. For more than the past five years Mr. Siegel has been a Vice President and director of Great American Electronics, a distribution company, which he founded. Mr. Siegel is also a director of Kent Electronics Corp., Micronetics Corp. and Surge Components Corp. Mr. Siegel previously served on our Board of Directors from September 1991 to October 1996.
ITEM 11.
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, 2001, February 29, 2000 and February 28, 1999.
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE - Footnotes
(1) No other annual compensation is shown because the amounts of perquisites and other non-cash benefits provided by the Company do not exceed the lesser of $50,000 or 10% of the total annual base salary and bonus disclosed in this table for the respective officer.
(2) Number of shares have been adjusted to reflect the Company's 3-for-2 stock split in October 2000.
(3) 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, 2001.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
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. Options Granted and Exercise Price have been adjusted for a 3- for-2 stock split declared in September, 2000 and paid on October 23, 2000.
(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 $17.45 per share and 10% results in a price of $27.78 per share for on the shares granted at $10.71. 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, 2001 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
(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 $3,000 for Board Membership and $500 for each Board of Directors or Committee meeting attended. There were seven meetings of the Board of Directors and two meetings of the Compensation Committee during the fiscal year ended February 28, 2001. Three directors attended or participated in all of the meetings of the Board of Directors, four directors attended six meetings and one director attended five. All three directors, who are members of the compensation committee, attended or participated in all of the meetings of the Compensation Committee.
For the fiscal year ended February 28, 2001, 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 2001, 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 2001 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 2001 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 2001, 15,000 options were granted to each outside director under the Company's 2000 Outside Directors' Stock Option Plan. Options to purchase 112,500 shares were granted to Mr. Nadata, 82,500 shares were granted to Mr. Lubman, 97,500 shares to Mr. Schuster and 15,000 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 2001.
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, 1996 to February 28, 2001) 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 CUMULATIVE TOTAL RETURN AMONG NU-HORIZONS ELECTRONICS CORP., NASDAQ MARKET INDEX AND PEER GROUP INDEX
ASSUMES $100 INVESTED ON MARCH 1, 1996 ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING FEBRUARY 28, 2001
Peer group includes All American Semiconductor, Arrow Electronics Inc., Avnet Inc., Bell Microproducts Inc., Jaco Electronics Inc., Kent Electronics Corp., Pioneer Standard Electronics and Reptron Electronics Inc.
EXECUTIVE COMPENSATION (Continued):
1994 Stock Option Plan:
In September 1994, the Company's stockholders approved the 1994 Stock Option Plan (the "1994 Plan"), as amended in September 1996, under which key employees and officers of the Company, its subsidiaries and affiliates may be granted options to purchase an aggregate of 1,732,500 shares of the Company's Common Stock, as adjusted for a 5% stock dividend and a three for two stock split. 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 2001, 434,250 options were granted under the 1994 Plan with an exercise price of $10.71. Options are currently outstanding for 629,982 shares and no options are currently available for grant.
The Compensation Committee of the Board of Directors has the responsibility and authority to administer and interpret the provisions of the 1994 Plan. The Compensation Committee shall appropriately adjust the number of shares for which awards may be granted pursuant to the 1994 Plan in the event of reorganization, recapitalization, stock split, reverse stock split, stock dividend, exchange or combination of shares, merger, consolidation, rights offering or any change in capitalization. The Board may, from time to time, amend, suspend or terminate any or all of the provisions of the 1994 Plan, provided that, without the participant's approval, no change may be made which would prevent an ISO granted under the 1994 Plan from qualifying as an ISO under Section 422A of the Internal Revenue Code of 1986, as amended (the "Code") or results in a modification of the ISO under Section 425(h) of the Code or otherwise alter or impair any right theretofore granted to any participant; and further provided that, without the consent and approval of the holders of a majority of the outstanding shares of Common Stock of the Company present at that meeting at which a quorum exists, neither the Board nor the Committee may make any amendment which (i) changes the class of persons eligible for options; (ii) increases (except as provided under Section 1.6 of the 1994 Plan) the total number of shares or other securities reserved for issuance under the 1994 Plan; (iii) decreases the minimum option prices stated in Section 2.2 of the 1994 (other than to change the manner of determining Fair Market Value to conform to any then applicable provision of the Code or any regulation thereunder); (iv) extends the expiration date of the 1994 Plan, or the limit on the maximum term of options; or (v) withdraws the administration of the 1994 Plan from a committee consisting of two or more members, each of whom is a Disinterested Person. With the consent of the Participant affected thereby, the Committee may amend or modify any outstanding option in any manner not inconsistent with the terms of the 1994 Plan.
ITEM 11. EXECUTIVE COMPENSATION (Continued):
1998 Stock Option Plan:
In May 1998, the Board of Directors adopted the Nu Horizons Electronics Corp. 1998 Stock Option Plan (the "1998 Option Plan"), as amended, under which any director, officer, employee or consultant of the Company, a subsidiary or an affiliate may be granted options to purchase an aggregate 1,653,750 shares of the Company's Common Stock, as adjusted for a 5% dividend and a three for two stock split. The 1998 Option Plan may be administered by the Board of Directors of the Company or by a committee consisting of two or more non-employee Directors, as defined by Rule 16b 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 also, subject to the express provisions of the 1998 Option Plan, has 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 2001, 7,500 options were granted under the 1998 Option Plan with an exercise price of $8.83. Options are currently outstanding for 1,344,397 shares and 32,409 options are currently available for grant.
2000 Stock Option Plan:
In July 2000, the Board of Directors adopted the Nu Horizons Electronics Corp. 2000 Stock Option Plan, under which any of the Company's employees or consultants, or those of its subsidiaries or affiliates, may be granted options to purchase an aggregate 300,000 shares of our common stock, as adjusted for a three for two stock split. The Company's executive officers and directors are not eligible to participate in the 2000 Option Plan. The 2000 Option Plan may be administered by the Board of Directors or a committee consisting of two or more Non-Employee Directors, as defined by Rule 16(b) of the Securities Exchange Act of 1934. The Compensation Committee administers the 2000 Option Plan. Subject to the terms of the 2000 Option Plan, the Board of Directors or the Committee may determine and designate those employees and consultants who are to be granted stock options under the 2000 Option Plan , 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 or the Committee also, subject to the express provisions of the 2000 Option Plan, has the authority to interpret the 2000 Option Plan and to prescribe, amend and rescind the rules and regulations relating to the 2000 Option Plan. Only non-qualified stock options may be granted under the terms of the 2000 Option Plan. The exercise price for the options granted under the 2000 Option Plan will not be less than 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 2001 130,250 options were granted under the plan with exercise prices of $18.33, $14.62 and $9.88 and 169,750 options remain available for grant.
2000 Key Employee Stock Option Plan:
In November 2000, the Company's stockholders approved the 2000 Key Employee Stock Option Plan (the "2000 Key Employee Plan") under which key employees and officers of the Company, its subsidiaries and affiliates may be granted options to purchase an aggregate of 600,000 shares of the Company's Common Stock, as adjusted for a three for two stock split. The 2000 Key Employee Plan may be administered by the Board of Directors or a compensation committee, consisting of two or more members of the Board of Directors who are Non-Employee Directors, as defined by Rule 16(b) of the Securities Exchange Act of 1934. Our Compensation Committee administers the 2000 Key Employee Plan. Subject to the terms of the 2000 Key Employee Plan, the Board of Directors or the Committee may determine and designate those employees and consultants who are to be granted stock options under the 2000 Key Employee 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 or the Committee shall also, subject to the express provisions of the 2000 Key Employee Plan, have the authority to interpret the 2000
Key Employee Plan and to prescribe, amend and rescind the rules and regulations relating to the 2000 Key Employee Plan. Only non-qualified stock options may be granted under the terms of the 2000 Key Employee Plan. The exercise price for the options granted under the 2000 Key Employee Plan will not be less than 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 our capital. During fiscal 2001 no options were granted under the plan and 600,000 options remain available for grant.
Outside Director Stock Option Plan:
In September 1994, the Company's stockholders approved the Outside Directors Stock Option Plan (the "Director Plan") which covers 236,250 shares of the Company's Common Stock, as adjusted for a 5% stock dividend and a three for two stock split. The primary purposes of the Director Plan are to attract and retain well-qualified persons for service as directors of the Company and to provide such outside directors with the opportunity to increase their proprietary interest in the Company's continued success and further align their interests with the interests of the stockholders of the Company through the grant of options to purchase shares of the Company's Common Stock. At February 28, 2001, there are 84,150 director options outstanding and no options remain available for grant.
All directors of the Company who are not employees of the Company were eligible to participate in the Director Plan.
The Compensation Committee of the Board of Directors has the responsibility and authority to administer and interpret the provisions of the Director Plan. The Compensation Committee shall appropriately adjust the number of shares for which awards may be granted pursuant to the Director Plan in the event of reorganization, recapitalization, stock split, reverse stock split, stock dividend, exchange or combination of shares, merger, consolidation, rights offering, or any change in capitalization.
Under the Director Plan each non-employee Director then serving received, on June 1 of each year from 1994 through 1999, 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.
ITEM 11. EXECUTIVE COMPENSATION (Continued):
2000 Outside Directors' Stock Option Plan:
In November 2000, the Company's stockholders approved the 2000 Outside Directors' Stock Option Plan (the "2000 Director Plan") which covers 210,000 shares of the Company's Common Stock, as adjusted for a three for two stock split. The primary purposes of the 2000 Director Plan are to attract and retain highly skilled individuals as directors of the Company, to provide additional incentive to such outside directors to serve as directors and to encourage their continued service on the Board of Directors. At February 28, 2001, there are 60,000 director options outstanding and 150,000 options remain available for grant.
All directors of the Company who are not employees of the Company, of which there are four, are eligible to participate in the Director Plan.
The Board of Directors has the responsibility and authority to administer and interpret the provisions of the 2000 Director Plan. The Board of Directors of the Company may at any time amend, suspend or discontinue the 2000 Director Plan but no such action shall adversely affect any outstanding option, however, without the consent of the optionee that holds such option. 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 of the Company, the number of shares covered by each outstanding option, the number of shares authorized under the 2000 Director Plan as well as the exercise price of each outstanding option shall be appropriately adjusted.
Under the Director Plan, on November 9, 2000 each non-employee Director then serving received options to purchase 15,000 shares of Common Stock at a price of $14.62 per share (the price of shares of Common Stock on November 9, 2000) and on the June 1 of each subsequent year each non-employee director then serving has or will be granted options to purchase 15,000 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.
ITEM 11. EXECUTIVE COMPENSATION (Continued):
Summary of Fiscal 2001 Stock Option Grants:
During fiscal 2001, the Company granted options to purchase 112,500 shares to Mr. Nadata, 97,500 shares to Mr. Schuster, 82,500 shares to Mr. Lubman and 15,000 shares to Mr. Durando at a price of $10.71 per share, options to purchase 15,000 shares to each of Messrs. Blau, Gardner, Polimeni and Siegel at a price of $14.62 per share.
Employee Stock Ownership Plan:
In January 1987, the Company adopted an Employee Stock Ownership Plan ("ESOP" or "Plan") which covers substantially all of the Company's employees. The ESOP is managed by three Trustees, Messrs. Lubman, Nadata and Schuster (the "Trustees"), who vote the securities held by the Plan (other than securities of the Company which have been allocated to employees' accounts).
The annual contributions to the Plan are to be in such amounts as the Board of Directors in its sole discretion shall determine. Each employee who participates in the Plan has a separate account and the annual contribution by the Company to an employee's account is not permitted to exceed the lesser of $30,000 (or such other limit as may be the maximum permissible pursuant to the provisions of Section 415 of the Internal Revenue Code and Regulations issued 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.
All contributions to the Plan are invested in the Company's securities (except for temporary investments), the Trustees having the right to purchase the Company's securities on behalf of employees. The Trustees are considered the stockholder for the purpose of exercising all owners' and stockholders' rights, with respect to the Company's securities held in the Plan, except for voting rights which inure to the benefit of each employee who can vote all shares held in his account, even if said shares are not vested. Vesting is based upon an employee's years of service, with employees generally becoming fully vested after six years.
Benefits are payable to employees at retirement or upon death, disability or termination of employment, with payments commencing no later than sixty days following the last day of the Plan year in which such event occurred. Subject to the right of the employee to demand payment in the form of the Company's Common Stock, all benefits are payable in cash or in Common Stock, at the discretion of the Trustees.
The Trustees are empowered to borrow funds for the purpose of purchasing the Company's securities. The securities so purchased are required to be held in an acquisition indebtedness account, to be released and made available for reallocation as principal is repaid. In October, 1999, the Company, on behalf of the ESOP, entered into a revolving credit agreement with its bank which provides for a $3,000,000 revolving line of credit at the bank's prime rate until October, 2003. Direct borrowings under this line of credit are payable in forty-eight equal monthly installments commencing with the fiscal period subsequent to such borrowings. At February 28, 2001, there were no amounts outstanding under this line of credit. At February 28, 2001, the ESOP owned 602,130 shares at an average price of approximately $2.40 per share.
ITEM 11. EXECUTIVE COMPENSATION (Continued):
401(k) Savings Plan
The Company sponsors a retirement plan intended to be qualified under Section 401(k) of the Internal Revenue 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 ($10,500 in calendar 2000). Company contributions are discretionary. Effective with the plan year ended February 28, 2001, 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, 2001 approximately 250 employees had elected to participate in the plan. For the fiscal year ended February 28, 2001, the Company contributed approximately $117,968 to the plan, of which $9,561 was a matching contribution of $2,587 for each of Mr. Lubman, Mr. Nadata, Mr. Schuster and $1,800 for Mr. Durando.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The following table sets forth, as of May 1, 2001, 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 solely 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.
NOTES: - ----- (*) Less than 1% of the Company's outstanding stock. (1) Includes options exercisable within 60 days for 25,218 shares of Common Stock under the Company's 1998 Stock Option Plan and the 1994 Stock Option Plan. (2) Includes 9,180 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 84,500 shares of common stock for Mr. Gardner, 5000 for Mr. Blau , 9,650 shares for Mr. Polimeni and 5,000 shares for Mr. Siegel under the Company's Outside Director Stock Option Plan. (4) Includes options exercisable within 60 days for 400,833 shares of common stock for Mr. Lubman, 434,208 for Mr. Schuster and 477,082 shares for Mr. Nadata under the Company's 1998 Stock Option Plan and the 1994 Stock Option Plan. (5) Includes 24,743 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) World Fin. Ctr., North Tower, 250 Vessey St., N.Y., N.Y. 10381
ITEM 13.
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, 2001, the Company paid $166,513 in legal fees to Blau, Kramer, Wactlar & Lieberman, P.C.
For the fiscal year ended February 28, 2001, the Company received an aggregate $493,000 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, 2001, the Company received an aggregate $1,005,000 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.
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:
(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 Quarterly Report on Form 10-Q for the Quarter ended November 30, 2000).
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)
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).
10.1 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).
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(c) Exhibits (continued):
EXHIBIT NUMBER DESCRIPTION ------------------------------------------------------------------------ 10.2 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).
10.3 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).
10.4 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 Indemnity Agreements Dated May 23, 1997 between the Company and Messrs. Blau, Durando, Gardner, Lubman, Nadata and Schuster (incorporated by reference to Exhibit 10.19 to Form 10-Q for the quarter ended May 31, 1997)
10.10 Revolving Credit Agreement dated October 18,2000 between the Company and six banks: Mellon Bank, N.A., European American Bank, HSBC Bank USA, Fleet Bank, The Chase Manhattan Bank and The Bank of New York (Incorporated by reference to Exhibit 10.13 to form 10Q for the quarter ended November 30,2000).
10.11 1998 Stock Option Plan, as amended (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, No.333-82805).
10.12 2000 Stock Option Plan (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8, No.333-51188).
10.13 2000 Key Employee Stock Option Plan (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 No. 333-51192).
10.14 2000 Outside Directors' Stock Option Plan (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 No.333-51190).
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K:
(d) Exhibits (continued):
EXHIBIT NUMBER DESCRIPTION ------------------------------------------------------------------------
11. Computation of Per Share Earnings
22. The following is a list of the Company's subsidiaries:
State or Name Country of Incorporation ------------------------------------- ---------------
NIC Components Corp. New York NIC Eurotech Limited United Kingdom Nu Horizons International Corp. New York Nu Visions Manufacturing, Inc. Massachusetts Nu Horizons/Merit Electronics Corp. Delaware Nu Horizons Eurotech Limited United Kingdom Titan Logistics Corp. New York NIC Components Asia PTE.LTD. Singapore Nu Horizons Asia PTE.LTD. Singapore
23. Accountant's Consent
99. Additional Exhibit
Accountant's Consent --------------------
We consent to the incorporation by reference in Registration Statement numbers 333-79561, 333-82805, 33-88952, 33-88958, 333-51188, 333-51190 and 333-51192 on Form S-8 of our opinion dated May 7, 2001 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, 2001.
/s/ LAZAR LEVINE & FELIX LLP -------------------------------- LAZAR LEVINE & FELIX LLP Certified Public Accountants
New York, New York May 24, 2001
99. Additional Exhibit: ------------------
The following undertakings are incorporated by reference into the Company's Registration Statements on Form S-8 (Registration Nos. 33-88952, 33-88958, 333- 79561, 333-82805, 333-51188, 333-51190 and 333-51192).
(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, 2001
(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 24, 2001 -------------------------- Irving Lubman Chief Operating Officer
By: /s/ ARTHUR NADATA President, Chief Executive May 24, 2001 -------------------------- Arthur Nadata Officer and Director
By: /s/ RICHARD SCHUSTER Vice President, Secretary May 24, 2001 -------------------------- Richard Schuster and Director
By: /s/ PAUL DURANDO Vice President, Finance, May 24, 2001 -------------------------- Paul Durando Treasurer and Director
By: /s/ HARVEY R. BLAU Director May 24, 2001 -------------------------- Harvey R. Blau
By: /s/ HERBERT M. GARDNER Director May 24, 2001 -------------------------- Herbert M. Gardner
By: /s/ DOMINIC A. POLIMENI Director May 24, 2001 -------------------------- Dominic A. Polimeni
By: /s/ DAVID SIEGEL Director May 24, 2001 -------------------------- David Siegel
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
EXHIBIT INDEX
to
FORM 10-K
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2001
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